India Inc Embraces IPO Pre-Filings: Dalal Street Confidential

The Growing Trend of Pre-Filing IPOs in India

In recent times, several prominent companies in India have opted for the pre-filing route for their Initial Public Offerings (IPOs). Firms like Tata Play, Oyo, Swiggy, Vishal Mega Mart, Credila Financial Services, Indira IVF, PhysicsWallah, Tata Capital, and boAt have all chosen to file confidentially with the Securities and Exchange Board of India (SEBI) before going public. This trend, which gained traction in late 2022, seems to be gaining momentum, with a total of seven companies choosing this method last year alone.

Highlights:

• Companies like Tata Play, Oyo, Swiggy, and boAt have opted for pre-filing.

• The trend began with Tata Play in December 2022.

• Pre-filing IPOs are now a growing trend among Indian issuers.

The International Pre-Filing Trend

The pre-filing route isn’t new to global capital markets. It’s already well-established in jurisdictions such as the US, UK, Hong Kong, and Singapore, where companies have long used this method to keep their plans confidential until they are ready for a public offering.

Highlights:

• Pre-filing IPOs are common in the US, UK, Hong Kong, and Singapore.

• The practice is gaining popularity in India following its introduction in 2022.

Introduction of Pre-Filing in India

In November 2022, SEBI introduced the pre-filing mechanism in India, amending the Issue of Capital and Disclosure Requirements (ICDR) norms. This confidential filing route allows issuers to submit their draft offer documents to SEBI without making them public immediately. However, a public announcement must still be made after the pre-filing.

Highlights:

• SEBI introduced the pre-filing route in November 2022.

• The confidential filing process prevents immediate public disclosure of sensitive information.

Why Are Companies Choosing Pre-Filing?

One of the key reasons for the increasing popularity of pre-filing among Indian issuers is the flexibility it offers. Companies can keep commercially sensitive information confidential and assess the market conditions without prematurely exposing their plans to the public. This is particularly valuable when market conditions are volatile or uncertain.

Ajay Saraf, Executive Director of ICICI Securities, believes that pre-filing offers better market windows without exposing IPO plans to public scrutiny. Abhimanyu Bhattacharya, Partner at Khaitan & Co, adds that this route allows companies to “test the waters” with Qualified Institutional Buyers (QIBs) to refine pricing, size the offering, and potentially accelerate the IPO timeline if feedback is positive.

Highlights:

• Pre-filing allows confidentiality and flexibility.

• Companies can “test the waters” to refine their IPO strategy.

The Pre-Filing Process and Its Drawbacks

While pre-filing offers several advantages, the process is not without its challenges. It requires the preparation of four sets of offer documents, compared to three for the public filing process. The review process may also take longer, potentially adding 1-1.5 months to the timeline, and the costs can be higher due to the extended engagement with intermediaries and multiple rounds of document preparation.

Highlights:

• Pre-filing involves more extensive documentation and takes longer.

• The process may add 1-1.5 months to the IPO timeline.

Why New-Age Firms Prefer Pre-Filing

Pre-filing has become particularly popular among new-age companies, such as Oyo, Swiggy, PhysicsWallah, and boAt. These firms often have fast-evolving business models and volatile financials, which make them hesitant to go public too soon. Pre-filing allows them to adjust their positioning, metrics, and disclosures based on SEBI’s feedback, without the immediate public scrutiny that comes with a public filing.

Saraf explains that pre-filing offers “more flexibility” for startups, enabling them to “tweak positioning and metrics based on regulatory feedback.” This flexibility is especially beneficial for companies with rapidly changing business models or those with financials that may require careful explanation.

Highlights:

• New-age companies like Oyo, Swiggy, and PhysicsWallah prefer pre-filing for flexibility.

• Pre-filing allows startups to adjust financial disclosures and business models.

The Rules and Timing of Pre-Filing

Under the traditional IPO filing process, companies must launch their IPO within 12 months of SEBI’s final approval. However, with the pre-filing route, the issue must be launched within 18 months of SEBI’s approval, provided certain conditions are met. This extended timeline allows issuers more time to fine-tune the offering and address any issues with the shareholding structure or lock-in requirements.

Highlights:

• The pre-filing route offers a longer timeline of 18 months for IPO launch.

• Issuers have more time to address shareholding and lock-in issues.

Pre-Filing: Greater Freedom and Flexibility

Pre-filing provides issuers with greater freedom to make changes to the offering structure. For example, companies can modify up to 50% of the fresh issue, compared to the 20% allowed under the public filing route. This flexibility is particularly appealing in the current volatile market, where conditions can change rapidly.

Highlights:

• Pre-filing allows changes to the issue structure (up to 50% of the fresh issue).

• Greater flexibility is offered to adjust the offering as market conditions evolve.

The Future of Pre-Filing IPOs

In a volatile market environment, pre-filing offers IPO candidates greater flexibility and the opportunity to fine-tune their offering without public scrutiny. As more companies look for ways to navigate uncertain market conditions, the pre-filing route could become an increasingly popular choice.

Highlights:

• Pre-filing is gaining traction among Indian IPO candidates.

• Companies value the flexibility and confidentiality offered by this route.