Indian issuers, promoters and investors are yet to warm up to the framework for confidential filing for public share sales, nearly 10 months after it was introduced.

Tata Play and Oravel Stays are the only two companies that have taken to this route. New age businesses, rather than traditional companies, are more likely to opt for this route, except for issuers specifically looking at a longer validity period from the date of initial observations, said experts.

New age tech companies such as Navi Technologies, Yatra Online, Honasa Consumer and Go Digit General Insurance, however, have all filed their offer documents through the regular route. Softbank-backed food delivery giant Swiggy may be exploring this route for its IPO next year, according to reports.

New age companies

“Confidential filing can work well for new age companies where investor feedback is important for deciding on the valuations and the company wants to keep a lid on the financials and business model. Traditional companies don’t have much to gain as they can rely on the multiples of listed peers to arrive at the right valuation,” said Prashant Gupta, Partner, Shardul Amarchand Mangaldas & Co.

Confidential filing could be especially useful in protecting sensitive information related to targeted acquisitions and litigation from the public until launch visibility. Companies are allowed to market their issuances with qualified institutional buyers from the time of pre-filing till the initial observations.

“This route is a little more time consuming, so most traditional companies would be happy to go with the regular filing. It’s a great step by the regulator but it’s too early to say if it gets wide acceptance,” said Pranjal Srivastava, Partner - Investment Banking, Centrum Capital.

IPO procedure

In regular filing, the approval remains valid for 12 months after SEBI gives it final observations. In confidential filing, this is valid for 18 months from the date of SEBI observations on the confidential draft prospectus.

“Once you get the initial SEBI observations, you can wait for a much longer period until you are ready to hit the market, which is very helpful in a volatile market,” said Gupta.

On the flip side, confidential filing adds about 45 days to the IPO process, which can be a dampener in volatile conditions as companies can miss the IPO window, said experts. After the public draft prospectus is filed, the company has to wait for 21 days for public comments and then refile the offer document with SEBI.

This could mean the company may have to go through an extra audit as financials are only valid for a certain period of time. This can result in additional time and cost, especially for smaller companies.

Companies have to make a public announcement in three newspapers within two days of pre-filing without providing details related to the issue. This, market players believe, increases the possibility of the document getting leaked and may defeat the purpose of a confidential filing.

SEBI could consider crunching the timelines in a confidential filing so that it’s competitive to a regular filing, said a legal expert.

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