Online investment platform Groww filed its draft red herring prospectus (DRHP) with the market regulator for its initial public offering (IPO) through the confidential route, according to a public notice dated May 26.
More and more tech firms are choosing to opt for a confidential filing, but what does it mean, and why is it used? ETtech explains.
Confidential IPO route
A confidential IPO filing allows a company to submit its IPO registration documents to the Securities and Exchange Board of India (Sebi) without immediate public disclosure.
This mechanism was introduced by Sebi in November 2022 as an alternative route for companies looking to list on the bourses. It was widely practiced in markets like the US, the UK and Canada for a long time.
This doesn't mean that the public will not know about the issue at all. Only the draft papers, containing sensitive information relating to the company, will be released later.
Why do companies choose this?
Privacy: The main aim is for companies to submit their papers to the market watchdog so that sensitive financial, operational, and strategic information is kept confidential.
This prevents competitors from getting access to important business details. Sebi requires companies to detail key business details and future plans in the DHRP; a lot of this information is not otherwise available for private companies.
This is the key reason why startups and new-age tech firms choose the confidential route, as they have evolving business models.
Flexibility: Many companies rethink their IPO plans after filing draft papers. This option provides companies with greater flexibility to assess market conditions and decide the right time to formally launch their IPO. If markets turn unfavourable, companies have the option to delay or even withdraw their plans without public pressure or negative headlines, which often follow a public filing.
Regulatory feedback: Through a private filing, companies seek and address feedback from Sebi. This gives them time to work on their disclosures and ensure compliance before the document is made public.
What is the process?
Who has used this?
Since 2022, the following new-age companies have taken the confidential road to IPO:
More and more tech firms are choosing to opt for a confidential filing, but what does it mean, and why is it used? ETtech explains.
Confidential IPO route
A confidential IPO filing allows a company to submit its IPO registration documents to the Securities and Exchange Board of India (Sebi) without immediate public disclosure.
This mechanism was introduced by Sebi in November 2022 as an alternative route for companies looking to list on the bourses. It was widely practiced in markets like the US, the UK and Canada for a long time.
This doesn't mean that the public will not know about the issue at all. Only the draft papers, containing sensitive information relating to the company, will be released later.
Why do companies choose this?
Privacy: The main aim is for companies to submit their papers to the market watchdog so that sensitive financial, operational, and strategic information is kept confidential.
This prevents competitors from getting access to important business details. Sebi requires companies to detail key business details and future plans in the DHRP; a lot of this information is not otherwise available for private companies.
This is the key reason why startups and new-age tech firms choose the confidential route, as they have evolving business models.
Flexibility: Many companies rethink their IPO plans after filing draft papers. This option provides companies with greater flexibility to assess market conditions and decide the right time to formally launch their IPO. If markets turn unfavourable, companies have the option to delay or even withdraw their plans without public pressure or negative headlines, which often follow a public filing.
Regulatory feedback: Through a private filing, companies seek and address feedback from Sebi. This gives them time to work on their disclosures and ensure compliance before the document is made public.
What is the process?
- A company confidentially submits its draft documents through its merchant bankers to Sebi and the stock exchanges. This is not made public at this stage.
- The company is required to make a public announcement within two days of filing, stating that they have filed the draft papers. This does not contain specific details of the proposed IPO.
- Companies use this time to gather limited feedback from qualified institutional buyers (QIBs) without any broad marketing for the filing.
- Sebi reviews the confidential DRHP and sends observations and queries to the company.
- After addressing Sebi's concerns, the company files the updated DRHP-I (UDRHP-I). This is then made public.
Who has used this?
Since 2022, the following new-age companies have taken the confidential road to IPO:
- Groww
- Shiprocket
- Imagine Marketing, parent of wearables brand, Boat
- PhysicsWallah
- Swiggy
- Tata Play: Formerly Tata Sky, this was the first Indian company to use the confidential filing option in December 2022