SEBI returns over 10 IPO papers citing omissions; strong signal to merchant bankers: Report

The Securities and Exchange Board of India (SEBI) is returning draft papers of initial public offerings (IPOs) to merchant bankers citing reasons for the lack of due diligence or disclosures, a strong signal to the investment bankers community, Moneycontrol reported on Monday, July 29, quoting anonymous sources. 

Garuda Construction, Jaykay Enterprises, KRN Heat Exchange, Diffusion Engineers, Shree Tirupati Balaji Agro Trading, Gretex Broking and Stallion Fluorochemicals, etc., are some of the IPO papers that SEBI has returned, the report said. 

SEBI returned Vishal Mega Mart and Avanse Financial Services IPO draft documents on technical grounds, Moneycontrol reported on July 26.

In the last few months, SEBI has returned more than 10 draft red herring prospectus (DRHPs) to the merchant bankers, according to the report.

The corporates have the option to refile their DRHPs, this will result in an increase in the timeline for the completion of the IPO as the regulator sends back the papers on grounds of lack of due diligence or disclosures. 

The capital market regulator may cite “technical grounds” as the reason for the return of the DRHPs, but often it is due to minor omissions or oversights. The inadequacy can be resolved through communications with the regulator and the investment bankers, people in the know told Moneycontrol.

“If you go by the rulebook then a prospectus can also be returned if there are language issues like lack of properly framed sentences or use of passive voice and not active voice,” said one of the anonymous sources quoted in the report.

The SEBI has issued circular in February that has laid out the guidelines on the basis of which the DRHP's can be returned. The guidelines are simple, clear, and a good move related to the disclosure risk, there is scope to review some of the criteria laid down in the circular, said an anonymous source, according to the news report.

Merchant bankers said that the regulator's scrutiny has led to the DRHPs getting returned for minor reasons, but other views suggest that SEBI is on a path to ensure only DRHPs fulfil all criteria and disclosures are submitted to increase the speed of the entire process, the report said.