The Securities and Exchange Board of India (SEBI) is returning draft IPO papers to merchant bankers, citing inadequate due diligence or disclosure as reasons, according to Moneycontrol’s report on July 29. This move sends a strong message to the investment banking community.
Among the IPOs affected are those from Garuda Construction, Jaykay Enterprises, KRN Heat Exchange, Diffusion Engineers, Shree Tirupati Balaji Agro Trading, Gretex Broking, and Stallion Fluorochemicals. Additionally, SEBI has returned the draft documents for Vishal Mega Mart and Avanse Financial Services on technical grounds.
In recent months, SEBI has returned over 10 draft red herring prospectuses (DRHPs) to merchant bankers. Companies have the option to refile their DRHPs, but this will extend the timeline for completing the IPO process.
Although SEBI often cites “technical grounds” for returning DRHPs, the reasons frequently involve minor omissions or oversights, which can be addressed through communication with the regulator and investment bankers. Issues can range from language and formatting to more substantive content concerns.
A SEBI circular issued in February outlined the guidelines for returning DRHPs, aiming to improve disclosure quality and speed up the IPO process. While merchant bankers have noted that the increased scrutiny has led to returns for minor reasons, others believe SEBI’s approach is intended to ensure that all DRHPs meet the necessary criteria and disclosures.
