By Karan Marwah and Kunal Kapur
The market regulator is considering an overhaul of the IPO filing process, thus encouraging more companies to list on the stock exchanges. Karan Marwah & Kunal Kapur look at the challenges faced by enterprises & how the process can be made more efficient without compromising on the essentials
Need for simpler IPO documents
The current initial public offer (IPO) filing process is complex and time-consuming, often leading to delays and increased costs for firms. Simplifying the documents can streamline the process and make it more accessible for companies planning to list. This can ultimately foster a more vibrant and inclusive capital market. Additionally, a simplified process can enhance transparency and reduce the burden on regulatory bodies, allowing them to focus on more critical aspects of market regulation. The current regulations prescribe the required contents for an offering document. Companies have to apply judgement in interpreting the regulations and determining the exact content for their filings. By moving to an approach where the prospectus is templatised, the scope for applying judgement should reduce and the consistency and comparability of offering documents should be enhanced.
Rejection of applications
A significant number of IPO applications face rejection due to inconsistent information, significant regulatory non-compliance, company not having regulatory approvals, judicial intervention, etc. By providing clearer guidelines and reducing the complexity of the required details, the Securities and Exchange Board of India (Sebi) can help firms avoid common mistakes and increase the likelihood of successful IPO applications.
Impact of an unsuccessful filing
First, it can lead to a loss of credibility and reputation in the market, making it harder to attract future investors. Second, the company may face financial strain due to the high costs associated with preparing for the IPO, including legal, accounting, and marketing expenses. Additionally, an unsuccessful IPO can result in missed opportunities for growth, as the company may struggle to raise the necessary capital. The uncertainty and instability caused by a failed IPO can also impact employee morale and retention, further hindering the company’s operations.
Pain points in the current process
Common pain points include the extensive documentation required, the need for multiple revisions, and the lengthy approval times. These can be particularly daunting for companies with limited resources. The high costs associated with legal and compliance services further exacerbate the difficulties faced by these enterprises. Simplifying the process can alleviate these burdens and make it more feasible for a broader range of companies to consider going public. The current process often requires significant time and financial investment, which can be a barrier for certain enterprises. By streamlining the documentation and reducing the need for extensive revisions, Sebi can help these companies save time and resources, making the IPO process more accessible and attractive. The review process should also become more efficient.
A template-based approach can help
While Sebi plans to follow a consultative process to finalise the proposed changes to the offering documents, it has proposed to adopt a template-based approach with fill-in-the-blank sections. This can simplify the process while ensuring all necessary information is captured. Non-essential details can be streamlined, and as per the proposals a separate section can be included for any complexities, making the document both precise and comprehensive. Additionally, it can provide detailed guidelines to assist companies in better understanding the requirements. Leveraging technology, such as online submission portals with automated checks, can also reduce errors and improve the accuracy of the filings. By focusing on the most critical information, the process can be more user-friendly without compromising on the quality of the information provided.
How other countries have done this
The US uses a Form S-1 registration statement, which is a standardised document that helps to streamline the process. The US market regulator, the Securities and Exchange Commission, also provides extremely comprehensive guidance to companies related to the contents of the various filings and allows for consultations through the filing process to address any queries that companies may have.
Similarly, European countries have comprehensive guides and support systems to assist companies through the IPO journey. These measures include clear guidelines, template-based documents, and dedicated support teams to help companies navigate the complexities of the IPO process. Further, the UK has simplified the requirements for the prospectus, which is the key document for an IPO. The Financial Conduct Authority (FCA) provides clear guidelines and support throughout the IPO process. The UK has embraced digital solutions to streamline the IPO process. Sebi can take cues from these to implement best practices to enhance the efficiency and accessibility of the IPO filing process in India.
Marwah is partner and head, Capital Markets, Finance Advisory, KPMG in India and Kapur is a chartered accountant.
