SEBI’s New Plan to Speed Up IPOs and Rights Issues for Faster Market Access

At the 21st Annual Capital Markets Conference (CAPAM) hosted by FICCI, the SEBI Chairperson made two important suggestions. The first suggestion was about reducing the “time to market.” Markets are unpredictable, so it’s important for companies to access the market quickly. While processes for rights issues, Qualified Institutional Placements (QIPs), and preferential issues have become efficient, Initial Public Offerings (IPOs) still take a long time, though it’s less than before.

Streamlining IPO Processes

Filing for an IPO in India involves submitting a Draft Red Herring Prospectus (DRHP) to SEBI, which requires meeting extensive disclosure requirements. After this, companies must get in-principle approval from the stock exchanges and address SEBI’s observations. Once these are incorporated, the issuer can file the Red Herring Prospectus (RHP) based on market conditions and feedback. This whole process typically takes 60 to 90 days after the initial DRHP submission. The regulator has made significant strides in reducing the IPO timeline.

Simplifying the DRHP with AI

To further speed up the IPO process, SEBI plans to simplify the DRHP by creating a fill-in-the-blanks template. This approach aims to make the document precise and standardized across different DRHPs. This initiative will use technological tools like Artificial Intelligence (AI) to streamline processing, reduce listing approval time, cut costs, and enhance overall market efficiency.

Enhancing Follow-On Fundraising

The second initiative announced by the Chairperson is related to follow-on fundraising. Once a company is listed, it can raise more capital through a rights issue, QIP, or preferential allotment. Follow-on offerings are sensitive to market timing because the stock price fluctuates continuously. This makes deal pricing dynamic, with precise timing being crucial. While the regulatory framework has improved significantly, there is still room for further enhancement.

Combining Rights Issues and Preferential Allotments

Many companies prefer raising funds through rights issues or preferential allotments. For FY24, equity issuance via rights issues was approximately Rs 15,110 crore, while preferential allotments amounted to around Rs 45,100 crore. To streamline these processes further, SEBI plans to introduce a combined rights issue and preferential allotment product. This innovation will use a simple two-page document, reducing the end-to-end timeline to 23 days from the current 42 days for preferential allotments. Creating a clear and straightforward framework for follow-on capital raises is crucial for the markets.

In summary, any initiative to improve market efficiency is very welcome!