Tata Play becomes first firm to file secret documents with SEBI for an IPO

Tata Play (formerly known as Tata Sky) is the first business to pre-file for an initial public offering (IPO). The Securities and Exchange Board of India (Sebi) received the draught red herring prospectus (DRHP) from the direct-to-home platform on November 29, the Tata group company announced through a newspaper ad.

Only last month did the capital markets regulator amend the Issue of the Capital and Disclosure Requirements, bringing to the domestic markets the concept of confidential filings, which is well-liked in the US markets.

An unlisted company is permitted to keep its offer document confidential under this optional mechanism until it solidifies its IPO plan.

The offer document for Tata Play won’t be available to the general public; instead, it will only be available for review by the regulator and exchanges. Once Sebi issues its observations and the company decides to begin its IPO, the company will then need to file an updated DRHP, which will be a public document.

Market sources claim that The Walt Disney Company-led company is considering an IPO of about Rs 3,000 crore, which may include both secondary and new share sales.

Investment bankers predicted that more businesses would use the pre-filing strategy.

“The purpose of this route was to give companies the ability to keep crucial business information under wraps until it was clear when the IPO would begin. From that angle, I do anticipate that many businesses, including those in the new-age technology sector, will choose this path, according to Pranav Haldea, managing director of PRIME Database.

Global businesses including Snapchat, Robinhood, SurveyMonkey, and LINE have opted for secret filing in recent years.

According to investment bankers, the freedom of information flow is the main incentive for businesses to file confidentially. They argue that by withholding vital information from their rivals, it might be abused.

The main reason is that disclosures are kept private until Sebi approves them. The competitive positioning, group companies, and linked party disclosures are unknown to the general public. Because of this, it will be well-liked. When you file, you frequently have no assurance that you will receive a response or even a valuation, according to Pranjal Srivastava, partner-ECM at Centrum Capital.

He predicted that newer businesses, as opposed to more established ones, would be more likely to follow this path.

Companies using the pre-filing route are now able to market their product to institutional investors in order to determine demand and set a fair price. To enable issuers to conduct limited purpose marketing to eligible institutional buyers, the so-called “test the water” (TTW) clause was created (QIBs).

No additional information may be shared with potential investors during the TTW exercise with QIBs outside of what is contained in the pre-filed DRHP.

Companies using the pre-filing method have another important relaxation: they can postpone converting their outstanding warrants until after Sebi publishes its observations. At the time of filing its DRHP, a company had to immediately convert all of its outstanding warrants into equity shares.