Investment bankers have held closed door meetings withcapital markets regulator SEBI to clear the air on the recent advisory sent by the regulator, said two people in the know.  The bankers have told SEBI about the issues that private equity players would face if special rights under articles of association or shareholders’ agreement are cancelled before filing the updated draft or red herring prospectus. This could mean that the private equity players will forfeit their special rights even if the IPO does not go through.

Until a few months ago, such rights were cancelled post listing — the objective being that all non-promoter shareholders should have equal rights once the company was listed.

Definition of promoter

The bankers have also laid bare the issues that will arise out of the expanded promoter definition for IPO-bound companies. Founders holding 10 per cent together will all be considered as promoters if they are key managerial personnel (KMP) or a director in the company. Even the immediate relative of the promoter will be classified as a promoter if s/he is on the company board or a KMP. Immediate relatives, who hold 10 per cent or more in the company, will also be deemed promoters.

Several immediate relatives that hold 10 per cent or more in Indian companies are not on the company board or involved in its management. Once part of the promoter group, it is not easy to declassify as a public shareholder. Bankers have also raised a number of issues which could be onerous to comply. This includes utilisation of pre-IPO proceeds towards issue objects; confirming if any of the investors in the company are directly or indirectly related with the book running lead managers and their associates; confirming and disclosing, along with justification, if the issuer company is in compliance with the Companies Act, 2013 with respect to issuance of securities since inception; and intimating the Registrar of Companies (RoC) about missing or untraceable RoC filings before filing the draft prospectus. An email sent to SEBI did not get an immediate response.