SEBI has backtracked on its advisory asking that special rights of shareholders be extinguished before filing the updated draft red herring prospectus (UDRHP).

As reported by businessline, investment bankers had taken up this issue with the regulator earlier this month.

An email sent to bankers on Monday, said that the paragraph 13 of the advisory would be modified based on the feedback received from the industry and read as: “All special rights granted to shareholders under AoA, SHA or through any arrangement or agreement shall lapse on the date of listing.”

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The regulator’s 31-point advisory, sent out a few weeks ago, had asked bankers to ensure that any entity or person having any special right under Articles of Association or shareholder’s agreement (SHA) be cancelled before the UDRHP. “SEBI has gone back on its recent directive, now allowing special rights to continue till actual listing. A welcome step, no doubt. However, this back and forth could be avoided if changes are brought in through amendments to regulations as opposed to general “directions”, since for changes in regulations, SEBI typically follows a prior public consultative process,” said Manshoor Nazki, Partner, IndusLaw.

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 is listed.

In the past few months, however, the regulator has been insisting on cancelling these rights before the filing of red herring prospectus. This could mean that the shareholders, including private equity players, would forfeit their special rights even if the IPO does not go through.

In the event that the IPO does not materialise, getting back the special rights for the shareholders would have been difficult and at the discretion of the company.

The aim of ending special rights before the IPO may have been to deter PE players from influencing IPO pricing.