IPO-Bound Companies: SEBI Sees Private Equity’s POV

Authors: Anirudha Sapre & Payaswini Upadhyay

What?

SEBI, in an advisory to merchant banks, has allowed for investor protection rights of a shareholder (such as board seat, veto, pre-emptive rights etc) to continue till the company is listed

SEBI’s earlier advisory [dated May 29] required removal of these rights from the contract and charter documents of the company before the updated DRHP (UDRHP) is filed

Investors were exposed to a scenario of holding their investment without these customary protections, if the company eventually fails to list after filing of UDRHP

Once annulled, these special rights can be restored into the charter only through a special resolution

Bottom Line

SEBI’s reversal comes on the back of market feedback, which stressed on the need for maintenance of these rights till the date of listing

Spring-back provisions in certain investor agreements provided for automatic resuscitation if listing didn’t materialise. However, enforceability of these provisions remained questionable

SEBI’s reversal provides relief to PE investors, who can now hold and exercise these minority protection rights without the stress of IPO uncertainty

Also relevant to note that SEBI has allowed for board rights and certain inter-se economic shareholder restrictions (such as ROFO etc) to survive post listing in the past, which could become difficult going forward

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