Complaints Delaying Critical Clearances For Ipos Ranging From Paytm To Oyo
Will there be any delays in Paytm and Oyo approvals? Will India's record-breaking run be slowed by initial public offerings (IPOs)? What exactly are the problems? And how long does it usually take for an IPO to clear?
This year, India is one of the countries driving the global IPO boom. According to a recent report from consulting firm EY, 72 Indian companies raised $9.7 billion through initial public offerings (IPOs) in the first nine months of 2021, the largest amount raised in two decades. Last year, 43 Indian companies raised a total of $4.1 billion in funding.
Between October and December this year, up to 35 more companies want to go public in the primary markets, aiming to raise a total of $10 billion.
However, some major difficulties have been plagued by complaints and lawsuits, threatening to push back their IPO dates. Paytm, a digital payments company, OYO, a hospitality startup, and Adani Wilmar, an edible oil company, are all examples. Paytm submitted a Draft Red Herring Prospectus to the Securities and Exchange Board of India in July, but it has yet to receive approval three months later.
The company is looking to raise to $2.2 billion in one of the country's largest stock market IPOs, which could value up to $25 billion. In the instance of Paytm, a 71-year-old former director, Ashok Kumar Saxena, has petitioned SEBI to halt the IPO, claiming to be a co-founder who invested in the firm two decades ago but never received the shares. In Paytm's prospectus, his complaint to the Delhi Police is listed under "criminal actions." Paytm responded by claiming that the complaint was an attempt to harass the company and that no definite agreement for Saxena's share distribution had been reached. Meanwhile, backpacker hostel company Zostel has asked SEBI to reject OYO’ application for a $1.2-billion IPO because of a legal dispute between them.
The two companies are embroiled in a legal battle over a transaction struck seven years ago. Under the terms of the agreement, OYO would purchase certain of Zostel's operations, and Zostel stockholders would receive a 7% ownership in OYO. Even though the agreement fell through, Zostel claims the shareholding and has moved a Delhi court to prevent OYO from changing its shareholder structure.
A Supreme Court-appointed arbitrator found in favour of Zostel, which was a blow for OYO. The order is currently being challenged by OYO. According to experts, such disagreements could result in regulatory inquiries, and the approval process could be put on hold until the complaints are resolved. The $600-million IPO of edible oil maker Adani Wilmar is also facing a delay after SEBI in August kept the share sale in ‘abeyance’.
While the regulator did not clarify further, reports stated that this was linked to investigations in other Adani Group companies. SEBI reportedly resumed the approval process two weeks ago. The primary issuances of Star Health Insurance and PolicyBazaar are also awaiting approval for the past two months. An analysis of data provided by PRIME Database shows that SEBI takes a little over two months on average to clear a DRHP.
Previously, too, there have been instances of complaints and regulatory challenges delaying the IPO clearance process. For instance, the issue of mutual fund transfer agency CAMS took 190 days to obtain SEBI approval because of a controversy surrounding NSE’s shareholding in the company. In the case of UTI Mutual Fund, the approval took 180 days amid disagreement between its major shareholders. Since 2017, Likhitha Infrastructure, Barbeque Nation Hospitality, Mazagon Dock Shipbuilders, and Shyam Metalics have all had extended clearance processes.
IRCTC, Mrs Bectors Food Specialities, RailTel, Macrotech Developers, and Indian Railway Finance Corporation are among the recent IPOs that received speedy approval. To take advantage of the current strong market environment, companies such as OYO Rooms are speeding up their IPO process. However, if market sentiment goes negative, any delays in the approval procedure might significantly affect their listing aspirations.