With stricter rules and regulations, the Securities Exchange Board of India is on a spree to reject the draft IPO papers of the companies. The exchange board has rejected the draft papers of 6 companies, including Lava International. The reason for such a high rejection rate is attributed to the adoption of strict rules and regulations amidst the rising faults by the companies in the filing process and poor listing of the IPOs of some reputed names, including Paytm and Naayka.
Six companies filed their draft papers for IPOs between September 2021 and May 2022, and the board returned their papers between January-March, 2023. What could have been the probable reason for such a high rejection rate by SEBI? What could be the probable reasons for such rigid rules by the exchange board?
A Red Cross For Lava International’s IPO
The home-grown smartphone provider has not been untouched by SEBI’s strict policy regulations. The company was asked to refile the papers after making the said changes in the documents. This move will put a toll on the upcoming Lava International IPO and will bring about significant changes in the Lava International share price.
The company filed a draft red herring prospectus (DRHP) with the exchange board in September 2021 and faced disappointment when the board returned the papers on January 13, 2023, and asked the company to refile the documents. Lava International had planned to raise Rs. 500 crores by issuing fresh shares and 4,37,27,603 equity shares by an offer for sale. The OFS includes a sale of upto:
- 1.25 crore equity shares by Hari Om Rai
- 31.35 lakh shares by Shailendra Nath Rai
- 78.38 lakh shares each by Sunil Bhalla and Vishal Sehgal
- 1.13 crore shares by Unic Memory Technology
- 9.75 lakh shares by Tupperware Kitchenware
The Securities Exchange Board Of India has asked Lava International to refile the papers but has not specified any specific reason for the decision. This may lead to a shift in the plans of the company to float its IPO. Until the IPO is approved, you can buy Lava International unlisted shares in the grey market.
Red Signal To IPO Of 5 Other Companies
Amidst the rising standards and rigid rules by SEBI, six companies had to refile and resubmit their documents after facing rejection due to various reasons, be it incomplete documentation or a loophole in the financial figures.
Following are the six companies that faced rejection BY SEBI:
BVG India Ltd: After filing the DRHP in September 2021, the company planned on raising Rs. 200 crores by the sale of fresh issues and an offer for the sale of Rs.71,96,214. The company’s plans of floating the IPO got shattered when the exchange board showed a red signal to the company’s papers.
Fincare Small Finance Bank: A major setback was faced by FSFB, as the company planned to raise Rs 1,330 crore via the IPO route but faced rejection by SEBI after it refiled the papers in August.
Oravel Stays: The parent company of the famous OYO rooms is also included in the list of the companies that got a red signal from the exchange board ahead of the plea by Zostel to suspend the IPO, which planned to raise $1.2 billion
Go Digit General Insurance Ltd: After filing the papers in August 2022, the company’s IPO faced rejection based on SEBI’s Issuance of Capital and Disclosure Requirements Rules, and the company refiled its papers on January 30, considering the amendments.
Paymate India: The B2B payments service provider wanted to raise Rs 1500 crore through the IPO route, out of which the fresh sale comprises Rs. 1125 and a sale of Rs75 crore by the existing shareholders. The plans were halted after SEBI rejected the IPO papers and asked the service provider to resubmit them after submitting the system audit report to RBI.
The Reason Behind The Rejections?
The stock market’s watchdog has made its policies and regulations stricter and has made it clear that it will not tolerate any flaws and discrepancies in the paperwork that may lead to a faulty performance of the company in the primary market. SEBI wanted to convey a strong message to the newcomers to comply fully with rules and regulations, which includes furnishing the right financial details and disclosing all the necessary information before drafting the final papers. SEBI has made it clear that the company should prepare complete documents along with clearing the pending litigations and other regulations, including capital structure fundraising objective, financial performance and business model. These regulations mainly aim to manage and mitigate the unforeseen risk and problems associated with the stock market. SEBI does not want to take any chances and repeat what happened with the IPOs of significant stocks like Naayka and Paytm.