In this article, we will be discussing one interesting concept of Initial Public Offering (IPO) i.e., Confidential IPO. What is this Confidential IPO and is it safe? Let’s understand more about this IPO in detail in this article as we move ahead.
Process of IPO:
Any company that wishes to get public and get listed in the stock market first needs to file the prospectus with the Securities and Exchange Board of India (SEBI).
The prospectus includes all the key details of the company regarding the industry, key reasons for issuing, about the company, and others. This document is also referred to as Draft Red Herring Prospectus (DRHP).
Confidential IPO:
The general process of the IPO of a company includes filing DRHP which is also known as the Pre-Filing of the IPO.
SEBI approves the issues in the next few months generally 2-3 months. Post approval, the company might change the issue size or even they might cancel the IPO as well.
Further, the company needs to issue a final prospectus which will include the finalized details about the IPO.
Now coming to Confidential IPO, here the pre-filing of the IPO will not be a public document. The company will notify that they have pre-filed for the IPO and will review the investor's response to the same.
Countries like UK, the USA, etc. are already using this mode of IPO quite regularly. Snapchat, Airbnb, etc. have used this mode of IPO.
Why Confidential IPO is Introduced?
The Confidential IPO helps the company to evaluate the demand for their IPO.
Taking a real example, Pharmeasy filed for an IPO in November 2021 and by February 2022, they even received SEBI approval. Later on, the company decided not to proceed with the IPO.
Now since a lot of information about the company has been disclosed already due to the issuance of DRHP, lots of information is already public and the competitors might utilize this information and take advantage of this.
Even marketing of the IPO in case of a confidential IPO has limited marketing scope.
What Should Investors Do:
The advantage of a confidential IPO is that the company will not have to deal with any outside pressures from investors and analysts until it decides to go public. This can be helpful if the company has not yet developed a solid business model or if it is going through some other major changes. In India, the concept of confidential IPO is quite new.
Disclaimer: The information here is provided for reference purposes only and should not be misconstrued as investment advice. Under no circumstances does this information represent are commendation to buy or sell stocks or MF.
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