IPOs In 2025: Investors track all announcements related to Initial Public Offerings (IPOs) to look for new opportunities. Often investors also track the filing of Draft Red Herring Prospectuses (DRHP) by companies to know more about their public offer before it opens for subscription.
Increasingly new companies that are opting to raise money via public issues are choosing the ‘Confidential Route’. However many investors are often unclear about what the ‘Confidential Route’ entails. Here’s a look at what the confidential filing route means, why companies opt for it and what are some of its disadvantages:
What Is The Confidential IPO Filing Route
The Confidential Filing mechanism is an option provided by Sebi to companies which plan to go public. In this process, a company files its DRHP but the prospectus is not made public. The regulator makes the DRHP public only when a company is completely certain that it wishes to proceed with its public issue.
The capital market regulator introduced the confidential pre-filing route in November, 2022. The alternative method was introduced to increase flexibility and ease for companies which plan to tap the primary market. The method was introduced keeping in mind smaller companies and startups which might be sensitive about early disclosures.
Who Can Use The Confidential Filing Route
All companies which plan to raise money from the capital market and are eligible to go public in India can choose the confidential filing method. Startups, new-age tech firms and companies with complex business models generally opt for this method of filing their DRHP.
Why Do Companies Opt For Confidential Filing Route
While there can be multiple reasons for filing the DRHP via the confidential method companies generally do so to protect sensitive business information. In the conventional method of filing for an IPO the DRHP is released to the public and it contains a lot of details about the public offer and the company itself. Some companies might not want to make those disclosures if they do not wish to proceed with the IPO ultimately amid evolving market conditions.
The risk of exposing sensitive information becomes prevalent because Sebi norms mandate that the DRHP has to have the business plan, risks, legal cases and other information about the company. Competing companies may gain access to this information via the DRHP and use it to their advantage.
The confidential filing method also helps companies gauge the mood of the market as it allows companies to decide whether to proceed with the IPO by seeing the buzz around it.
Additionally filling for an IPO under the confidential method helps in lowering public scrutiny of the DRHP during early stages, lowering the risk to the reputation of the company if the plan to go ahead with the public issue is shelved.
Disadvantages of Confidential Filing
While the confidential filing method has its advantages, there are several disadvantages as well. Typically the filing process under this method can take more time compared to the conventional method. Often this longer time period results in higher costs for the company.
On the other hand, investors who are interested in investing in a company’s IPO do not get details about the issue in due time. As a result, when the RHP is finally released, the investor might not get a big enough window to study the draft papers before investing. Additionally, a longer filing period increases the risk of insider trading as people might gain access to sensitive information.
To conclude, only eight companies have opted for the confidential method so far these include Tata Capital, boAt, Swiggy, Vishal Mega Mart, PhysicsWallah, Tata Play and Oravel Stays (OYO).
The confidential filing method is becoming more and more relevant in India even though it has been a common practice in other markets such as the UK, US, and Canada. Given the current volatility in the market, the confidential filing method can help companies launch their public issues when market conditions are favourable.
