Promoter identification is an important cornerstone of the regulations governing Initial Public Offerings (IPOs) in India. One of the key considerations for a private equity investor eyeing an IPO as an exit mechanism is whether an investment will ultimately result in it being identified as a promoter at the public issue stage.
IPOs are an important exit route for private equity (PE) investors in India and are governed by the Securities Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (ICDR Regulations) and the Companies Act, 2013. The ICDR Regulations require that promoters be clearly identified in the draft red herring prospectus. Further, to ensure that promoters have skin in the game after the IPO, the ICDR Regulations place various obligations on the promoters such as a 20% minimum shareholding in the post-issue share capital of the company and lock-in restriction of three years on such shareholding. There are also onerous disclosure requirements on promoters under the ICDR Regulations.
However, being identified as a promoter of an investee company (Company) may not be conducive for a PE investor especially for those investors targeting an IPO as an exit mechanism for their investment. Therefore, it is important for a PE investor to understand the key requirements to be classified as a promoter under the ICDR Regulations, including disclosure requirements relating to members of promoter group entities.
In this newsletter, we analyse the key requirements and criteria for classification as a promoter and identification of members of promoter group entities as per the ICDR Regulations. We also discuss the exemptions available to certain persons and entities from such classification and inadvertent scenarios where such a classification may ensue.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.