The Securities and Exchange Board of India (SEBI) has delayed the approval of IPO filings for Hero FinCorp and HDB Financial Services, a subsidiary of HDFC Bank, due to potential violations of pre-IPO share sale regulations. Hero FinCorp, backed by ChrysCapital, had filed its draft papers on July 31, 2024, while HDB Financial Services submitted its IPO documents on November 5, 2024. The delay stems from concerns regarding compliance with the Companies Act, which restricts private placements and shareholder additions for unlisted firms.
The Securities and Exchange Board of India (SEBI) has delayed the initial public offering (IPO) approvals of two major non-banking financial companies (NBFCs)—Hero FinCorp and HDB Financial Services—citing possible violations of regulations related to the sale of pre-IPO shares. Hero FinCorp, headquartered in New Delhi, India, is a leading non-banking financial company (NBFC) providing consumer and business loans, while HDB Financial Services, based in Mumbai, Maharashtra, is a subsidiary of HDFC Bank specializing in retail and commercial lending services.
SEBI has reportedly held back the IPO filings of Hero FinCorp for nearly eight months and those of HDB Financial Services for four months. According to sources, the delays arise from concerns that the share sales by these NBFCs may inadvertently breach provisions of the Companies Act, which governs the issuance of shares by unlisted firms.
Regulatory Concerns
Under the Companies Act, unlisted companies cannot add more than 200 shareholders in a financial year and cannot conduct private placements of shares to more than 50 persons at a time. If shares issued through private placement are sold to public investors within six months, it is treated as a public offering, which could lead to compliance issues.
HDFC Bank has stated that HDB Financial Services is awaiting final observations from SEBI on its draft red herring prospectus and that there has been no violation of regulations. Similarly, a Hero FinCorp spokesperson denied any breach, asserting that the company has not exceeded the permitted limit of 200 investors at a time.
Financial Details of the IPOs
Hero FinCorp, which is backed by private equity firm ChrysCapital, filed its draft papers on July 31, 2024, seeking to raise INR 3,668 crore ($440 million). The IPO includes a primary issuance of INR 2,100 crore ($252 million), which the lender intends to use to strengthen its Tier-I capital base to support further lending.
HDB Financial Services submitted its IPO draft on November 5, 2024. According to the prospectus, the offering comprises a sale of INR 10,000 crore ($1.2 billion) worth of shares by its parent company, HDFC Bank, along with a fresh issue of INR 2,500 crore ($300 million).
The delay in these IPO approvals highlights SEBI’s cautious approach towards ensuring compliance with market regulations, especially for large financial institutions. Market analysts suggest that while the delay could temporarily impact fundraising plans, both companies are expected to resolve the compliance concerns and proceed with their IPOs in due course.
With an increasing number of Indian firms preparing to go public, SEBI’s strict scrutiny of regulatory compliance is likely to continue. As a result, companies planning IPOs may need to exercise extra diligence to avoid procedural roadblocks.
