Sebi yet to clear HDB, Hero FinCorp IPOs; talk of breach of some rules

Mumbai: The proposed initial public offerings (IPOs) of two large non-banking financial firms-HDB Financial Services and Hero FinCorp-are facing delays in securing approvals from the country's capital markets regulator.

According to sources familiar with the matter, the Securities and Exchange Board of India has held back its green light for the much-awaited public issues so far, as share sales by these companies could have inadvertently ended up violating rules that govern unlisted companies.

The application for Hero FinCorp's proposed IPO has been pending with Sebi for the past eight months while HDB's application has been pending for four months.

While the exact nature of the alleged breach could not be ascertained, it could have involved the pre-IPO share sales of these companies, they said.

The Companies Act restricts unlisted companies from adding more than 200 shareholders in a financial year. Also, such firms cannot sell shares through private placement to over 50 persons at a time. Similarly, shares issued through private placement to public shareholders in a span of six months would be considered a public offer.

Sebi did not respond to ET's queries. HDFC Bank said its subsidiary, HDB Financial Services, has filed its draft red herring prospectus with Sebi and is awaiting final observations. "We believe that there is no non-compliance," said an HDFC Bank spokesperson.

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A Hero Fincorp spokesperson denied non-compliance with the Companies Act. "We unequivocally state that the company has not raised capital beyond the prescribed threshold of 200 investors at any time following the applicability of the Companies Act, 2013."

Securities lawyers said selling by existing shareholders, which could have led to a broad-basing of the investor base in a financial year, could also be a reason.

Hero FinCorp, an associate of two-wheeler major Hero MotoCorp, filed its draft red herring prospectus for its ₹3,668 crore public issue. HDB Financial submitted its draft documents for a ₹12,500 crore IPO.

According to the processing status of draft offer documents on the Sebi website, comments have been sought from other regulators and government agencies for Hero FinCorp. For HDB Financial, the status indicates that the last communication was either issued or received on February 14, 2025.

HDB now has more than 41,409 public shareholders. In 2024, the company issued over 1.7 million shares to employees through stock option exercises. Shares of HDB Financial are currently trading at around ₹1,050 in the unlisted market. Reserve Bank of India's guidelines require HDB Financial to be listed by September 2025 as the firm has been classified as 'upper layer' under Scale Based Regulation for NBFCs for 2024-25.

Hero FinCorp had 7,452 public shareholders holding a 20.42% stake in the company as of August 2024. The company's shares are trading at ₹1,400-1,450 in the unlisted market.

Lawyers said the regulator could consider easing some of these rules to allow faster listing of companies in such instances.

"Regulators should move towards a materiality-based approach, where companies can justify that a prior sale was not intended to circumvent IPO eligibility and still be allowed to proceed with listing," said Sonam Chandwani, managing partner, KS Legal & Associates. "The current rigid framework, while ensuring compliance, often hinders capital market access for legitimate businesses, necessitating a structured relaxation mechanism where issuers can rectify violations within a specified timeframe without outright rejection of their IPO plans."