Cross investments in a similar line of business could be one of the reasons for keeping the Virat Kohli-backed Go Digit General Insurance IPO in "abeyance" by capital markets regulator Securities Exchange Board of India (Sebi), according to an expert. The insurer filed a draft prospectus for its initial public offering (IPO) in August comprising a fresh issue of Rs 1,250 crore and an offer for sale (OFS) of more than 10.94 crore equity shares by selling shareholders, including Go Digit Infoworks Services, Nikita Mihir Vakharia (jointly with Mihir Atul Vakharia), Nikunj Hirendra Shah (jointly with Sohag Hirendra Shah) and Subramaniam Vasudevan (jointly with Shanti Subramaniam).
"They have basically invested in more than one company in the same business. And that is possibly one of the reasons for which the clarity was required," said Deven Choksey, MD, KRChoksey Holdings Pvt. Ltd. Go Digit declined to comment on the story.
The Draft Red Herring Prospectus states in its risks Section, "Kamesh Goyal, our Promoter and Non-Executive Chairman and Chandran Ratnaswami, our Nominee Non-Executive Director, are on the board of directors of companies engaged in a line of business similar to that of ours. Any conflict of interest that may occur as a result could adversely affect our business, financial condition, results of operations and cash flows."
Proceeds from the fresh issuance were to be utilised for the augmentation of the company's capital base and maintenance of solvency levels and general corporate purposes. For the period ended June 30, 2022, the company has solvency margin of 2.18. At present, it is mandatory to maintain a solvency margin of 1.5 for every insurer.
Choksey on the solvency needs of the insurer going forward adds, "I think the IPO should get cleared. I don't see too much problem."
The DRHP also states, "We have entered into, and will continue to enter into, related party transactions which may potentially involve conflicts of interest. In the ordinary course of our business, we enter into and will continue to enter into transactions with related parties…While we believe that all such related party transactions that we have entered into are conducted on an arms' length basis in accordance with the Companies Act, 2013 and other applicable regulations pertaining to the evaluation and approval of such transactions and all related party transactions that we may enter into post-listing, will be subject to board or shareholder approval, as necessary under the Companies Act, 2013 and the Listing Regulations, in the interest of our Company and its minority shareholders and in compliance with the Listing Regulations, we cannot assure you these arrangements in the future, or any future related party transactions that we may enter into, individually or in the aggregate, will not have an adverse effect on our business, financial condition, results of operations, cash flows and prospects. Further, any future transactions with our related parties could potentially involve conflicts of interest which may be detrimental to our company. There can be no assurance that our directors and executive officers will be able to address such conflicts of interests or others in the future."
The insurer collected a gross Written Premium (GWP) of Rs 5,268 crore, Rs 3,243 crore and Rs 2,252 crore in financial years 2022, 2021, and 2020 with an annualised growth rate of 53 per cent from fiscal 2020 to fiscal 2022.
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