IPO-bound online investment platform Groww has issued compulsorily convertible preference shares as bonus to existing investors, including Peak XV and Ribbit, according to a Competition Commission of India’s notice.
According to the notice issued on 3 March, the transaction will also result in collapse of the differential voting rights (DVR) held by Harsh Jain, Lalit Keshre, Neeraj Singh and Ishan Bansal, the founders of Groww. This comes at a time when the company has enlisted investment banks for its upcoming $1-billion-plus initial public offering, according to news reports.
The notice, however, did not mention the amount of bonus shares issued to each investor.
Groww and existing investors Peak XV and Ribbit Capital did not respond to Mint’s queries at the time of publishing.
Restructuring for IPO
“The proposed transaction comprises of: (i) the proposed collapse of the differential voting rights (“DVRs”) held by the founders of Groww (proposed DVR collapse”); and (ii) the bonus compulsorily convertible preference shares (bonus CCPS) proposed to be issued to all existing equity shareholders of Groww (proposed bonus CCPS issuance”),” said the notice.
DVR shares give holders lower or higher voting rights compared to ordinary shares. A collapse of differential voting rights means that the difference in voting rights between DVR and ordinary shares ceases to exist. In a bonus share issuance, a company gives extra shares to existing shareholders at no additional cost.
Siddharth Pai, founding partner at 3One4 Capital, told Mint that the company appears to be issuing bonus shares in an attempt to lower the issue price for their IPO later.
“By capitalizing reserves, particularly the securities premium, the company can reduce the final IPO issue price. This is a standard bonus issue that almost every startup does before they IPO. Most recently-listed companies followed the same approach.”
He also noted that issuing bonus shares as CCPS (compulsorily convertible preference shares) instead of equity could be a strategic safeguard. “Bonus shares in the form of CCPS, or preference shares instead of equity, may ensure that if the IPO doesn’t go through for any reason, they can reinstate all investor rights.”
A source close to the company said that the bonus issue of shares does not include a new fundraise in the company and does not have major implications on the shareholding structure.
“The competitive dynamics remain unchanged prior to and post the proposed transaction as the major investors and founders already exercise joint control in Groww which remains unchanged prior to and post the proposed transaction,” said the CCI notice.
Industry executives Mint spoke to said that the exercise seems like a restructuring effort to comply with public market standards leading up to its IPO.
The company relocated its parent entity, Groww Inc, from Delaware, US, to Bengaluru, effectively making Groww’s primary Indian company, Billionbrains Garage Ventures, the parent firm. Groww was founded in 2016, and the process to move its base from Delaware began two years ago.
In October 2021, Groww announced a $251 million series E round at a $3 billion valuation. The company has raised a total of $393.3 million in funding so far.