IPO of Loss-Making Companies with 100% offer for sale : The WeWork India Case

Introduction

Regulation 2 (w) of the ICDR Regulations, 2018 defines Initial Public Offer [“IPO”] as an offer of specified securities by an unlisted issuer to the public for subscription and includes an offer for sale of specified securities to the public by any existing holders of such specified securities in an unlisted issuer. In easy words, an Initial Public Offering is the process by which a private company sells its shares to the public for the first time to raise equity capital. This process transforms a privately held company into a publicly traded one, allowing investors to buy shares and potentially benefit from its growth. In the past years, however, many loss-making companies have gone under IPO as Offer for Sale [“OFS”], making it an exit mechanism for existing shareholders. 

It is trite law that the mere loss-making nature of a company does not bar it from opening up for IPO. Some companies like Zomato, Delhivery, and Burger King India went under IPO even though they were loss-making. These issuers are typically part of the “new economy” arena where investors are often concerned with rapid growth and network effects over profitability, and are willing to fund losses if profitability is possible in the near future. This, however, raises certain investor protector concerns. In particular, where such IPOs are structured as high-OFS or 100% OFS offerings, there is an intuitive apprehension, as mentioned above, that public investors are funding exits by existing shareholders rather than contributing any fresh capital to company’s assets.

There are two routes for companies to enter into IPOs - the profitability route i.e. Regulation 6(1) of the ICDR Regulations, 2018 and the QIB (Quantified Institutional Buyers) route i.e. Regulation 6(2) of the ICDR Regulations, 2018. Under the profitability route, eligibility is broadly based on parameters such as a record of profits in the preceding three years, positive net worth, and minimum net tangible assets, thereby preferring more mature, high profit-making businesses for access to the public markets through this route. Alternatively, the QIB route is designed for companies that do not satisfy these profitability-based criteria, but are nevertheless able to tap the public markets subject to the condition that at least 75% of the net offer is allocated to Qualified Institutional Buyers. This bifurcated structure of Regulation 6 therefore reflects that SEBI intends to allow even loss-making or negative-net-worth issuers to list.

Additionally, there exists no restriction on OFS as a percentage of issue size under any Statute or Regulation. The mere fact that promoters monetise their shareholding does not render an OFS-only IPO illegal. Several precedents have allowed 100% OFS structures even when the issuer was a loss-making entity and had a negative net worth. One example is the IPO of WeWork India. In the case of Hemant Kulshrestha v. SEBI & Ors. the Hon’ble Bombay HC passed a decree in favour of WeWork India, allowing the loss-making Company to open for IPO in 100% OFS. The petitioners before the Court had, inter alia, questioned the permissibility of permitting a loss-making, negative-net-worth company to access the public markets through a purely OFS-based issue, particularly when there were also allegations of inadequate disclosure regarding related-party transactions, dependence on group entities and the global WeWork MNC. 

They contended that such a structure was inherently prejudicial to retail investors because no primary capital was being infused into the company, while insiders and early investors were securing a complete or substantial exit at the point of listing. SEBI and the issuer, on the other hand, argued that the ICDR Regulations, 2018 expressly contemplate offers for sale and do not draw any distinction between partial and 100% OFS issues, provided all specified conditions and disclosure obligations are met, and that questions of commercial prudence, valuation and timing fall squarely within the domain of market participants rather than the regulator or the Court. These instances demonstrate that the ICDR Regulations, 2018, place no restriction on an IPO being wholly an offer for sale, and such structures are treated as fully compliant under current regulations. Additionally, the SEBI chairman has recently clarified that there are no immediate plans to introduce specific norms capping the OFS component in IPOs.

SEBI follows a disclosure-based regime and does not regulate on merits. The role of SEBI is to ensure that adequate and relevant disclosures as required under the relevant guidelines/regulations are made by the company, in order to facilitate the investors to take an informed decision. Read together with the Bombay High Court’s order in Hemant Kulshrestha, it can be concluded that even in the case of loss-making, negative-net-worth companies coming to market with 100% OFS IPOs, regulatory intervention will ordinarily be triggered not by the structure per se, but by demonstrable failures in disclosure, fraud, or other statutory non-compliance. 

Whether the policy should remain anchored in this disclosure-based regime, or evolve towards a merit-based model for extreme OFS-heavy, high-risk IPOs, is ultimately a question for the legislature and the regulator; under the present framework, however, a 100% OFS IPO by a loss-making company such as WeWork India is squarely permissible under both the text of the ICDR Regulations, 2018 and the prevailing case law.

Author: Suryansh Masand, in case of any queries please contact/write back to us via email to chhavi@khuranaandkhurana.com or at  Khurana & Khurana, Advocates and IP Attorney.

Endnotes

1. Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, Regulations 2(w), 6(1) and 6(2), available at: https://www.sebi.gov.in/legal/regulations/jul-2022/securities-and-exchange-board-of-india-issue-of-capital-and-disclosure-requirements-regulations-2018-last-amended-on-july-25-2022-_61425.html.

2. Companies Act, 2013, Section 28 (Offer for Sale of Shares by Existing Members), Ministry of Corporate Affairs, available at: https://www.mca.gov.in.

3. Hemant Kulshrestha v. Securities and Exchange Board of India & Ors., Writ Petition (L) No. 31373 of 2025, Bombay High Court, Judgment dated 1 December 2025. The Court upheld SEBI's approval of the WeWork India IPO and held that Regulation 6(2) permits IPOs by loss-making companies subject to compliance with the ICDR Regulations.

4. WeWork India Management Limited, Red Herring Prospectus and subsequent Addendum, September 2025, particularly the sections dealing with the offer structure, risk factors and pending litigation.

5. Securities and Exchange Board of India, Framework for Rejection of Draft Offer Documents Order, 2012 (General Order No. 1 of 2012), issued under Section 11A of the SEBI Act, 1992.

6. Securities Contracts (Regulation) Rules, 1957, Rule 19(2)(b)(i), prescribing minimum public shareholding requirements for listed companies.

7. Bar & Bench, "Supreme Court upholds SEBI nod to WeWork India IPO", 16 March 2026, reporting dismissal of the appeal against the Bombay High Court judgment.

8. SCC Times, "Bombay High Court upholds SEBI's approval for WeWork India IPO; Imposes ₹1 Lakh Cost for Suppression of Facts", 3 December 2025, discussing the Court's observations on SEBI's disclosure-based regulatory role and the responsibility of Book Running Lead Managers.