On Friday, capital markets regulator SEBI tightened disclosure standards for companies embarking on initial public offerings, insisting they should share more pricing details.
The changes approved by Sebi’s board at its meeting on Friday include information about the price at which institutional investors bought shares dating back as far as 18 months before the initial public offering (IPO).
The new standards, which follow the sharp erosion of investors’ wealth in recent IPOs like Paytm and Zomato that raised concerns over bid prices, will apply to all issuances.
Sebi Chairman Madhabi Puri Buch said that new-era technology companies or loss-making companies cannot be assessed by the same financial parameters and that the regulator felt it was necessary to end the information asymmetry.
“It will give a better basis for investors to make their investments,” she told reporters at the press conference following the board meeting here.
Sebi’s proposals include requiring issuers to disclose the offering price based on past transactions and fundraising activity.
“The Board of Directors approved the proposal to mandate exiting issuers with the IPO to disclose key performance indicators (KPIs) and the issuer’s price per share based on past transactions and exercises funds made by the issuer to investors under ‘Basis of Issue’. ‘Price’ of the offering document and in the price range advertisement,” Sebi said in a statement.
Currently, issuing companies, in addition to audited financial figures, also disclose their key figures on various key performance indicators in different sections of the draft Red Herring Prospectus (DRHP) which are not covered in the financial statements of the offering documents. .
The move comes against the backdrop of many new-era companies, which do not have a track record of operating profit for at least the previous three years, exploiting the IPO route to raise funds. These companies typically remain loss-making for a longer period before breaking even, as they opt for ways to increase scale of operations rather than profits in the early years.
“The issuer must disclose share price details based on past transactions and past fundraising from investors by the issuer prior to the IPO,” Sebi said at his board meeting. administration.
These companies should disclose their valuations based on the issuance of new shares and on the basis of the secondary sale of shares, during the 18-month period before the IPO, he said.
If there are no such transactions during the 18-month period prior to the IPO, information must be disclosed for the price per share of the issuing company based on the last five primary or secondary transactions , dating from less than three years before the IPO.
In addition, companies must disclose the weighted average cost to acquire (WACA) based on the primary/secondary transaction(s) and the floor price and the ceiling price of the IPO being several times the WACA in the disclosure document. offer and in advertising the price range.
In addition, the committee of independent directors should recommend that the price range be justified on the basis of quantitative factors and key performance indicators vis-à-vis the WACA of the primary issue or secondary transaction(s). s), he said.
Meanwhile, Sebi’s board also approved a proposal introducing an alternative mechanism by allowing “pre-filing” of offering documents for companies considering IPOs.
Buch said this is a step forward on the liberalization front aimed at providing flexibility to issuers who are not required to share confidential data in plain sight, and will also help the investor to consult Sebi’s observations for a longer period of 21 days. against the current 5 days.
Under this, an issuer would have to “pre-file” offering documents with Sebi and exchanges without making them available to the public for an initial review period only.
“The pre-filing mechanism allows issuers to perform limited interaction without having to make any sensitive information public. Additionally, the document that incorporates Sebi’s initial comments would be available to investors for a period of at least 21 days, thus helping them better in their investment decision,” the regulator said in a press release after its board meeting.
The existing mechanism for processing tender documents should continue in addition to this alternative pre-filing mechanism.
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