SEBI proposes new disclosures for loss making companies intending to issue an IPO:
1. India’s market regulator plans to ask new-age technology companies to justify the pricing of shares for their initial public offerings to ensure transparency on account of the meltdown in stocks of some of these companies.
2. Shares of some new-age tech firms such as Paytm and Zomato have plunged since their listings.
3. 5th March is the deadline for the public to submit their comments on the discussion paper issued in respect of the same.
4. The regulator wants new-age tech firms to explain in detail how they priced their shares for initial public offerings (IPO), compare it to pre-IPO share sales and publish all pre-IPO investor presentations to help investors make informed decisions.
5. The new proposal will ask companies to disclose their key performance indicators (KPIs) during the IPOs and certain additional parameters like valuation based on past transactions or fund-raising.
6. The companies will have to disclose all material KPIs shared with any pre-IPO investor in the final years leading to the IPO. KPIs by new-age firms should be defined clearly, consistently and precisely.
7. These KPIs would also require to be certified or audited by statutory auditors. The issuer will have to compare the KPIs with other listed peers in India and abroad.
8. The move comes against the backdrop of many new age companies, that do not have a track record of having an operating profit at least in the preceding three years, tapping the initial public offer (IPO) route to raise funds.
9. Such companies should make disclosures about their valuations based on issuance of new shares and acquisition of shares in the past 18 months before filing draft offer documents, according to a consultation paper.
10. At present, the ‘Basis of Issue Price’ section in an offer document covers disclosures of traditional parameters such as key accounting ratios. These include Earnings Per Share (EPS), price to earnings, return on net worth and net asset value of the company as well as comparison of such accounting ratios with its peers. According to SEBI, these parameters are typically descriptive of companies which are profit making and do not relate to a loss-making firm. These parameters may not aid investors in taking investment decisions with respect to an loss-making issuer.
11. An issuer company should disclose about relevant KPIs during the three years prior to the IPO and an explanation of how these KPIs contribute to form the ‘Basis of Issue Price’. Also, an issuer company should disclose all material KPIs that have been shared with any pre-IPO investor at any point of time during the three years prior to the IPO, the regulator said in the consultation paper.
12. The “Basis of Issue Price” section was examined by a sub-group of the Primary Market Advisory Committee (PMAC) of Sebi. The recommendations of the sub-group were discussed in a meeting of PMAC, which were then proposed to the regulator through the discussion paper.