SEBI proposes norms for greater clarity on IPO pricing

This is a part of the discussion paper released by the regulator seeking public opinion by March 5.

SEBI’s discussion paper comes as it has recently been observed that many new age technology companies which do not have a proven track record for three years are coming up with IPOs which will take a longer period before achieving break-even. Because these companies in their stage of growth choose to achieve scale over profit.

These norms come in the wake of startup listings like Paytm, which saw a sharp drop in prices on the day of listing.

SEBI wants these NATCs to explain in detail how they price their issuances, compare it with the share sales before the IPO, and publish all pre-IPO investor submissions, which in turn enable investors to make informed decisions. will help.

Several NATCs have entered the capital markets in the recent past, although most of them are still trading at discounted levels.

Currently, companies can only use earnings per share (EPS), earnings to price (P/E), return on net worth (RONW), and net asset value (NAV) as well as comparison of these accounting ratios with their counterparts. Disclosures, i.e. companies of similar size in the same industry.

Sebi said such traditional norms cannot be applied to new age technology companies.

However, SEBI said that the disclosure in the ‘Basics of issue price’ section, especially for the loss-making company, is supplemented with the disclosure of non-traditional parameters such as key performance indicators (KPIs) and certain additional parameters such as valuations. Should be. Based on past transactions/fund raising.

“New-age start-ups listing their shares are not like traditional businesses, and the move is much needed as most startups are losing money. Before filing the offer document, such companies should disclose their valuation on the basis of new share issuance and acquisition during the last 18 months. Current metrics may be insufficient to provide investors with a clear picture of a company’s financial position. These newly proposed reporting parameter factors will essentially aid investors in making informed investment decisions about these new age companies,” said Sonam Chandwani, Managing Partner, KS Legal.

Sebi, in a six-page discussion paper, said that NATC will disclose all material KPIs that have been shared with any pre-IPO investor at any time during the three years preceding the IPO.

However, for those KPIs that the issuing company does not consider to be relevant to the proposed IPO, the issuer shall provide sufficient explanation for not deeming those KPIs relevant, along with an appropriate cross reference to the table disclosing the said KPIs.

“KPIs disclosed by new age companies should be clearly, consistently and accurately defined. KPIs should not be misguided in any way”, said SEBI in the discussion paper.

Additionally, these KPIs have to be certified or audited by statutory auditors. The issuing company will also have to compare KPIs with Indian listed peer companies or global listed peer companies, while also clarifying the comparison of KPIs over time.

IPO-bound companies will be mandated to report in the DRHP, shares on which shares were sold in the secondary and primary agreements in the previous 18 months, if it resulted in a reduction of more than 5%.

Ketan Dalal, Managing Director, Catalyst Advisors Private Limited said.

“Proposed disclosures in respect of KPIs made for pre-IPO investors and also disclosure of past share transfers and allotments; It appears that its purpose is to provide important information to investors based on the issue price and information on recent past transactions. Such disclosures will certainly be helpful for investors in making IPO investment decisions.”

The “basis of issue price” clause was examined by a sub-group of the Primary Market Advisory Committee (PMAC), SEBI. Following which the recommendations of the sub-group were discussed in the meeting of PMAC, which was proposed to SEBI through this discussion paper. ,