New Delhi: In a move aimed at introducing transparency and rationality to issue pricing, the capital markets regulator Securities and Exchange Board of India (SEBI) on Friday tightened the disclosure requirements for all initial public offerings (IPOs).
SEBI has also permitted companies contemplating an initial public offer on the main board of stock exchanges to submit pre-fill offer documents as an optional alternative mechanism. “Pre-filing mechanism allows issuers to carry out limited interaction without having to make any sensitive information public,” the regulator said in a press release after its board meeting.
The existing mechanism of processing offer documents should continue in addition to this alternative mechanism of pre-filing. Moreover, the watchdog’s initial observations on the public offer would be available to investors for 21 days, which would help them make a better and informed decision.
The new norms, which follow heavy erosion of investor wealth in recent IPOs like Paytm and Zomato that led to concerns about the offer prices, will be applicable for all issuances.
SBI Chairperson Madhabi Puri Buch said new-age technology companies or loss-making companies cannot be assessed by the same financial parameters and the regulator felt that there is a need to end the information asymmetry.
The SEBI has also approved the proposal to mandate the issuers coming out with IPO, to make disclosure of Key Performance Indicators (KPIs) and price per share of issuer based on past transactions and past fundraising done by the issuer from the investors under ‘Basis for Issue Price’ section of the offer document, and in Price Band Advertisement.
Presently, issuer companies, in addition to the audited financial numbers, also disclose their key numbers on various key performance indicators in different sections of Draft Red Herring Prospectus (DRHP) which are not covered in the financial statements in the offer documents.
Such companies should make disclosures about their valuations based on issuance of new shares and based on secondary sale of shares, during the 18 months period prior to IPO, it said. In case there are no such transactions during the 18 months period prior to IPO, then information should be disclosed for price per share of issuer company based on the last five primary or secondary transactions, not older than three years prior to IPO.
Other changes approved by the SEBI include bringing mutual fund transactions under insider trading rules ambit, introduction of a new option for appointment of independent directors and modify the Offer For Sale (OFS) framework. Easing the open offer price calculation for PSU divestments and facilitating online bond platform providers were among the other proposals approved by the SEBI board.
