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Sebi likely to step up disclosure norms for IPOs of new-age companies

Sebi has attracted some criticism following a meltdown in shares of new-age companies such as Zomato, Paytm and Policy Bazaar

Sebi
Sources said Sebi would mandate loss-making firms to disclose relevant KPIs made to pre-IPO investors and a more detailed explanation of how these KPIs contribute to form the basis for issue price
Shrimi ChoudharySamie Modak New Delhi/Mumbai
3 min read Last Updated : Sep 23 2022 | 12:08 AM IST
The Securities and Exchange Board of India (Sebi) may beef up the disclosure requirements for initial public offerings (IPOs) of new-age companies. The market regulator could also bring transactions in mutual fund (MF) units under the purview of insider trading regulations. The decisions could be taken at Sebi’s board meeting scheduled for September 30, according to people in the know.

According to sources, Sebi may see its board approve an amendment in the Issue of Capital and Disclosure Requirements (ICDR) Regulations in order to mandate companies to provide a relatively detailed explanation of how they price their IPOs, compare pricing to pre-IPO share sales, and disclose all the presentations made to pre-IPO investors.

Traditional metrics such as price-to-earnings (P/E) multiples, earnings per share (EPS), and return ratios cannot be applied to new-age companies or start-ups as most of them are loss-making firms. The regulator is trying to partly address the issue by mandating companies to provide supplementary information and key performance indicators (KPIs) in their offer documents to help investors make more informed decisions, said a source.

Sebi has attracted some criticism following a meltdown in shares of new-age companies such as Zomato, Paytm and Policy Bazaar. At a recent event, Sebi Chairperson Madhabi Puri Buch said Sebi has no intention of interfering in the way IPOs were priced. She, however, pressed for more disclosures and transparency.


“You are free to price the issue at whatever price you consider appropriate. However, at times, a company places its equity with a private party at Rs 100 six months before the IPO but it comes to the market at Rs 450. We have nothing to say. But we expect you to disclose to the investor what accounts for the difference and what has changed,” she said.

Sources said Sebi would mandate loss-making firms to give a more detailed explanation of how KPIs contribute to form the basis for the issue price.

Sebi’s board could also give the go-ahead for including MF units in the definition of ‘securities’ to cover them under the Prohibition of Insider Trading (PIT) Regulations. It will also include buying and selling of MF units under the definition of ‘trading’.

The move comes amid allegations of front-running at large fund houses. Last year, Sebi passed strictures against senior executives of Franklin Templeton Mutual Fund for redeeming their MF units in the schemes shuttered by the fund house while allegedly being in possession of non-public information. Recently, allegations of front-running and other irregularities had surfaced against two fund managers of Axis MF.

“The units of MFs are specifically excluded from the purview of PIT Regulations. A need has, therefore, been felt to harmonise the provisions in PIT Regulations to initiate serious enforcement actions against those who misuse the sensitive non-public information pertaining to MF schemes, directly or indirectly, which they have access, by virtue of their fiduciary capacity,” Sebi said in a discussion paper in July.
Reining in
  • Sebi board to meet on Sep 30
  • May take up amendment of ICDR, PIT regulations
  • Start-up IPOs will be required to justify IPO pricing
  • Compare IPO price with pre-IPO allotment price
  • MF units to be included in definition of securities
  • Dealing in MF units to be included under definition of trading

Topics :SEBIIPOStock MarketIPOsinitial public offeringsSebi normsSecurities and Exchange Board of IndiaIPO activityIPO IndiaBSE NSE equitymutual fund industryMutual Fundsshare market