SEBI mulls enhanced disclosures for start-up IPOs

SEBI mulls enhanced disclosures for start-up IPOs

Apart from disclosing traditional financial ratios, capital market regulator proposes disclosure of key performance indicators (KPIs) based on which issue price is decided for loss-making companies planning an IPO.

SEBI mulls enhanced disclosures for start-up IPOs SEBI mulls enhanced disclosures for start-up IPOs

At a time when many stalwarts of the start-up world are looking to tap the public markets with an initial public offer (IPO), the Securities and Exchange Board of India (SEBI) has proposed enhanced disclosure norms for loss-making companies looking to launch a public issue. 

On Friday, the capital market regulator issued a consultation paper, which among other things, proposed disclosure of key performance indicators (KPIs) based on which the issue price is decided in case the company does not have a profitability track record. 

The disclosure of KPIs would be in addition to the current requirement of disclosing traditional parameters like price to earnings ratio, earnings per share and net asset value among other things. 

This assumes significance as many well-known but loss-making start-ups are in the pipeline to enter the market through a public issue.  

“It is seen that lately there is an increase in filing of offer documents for IPOs under Regulation 6(2) of ICDR Regulations i.e. companies not having track record / not having operating profit in preceding three years,” stated the SEBI discussion paper. 

“Mostly such filings under Regulation 6(2) are by issuer companies which are new age technology companies (NATCs). NATCs generally remain loss making for a longer period before achieving break-even as these companies in their growth phase opt for gaining scale over profits. 

Investors are on boarded on these companies on the premise of future potential and accordingly the company strives for long-term market leadership rather than short-term profitability considerations. The growth in such businesses comes from expanding into new micro-markets and adding or acquiring new customers/companies/technology etc. Thus, profitability targets are longer term goals,” it added. 

SEBI has proposed that such companies should disclose relevant and material KPIs made before the pre-IPO investors during the three years prior to the public issue. It further proposed that all KPIs should be certified or audited by statutory auditors and the same should be compared to Indian or global listed peer companies, if available. 

The regulator has proposed disclosure of the valuation of the company based on any secondary sale or acquisition of shares or even primary or new issue of shares in the 18 months prior to the filing of the draft red herring prospectus (DRHP). 

The regulator has sought public feedback till March 5 on the proposals put forth in the discussion paper. 

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Published on: Feb 18, 2022, 8:48 PM IST
Posted by: Tarab Zaidi, Feb 18, 2022, 8:44 PM IST