The Securities and Exchange Board of India (SEBI) has announced significant changes in the regulatory framework for companies planning to go public through an initial public offer (IPO).
While on one hand, the capital market watchdog has tightened the disclosure norms for such companies, it has also opened a new route by which firms, at the initial stage, can file the offer document with limited information and disclose sensitive information closer to the actual IPO process.
“Pre-filing mechanism allows issuers to carry out limited interaction with without having to make any sensitive information public,” stated a statement by SEBI post its board meeting held in Mumbai.
This assumes significance as one of the concerns raised by market participants and industry players was that the draft offer document contains a lot of sensitive information about the company and if the company is not able to actually launch the IPO, then all the disclosure proves futile.
Incidentally, there have been many instances of companies filing the draft document with SEBI and then being forced to put the offer on hold due to market conditions.
On a different note, however, the regulator has also tightened the disclosure norms for companies especially those relating to key performance indicators based on past transactions and past fund raising.
“Issuer shall disclose details of pricing of shares based on past transactions and past fund raising from investors by issuer prior to IPO,” stated the release.
Some of the disclosures mandated by the regulator include price of shares sold or acquired during 18 months prior to the IPO or last five primary or secondary transactions – if in case there are no transactions in the last 18 months.
The decision taken by the SEBI board is primarily aimed at new-age companies or start-ups that are typically loss-making and it is difficult to ascertain the financial health of the company based on traditional metrics.
The idea is that there is no information asymmetry and whatever information is shared with institutional investors is shared with all investors, including retail, said SEBI chairperson Madhabi Puri Buch while addressing the media.
Last year, which was a record year in terms of fund mobilised through IPOs, saw many marquee names from the start-up world like Zomato, Nykaa, Paytm and Policybazaar among others coming to the public markets.
However, investors burnt their fingers in most of the offerings as the current share price of most of these start-ups are significantly lower than their issue price.
Among other decisions, the SEBI board has allowed net settlement between cash and derivatives segment to facilitate efficient settlement.
“The Board was apprised of the proposed net settlement framework wherein the obligations arising out of cash segment settlement and physical settlement of F&O segment, upon expiry of stock derivatives, shall be settled on net basis, as against the current approach of settling such obligations separately,” stated the release.
“The framework is aimed at strengthening the alignment of cash segment and F&O segment, bringing about netting efficiencies for participants, mitigation of price risk in certain cases and reduction of margin requirements after expiry,” it added.
Among other things, the capital market watchdog amended the framework to facilitate faster pay out of redemptions and dividend to mutual fund unitholders, made the offer for sale process more flexible while making the process of appointment and removal of independent directors also more flexible.
Based on industry feedback, the regulator has also announced changes in the framework for Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs).