SEBI to strict pricing norms for startup IPOs

The Securities and Exchange Board of India proposed to seek more justification and transparency from new-age technology companies when it comes to pricing their share in initial public offerings (IPOs). This comes following a meltdown in shares of such companies amid an aggressive turn by the US Federal Reserve and other central banks.

If approved, companies will have to provide a relatively detailed explanation of how they have priced their issue, compare that to pre-IPO share sales, and also disclose all the presentations made to pre-IPO investors.

SEBI believes the disclosures made under the ‘Basis of Issue Price’ section in an offer document need to be “supplemented with non-traditional parameters” and other key performance indicators (KPIs). The issue assumes significance; lately, there has been an increase in IPO filing by companies with no profit-making track record.

SEBI has proposed, “Disclosure of relevant KPIs made before pre-IPO investors during the three years prior to the IPO. Explanation of how these KPIs contribute to form the basis for issue price.”

New-age tech companies 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 board with these companies on the premise of future potential and accordingly, these companies strive for long-term market leadership rather than short-term profitability considerations,” SEBI has said in a discussion paper.

The discussion paper is based on the recommendations made by a sub-group of SEBI’s Primary Market Advisory Committee (PMAC). The regulator has sought public comments on various new proposals by March 5.