New Delhi:
Market regulator Securities and Exchange Board of India (SEBI) has proposed that loss-making new age tech companies that intend to list their shares should make disclosures in bid documents about their key performance indicators being considered to arrive at the issue price.
In addition, such companies should disclose their valuations based on new share issuance and share acquisitions over the past 18 months before submitting draft offer documents, according to a consultation paper.
The move comes against the backdrop of many new age companies, with no record of corporate earnings in the past three years, using the IPO (IPO) route to raise funds.
Such companies generally remain loss-making for an extended period of time before reaching break even, as in the early years they opt for ways of scaling up rather than making a profit.
SEBI has requested public responses to the consultation document until March 5.
Currently, the ‘Issue Price Basis’ section of an offer memorandum contains information on traditional parameters such as key accounting ratios. These include the company’s earnings per share (EPS), price-to-earnings ratio, return on capital and net asset value, as well as comparison of such accounting ratios with its competitors.
According to SEBI, these parameters are typically descriptive of companies that make a profit and are not related to a loss-making company. These parameters cannot assist investors in making investment decisions regarding a loss-making issuer.
“Clearly, disclosures in the ‘Issue Price Base’ section, especially for a loss-making company, need to be supplemented by non-traditional parameters such as key performance indicators and disclosures of certain additional parameters such as valuation based on past trades. / fundraising by the issuing company,” the regulator said in the consultation document.
In addition to disclosing the financial ratios under current requirements, SEBI proposed that the issuing company also disclose the information on the key performance indicators (KPIs) considered or impacted to determine the Base of Issue Price’ to come. †
An issuer must provide information on relevant KPIs during the three years prior to the IPO and explain how these KPIs contribute to the ‘Base of Issue Price’.
Also, an issuer must disclose any material KPIs shared with a pre-IPO investor at any time during the three years prior to the IPO, the regulator said in the consultation document.