Mumbai: India’s market regulator plans to require new-age tech firms to justify the pricing of shares for their IPOs to ensure transparency, after shares in some of these companies crashed and eroded billions of dollars in investor wealth.
A discussion paper by the Securities and Exchange Board of India (Sebi) on Friday set March 5 as the deadline for public comment. Shares of some new-age tech companies like Paytm and Zomato have plummeted since going public.
Regulators want new-age tech companies to detail how they price shares in initial public offerings (IPOs), compare them to pre-IPO stock sales, and publish any pre-IPO investor presentations to help investors make decisions. a wise decision.
Sebi observed that many of these companies are going public without a solid track record of profitable operations for at least three years. These companies typically have been losing money for a long time before breaking even because they chose to scale rather than make profits during the growth phase.
Some have gone public in the past year, hoping to capitalize on the stock market’s record rally. However, most are currently trading at a discount. Currently, the company only discloses earnings per share (EPS), price-to-earnings (P/E), return on equity (RoNW) and net asset value (NAV) and how these accounting metrics compare with peers, i.e. similar – the largest in the industry big company.
Such traditional parameters cannot be applied to new-age tech companies, Sebi said. It states that disclosures in the “Basics of Issuance Price” section must be supplemented, especially for loss-making companies, using non-traditional parameters such as key performance indicators (KPIs) and disclosing certain additional parameters such as transactions/fundraisings based on past valuations Activity.
“New-age startups that go public differ from traditional companies and this move is imminent as most startups are losing money. Before filing any offering documents, such companies should disclose estimates based on new offerings and acquisitions over the past 18 months. Current metrics may not be sufficient to give investors a clear picture of a company’s financial metrics. These new proposed reporting parameters will help investors make informed investment decisions related to these new age companies,” said Sonam, Managing Partner, KS Legal Chandwani said.
In his six-page paper, Sebi said such companies should disclose any key KPIs shared with any pre-IPO investors in the three years preceding the IPO.
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