The Securities and Exchange Board of India (Sebi) may mandate more disclosures with regard to pricing of public share sales in its upcoming board meeting on September 30. The regulator may ask companies to divulge the rationale for the difference in pricing of shares sold to private equity investors and that for the initial public offering (IPO).
“If the issue price in an IPO is high, and a stock slips on listing, investors do get prejudiced. Hence, Sebi is thinking of seeking disclosures on how the issue price has been arrived at, including looking at past transactions in the shares of such companies,” said Saurabh Tiwari, partner, DSK Legal.
The basis of issue price has been the subject of debate after new-age companies such as Paytm and Zomato slid sharply over their issue price post listing.
“The regulator needs to be smart about mandating any disclosures on new-age IPOs because every startup is unique and different. Valuation metrics for fintechs, for example, may be different from that for e-commerce firms,” a senior industry official said.
According to him, the regulator may ask companies to disclose metrics that formed a part of previous private funding rounds. “Whatever metrics were used at the time of investor presentations during the private funding rounds can be used for making the relevant disclosures at the time of IPO,” he said.
Sebi chief Madhabi Puri Buch had recently batted for a disclosure-based regime and said the regulator was not in favour of dictating the pricing of initial share sales of new-age technology companies.
“At what price you choose to do your IPO is your business. We have no business to suggest otherwise. The days of CCI (Controller of Capital Issues) are long gone. Companies are free to price the issues at whatever price is considered appropriate,” Buch had said in her maiden public address as Sebi chief at the annual capital markets summit organised by industry association Ficci in Mumbai last week.
Buch, however, added that the company had to make the required disclosures on the rationale for the pricing, especially between a pre-IPO placement and the price being asked for the public offering.
“If a company had placed its equity with somebody three or six months before the IPO at say
100 and now wishes to hit the market with a price of450, we have no problem with that. However, the company needs to disclose to the investor the reasons for the price differential. The investor is then free to make his or her own decision,” Buch said.
Sebi has in the past floated consultation papers on issues such as basis of issue price in IPOs, pre-filing of IPO papers, covering mutual fund units in insider trading norms and open offer pricing in case of PSU disinvestment. In all of the above, the underlying principle of allowing flexibility with appropriate oversight can be seen, experts said.
The regulator may look to relax certain provisions in the takeover regulations for disinvestment of public sector undertakings (PSUs). Disinvestment in PSUs is usually a long drawn out process and information relating to the same comes in public domain through government decisions and statements made from time to time.
“In such cases, the sixty trading days volume weighted average market price parameter for the price of the open offer, may make the deal unpalatable for the investor. Sebi’s intent is to provide flexibility in such cases. The common principle behind such thinking is allowing flexibility with appropriate safeguards,” Tiwari said.
Similarly, the intent behind including mutual fund units within the purview and relevant definitions of insider trading regulations is to bring parity in regulations and to protect retail investors.
“Sebi’s consultation paper itself acknowledges that there may be scenarios where a person having knowledge of sensitive information, may not have any control on the decisions of the MF, and the proposed framework should take into account such circumstances as well,” Tiwari said.