Markets regulator Securities and Exchange Board of India (SEBI) has proposed that loss-making new age technology companies planning to list their shares should make disclosures about their key performance indicators considered for arriving at the basis of issue price in offer documents.
Besides, such companies should make disclosures about their valuations based on issuance of new shares and acquisition of shares in the past 18 months before filing draft offer documents, according to a consultation paper.
The move comes against the backdrop of many new age companies, that do not have a track record of having an operating profit at least in the preceding three years, tapping the initial public offer (IPO) route to raise funds.
Such firms generally remain loss-making for a longer period before achieving break-even as they opt for ways to gain scale of operations rather than profits in the initial years.
SEBI has sought comments from the public on the consultation paper till March 5.
At present, the ‘Basis of Issue Price’ section in an offer document covers disclosures of traditional parameters such as key accounting ratios. These include Earnings Per Share (EPS), price to earnings, return on net worth and net asset value of the company as well as comparison of such accounting ratios with its peers.
According to SEBI, these parameters are typically descriptive of companies which are profit making and do not relate to a loss-making firm. These parameters may not aid investors in taking investment decisions with respect to an loss-making issuer.
“It is obvious that disclosures in ‘Basis of Issue Price’ section, particularly for a loss making company, are required to be supplemented with non-traditional parameters like key performance indicators and disclosure of certain additional parameters such as valuation based on past transactions/ fund raising by issuer company,” the regulator said in the consultation paper.
Apart from disclosing the financial ratios as per the current requirements, SEBI has proposed that the issuer company should also make the disclosures about the key performance indicators (KPIs) that have been considered or have a bearing for arriving at the ‘Basis of Issue Price’.
An issuer company should disclose about relevant KPIs during the three years prior to the IPO and an explanation of how these KPIs contribute to form the ‘Basis of Issue Price’.
Also, an issuer company should disclose all material KPIs that have been shared with any pre-IPO investor at any point of time during the three years prior to the IPO, the regulator said in the consultation paper.