SEBI To Tighten Disclosures For New-Age Tech IPOs

SUMMARY

The markets regulator is mulling increasing the disclosure timeline for all past transactions and fund raise for startups to 3 years from 18 months currently

Companies will have to provide financial metrics and ratios along with operational parameters such as long-term sustainability of the business and drivers of financial performance, among others

The current IPO framework includes KPIs like revenue from operations, profit or loss after tax, return on equity, earnings per share, among others

Amid the increasing number of new-age tech IPOs in the country, the Securities and Exchange Board of India (SEBI) is reportedly inching closer to tightening the disclosure requirements for IPO-bound companies.

According to a report by Moneycontrol, the markets regulator is mulling increasing the disclosure timeline for all past transactions and fund raise for startups to 3 years from 18 months currently.

Citing sources, the report said that the companies will have to provide financial metrics and ratios along with operational parameters such as long-term sustainability of the business and drivers of financial performance, among others.

Other inclusions will include disclosures of all key financial or operational information related to any private placement or rights issue and comparisons of key performance indicators (KPIs) of the entity filing for the IPO with at least three of its competitors for a period of three years.

“It has been nearly three years since the KPI disclosure regime was first introduced to address concerns related to IPOs of new-age companies and startups. Now, there is enough data to analyse the industry response and strengthen the regulatory framework for KPI disclosures,” a source was quoted as saying.

It must be noted that this isn’t the first report to state that SEBI is looking to tighten KPI disclosures for IPO-bound companies. In November, CNBC-TV18 reported that SEBI is looking to strengthen KPI disclosures for startups, specifically those who do not have a proven track record in terms of profitability.

The current IPO framework includes KPIs like revenue from operations, profit or loss after tax, return on equity, earnings per share, among others.

In August last year, SEBI had directed Industry Standards Forum (ISF), which includes representatives from industry bodies such as ASSOCHAM, FICCI, and CII, to determine the relevant KPIs for such new-age tech IPOs.

It is pertinent to note that amid the surge in IPOs, the markets regulator tightened the regulatory framework governing IPOs for small and medium enterprises (SMEs) in December last year.

Back then, it introduced profitability requirements as well as put a cap on shares to be sold through the offer for sale (OFS) route, among other key parameters.

The report comes at a time when multiple new-age tech companies are en route to an IPO. While startups like Fractal, Zepto, Lenskart, OfBusiness, Zetwerk, among others, are inching closer to filing their IPO papers, others like WeWork, IndiQube, Ather Energy, BlueStone are either awaiting or have received the regulatory approval for their IPOs.