SEBI

Context:

  • The stock market regulator, SEBI is trying to improve the disclosures made by new age technology companies approaching the primary market for listing.

Issues:

  • The digital companies tend to give precedence to growth over profitability and, therefore, are mostly loss-making when they approach primary markets.
  • Traditional accounting ratios mandated to be disclosed by the SEBI’s ICDR Regulations under “basis for issue price” such as earnings per share, price to earning ratio and return on net worth of the company are not applicable to these loss-making companies and do not help investors in their decision-making process.
  • The shares of many recently listed new-age tech firms crashed heavily during the stock market correction.
  • Investors who picked up the Zomato, Nykaa and Paytm (One97 Communications) IPOs suffered heavy losses as their shares collapsed.
  • Investors blame irrational valuations for these losses and SEBI seeks to tighten IPO-pricing rules for new-age technology companies.

 

New Rules:

  • SEBI will set up a mechanism for transparent IPO pricing of new-age firms.
  • After SEBI approves these proposals, it will ask new-age companies to justify how they arrived at the pricing of their issue.
  • SEBI observed that many companies filing their offer documents for IPOs under ICDR Regulations do not have a track record of profits for at least three years.
  • Many of these are new-age tech firms, and SEBI wants non-traditional information such as trends in Key Performance Indicators in the past to justify future profitability.
  • Moreover, SEBI seeks information on the company’s past fundraising rounds, disclosure of all presentations made to investors before the IPO, and compare share sales before the IPO.

Source: THE HINDU.

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