Sebi: Sebi tightens IPO disclosure rules, OKs pre-filing of offer documents


Mumbai: The Securities and Exchange Board of India (Sebi) approved several capital market proposals on Friday, including tighter disclosure requirements for initial public offerings (IPOs), allowing companies to make confidential pre-filing of offer documents, and easing open offer pricing norms for the disinvestment of public sector undertakings (PSUs).

The regulator’s board also approved a proposal on the introduction of a new option for the appointment and removal of independent directors and bringing buying and selling by mutual funds under insider trading rules. ET had reported September 29 that the Sebi board would be approving these measures.

Issue Price

Sebi has mandated companies to disclose details related to the pricing of shares based on past fundraising from private equity investors prior to the IPO. Companies will have to disclose the price per share based on the new issue of shares and on secondary sales or acquisitions during the 18 months prior to the IPO. In case there have been no transactions in the 18 months before the IPO, information should be disclosed on price per share based on the last five primary or secondary transactions, not older than three years prior to the IPO. Issuer companies will also have to disclose the weighted average cost of acquisition (WACA) based on primary and secondary transactions.

The regulator said independent directors would have to recommend that the price band is justified based on quantitative factors.

IPO

Sharp Correction in Prices

“The regulator had for several months increased the questioning on pricing of issues and the details of previous issues, including key performance indicators,” said Yash J Ashar, partner, head, capital markets, Cyril Amarchand Mangaldas. “They have now made this disclosure mandatory, including for secondary transfers. Some of this may not be known to the issuer. However, it will now have to be provided. Additionally, independent directors are now required to look at the issue price.”

There has been a sharp correction in the prices of several new-age tech companies that listed last year.

“While one can understand the concerns of the regulator on pricing, pushing this on independent directors may make it challenging for some of them as all of them may not have necessary background to approve this,” Ashar said.

Pre-filing

The Sebi board approved a proposal to introduce the confidential pre-filing of offer documents as an alternative mechanism. This allows issuers to carry out limited interactions without having to make any sensitive information public. Sebi’s initial observations will be available for a period of at least 21 days to help investors in the decision-making process.

“The introduction of pre-filing of an offer document is a well-established procedure in several mature international jurisdictions,” said Arka Mookerjee, partner, JSA. “It is a move in the right direction by the regulator aimed at preserving the confidentiality of nuanced business and financial information from competitors until an issuer is certain of a launch. This will go a long way in preventing price speculation, which currently happens way before the certainty of an IPO. It will however be interesting to take a view on the content of the roadshow presentations and the procedures around that keeping in mind the current publicity regulations.”

Disinvestment

The board eased certain provisions of the takeover code for the disinvestment of PSUs. It scrapped the need to take into account the 60-day, volume-weighted average market price for calculating the open offer price for the disinvestment of PSUs and for the indirect acquisition of any other company in which the PSU has a stake.



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