Sebi has made crucial changes to how IPOs are approved. What are they?

Talk about good timing. At a time when more than 70 companies are in the pipeline to enter the stock markets through initial public offerings (IPOs), capital markets regulator Securities & Exchange Board of India (Sebi) has announced key measures to encourage more IPOs. While on one hand, Sebi has tightened disclosure norms for companies wanting to go public, on the other hand it has also opened a new route by which firms can file the offer document with limited information initially and disclose sensitive information closer to the actual IPO process. This addresses concerns raised by market participants and industry players that the draft offer document contains a lot of sensitive information about the company, and if the company is not able to actually launch the IPO, then the disclosures, at times, prove detrimental to the growth prospects of the firm. Incidentally, there have been many instances in the recent past of companies filing the draft document and then being forced to put the offer on hold due to market conditions.

Meanwhile, Sebi has also tightened the disclosure norms, especially of those relating to key performance indicators based on past transactions and past fundraising. Some of the disclosures mandated by the regulator include price of shares sold or acquired within 18 months prior to the IPO or the past five primary or secondary transactions—if in case there are no transactions in the past 18 months.

While announcing the new framework on September 30, Sebi Chairperson Madhabi Puri Buch said the idea is to remove any in formation asymmetry—whatever information is shared with institutional investors is shared with all investors, including retail. Sebi’s move is especially use ful for the listing ambitions of new-age companies or start-ups, which are typically loss-making and whose financial health is difficult to ascertain based on traditional metrics. “Pre-filing is a good move as companies may not want to disclose sensitive information at an early stage, while full disclosure can definitely happen at a later stage,” says Pinak Rudra Bhattacharyya, Senior VP & Head of Corporate Finance at IIFL Securities. “As far as KPI disclosures go, it is useful to have the KPIs in a single place [as it is] important to be reviewed by investors while formulating investment decisions both for early-stage and late-stage companies.”

It is widely believed that the pre-filing option will encourage more companies to mull a public listing. It’s a needed push given that the first six months of FY23 have seen funds raised through IPOs drop by 32 per cent YoY—from Rs 51,979 crore in April-September 2021 to Rs 35,456 crore YoY in 2022, as per data from Prime Database. Tellingly, a bulk of the money (58 per cent) raised this fiscal has come from the `20,557-crore IPO of LIC. Not a good sign for the health of the primary market, and good reason for the steps taken by Sebi
 

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