India’s market regulator has tightened disclosure standards for companies seeking an initial public offering following the lackluster performance of more than half a dozen tech startups over the past year and a half.
Companies seeking to raise money from public offerings are now required by law to disclose their key performance indicators and quotes based on past transactions and private funding rounds in their bidding documents, the Securities and Exchange Board of India said in a statement.
The regulator said the new move aims to bring equity between private and private equity investors. It said private investors have had insufficient access to key indicators of a company they buy shares of, while private equity financiers have been able to track and trade on this data internally for years.
India gets its S-1
Startups will also be given an option to pre-submit their offering documents and receive an assessment from the regulator, similar to the S-1 filings US and Canadian startups enjoy.
“The pre-filing mechanism allows issuers to conduct limited interactions without having to disclose sensitive information. Furthermore, the document containing SEBI’s first observations would be available to investors for a period of at least 21 days, thereby better assisting them in their investment decision-making process,” the regulator said.
The capital markets regulator is tightening disclosure standards at a time when nearly all startups, including Zomato, Policybazaar and Paytm, that went public last year or this year are trading at less than half their initial listing prices.
As the market changes, investors are increasingly adjusting the valuations of late-stage startups they’ve supported, making it even more important for retail investors to make more informed decisions. SoftBank recently internally lowered the valuation of budget hotel chain Oyo, once a $10 billion company, to $2.7 billion. The startup is aiming for a valuation of more than $10 billion in listing early next year.
SEBI’s chairman Madhabi Puri Buch (pictured above) clarified grievances from private investors and clarified at a conference earlier this month that it’s no use telling startups how to price their shares. But she said the regulator will work to help investors make informed decisions.
“Much has been said about the pricing of IPOs of the new technology companies. Our vision is simple. At what price you choose to do your IPO is up to you. We have no business to suggest the price,” Buch said.
“If a company put its equity at ₹100 three or six months ago and now wants to go on the market for ₹450. No problem. But when you go public…tell the investor what the difference between ₹100 and ₹ 450. What has changed,” she added.