The Sebi move came against the backdrop of closing of IPOs and subsequent listing of several new age, techenabled companies which are yet to report operating profit. Stock prices of several of these companies are now deep in the red compared to their IPO price. Some are still trading higher than their IPO price but substantially below their listing price.
Such loss-making companies have been listing globally for several years. However, in India this is a new trend. In recent months several market commentators, including billionaire investor Rakesh Jhunjhunwala, have openly voiced their doubts about the price at which they sold their shares during the IPO. The investors in these IPOs included a large number of retail ones with hardly any experience of valuing stocks of such companies. On Friday, Sebi put on its website a consultation paper on disclosures for ‘Basis of Issue Price’ and is inviting public comments on the same by March 5.
The current disclosure requirement in the draft offer documents were put in with traditional companies in mind. With more and more new age, tech-driven companies which are loss-makingeyeing to list, according to Sebi, the existing parameters to judge a company’s IPO offer price “may not help investors much in taking investment decisions with respect to a loss-making issuer”. At present, companies going for an IPO are required to disclose in their offer documents key accounting ratios like earnings per share (EPS), price to earnings, return on net worth and net asset value of the company. Relevant accounting ratios of the IPO-bound company’s peers are also required to be disclosed in the offer document.
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