Indian market regulator tightens IPO disclosure norms

India’s market regulator has tightened disclosure norms for firms looking to file for an initial public offering after lackluster performance of more than half a dozen tech startups in the past year and a half.

Firms looking to raise funds from public offers will now be required by law to disclose their key performance indicators and issuing pricing based on past transactions and private funding rounds in their offer documents, the Securities and Exchange Board of India said in a statement.

The regulator said the new step is aimed at bringing parity between retail and private equity investors. It said retail investors haven’t had adequate access to key indicators of a firm whose shares they are buying whereas private equity backers have been able to monitor and act on those data internally for years.

India gets its S-1

Startups are also getting an option to pre-file their offer documents and get a review from the regulator, similar to the S-1 filings U.S. and Canadian startups enjoy.

“Pre-filing mechanism allows issuers to carry out limited interaction with without having to make any sensitive information public. Further the document which incorporates SEBI’s initial observations would be available to investors for a period of at least 21 days, thereby, assisting them better in their investment decision making process,” the regulator said.

The capital markets regulator is tightening the disclosure norms at a time when nearly all the startups including Zomato, Policybazaar and Paytm that went public last year or this year are trading at lower than half of their debut listing prices.

As the market turns, investors are increasingly readjusting the valuations of late-stage startups that they have backed, making it even more crucial for retail investors to make more informed decisions. SoftBank recently internally cut the valuation of budget hotel chain Oyo, once a $10 billion firm, to $2.7 billion. The startup is seeking a valuation of over $10 billion in the listing early next year.

Addressing grievances from retail investors, SEBI chairperson Madhabi Puri Buch (pictured above) clarified at a conference earlier this month that the market regulator had no business in telling startups how they should price their shares. But she said the regulator will work to help investors make informed decisions.

“A lot has been said about the pricing of IPOs of the new tech companies. Our view is simple. At what price you choose to do your IPO is your business. We have no business to suggest the price,” said Buch.

“If a company has three or six months ago placed its equity at ₹100 and now wishes to come to the market at ₹450. No problem. But when you disclose… disclose to the investor what accounts for the difference between ₹100 and ₹450. What has changed,” she added.