In our previous article, we discussed how the market watchdog SEBI is scrutinising PE/VC fundraising by start-ups. The market regulator recently held a board meeting specifically eyeing improving the insider trading regulations and including key performance indicators for investors’ benefit. So, in part II of our series, we are going to discuss key takeaways from the SEBI board meeting held on September 30th, 2022 where changes to the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018 (“SEBI ICDR Regulations”) were approved. It includes requiring disclosure of additional information linked to the basis for valuation in an Initial Public Offer (“IPO”), the introduction of confidential pre-filing of draft offer documents in an IPO, and review of the existing framework for Offer for Sale (“OFS”) which are a few from the many major takeaways. In addition to the above, SEBI has also approved certain other changes which include amendments in SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 2011 (“Takeover Regulations”) and Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2018.
Read further to know more about what the market watchdog changes in the start-up investment landscape after its recent board meeting.
Key takeaways from the SEBI board meeting for Start-ups IPOs
Disclosure by issuers coming out with Initial Public Offers (IPO) SEBI has approved a proposal to mandate issuers coming out with IPO to make disclosure of Key Performance Indicators (KPIs) and price per share of issuer based on past transactions and past fundraising done by the issuer from the investors under ‘Basis for Issue Price’.
The disclosure of price per share of an issuer company is to be based on the primary/new issue of shares and based on the secondary sale/acquisition of shares, during the 18 months period prior to IPO or if there are no transactions during the 18 months period prior to IPO, then the information shall be disclosed for price per share of issuer company based on last five primary or secondary transactions, not older than three years prior to IPO.
Pre-filing in IPOs SEBI has approved a proposal to introduce the pre-filing of offer documents as an optional alternative mechanism for the purpose of Initial Public Offers on the main board of stock exchanges. This will allow issuers to carry out limited interaction without having to make any sensitive information public.
Modifications to OFS Framework
SEBI has approved the following major modifications with respect to the existing framework for Offer for Sale (OFS) through the Stock Exchange Mechanism:
1. Currently, non-promoter shareholders holding at least 10% of the share capital of an eligible company and willing to offer shares of at least Rs. 25 Cr. are eligible to offer their shares through the OFS mechanism. It has been decided to do away with the requirement of a minimum 10% shareholding for the non-promoter shareholders for offering shares through the OFS mechanism.
2. The existing cooling-off period of 12 weeks for OFS has been reduced to a range of +2 weeks to +12 weeks based on the liquidity of securities of such eligible companies.
3. Retail investors have been allowed to bid for the unsubscribed portion of the non-retail segment.
4. OFS mechanism has been made available to unit holders/sellers of listed REITs / InvITs to offer their holdings
Preferential Issue and Qualified Institutions Placement SEBI has approved the proposal to introduce monitoring of utilization of issue proceeds raised through Preferential Issue and Qualified Institutions Placement (QIP) through CRAs as monitoring agencies for issue sizes exceeding Rs 100 crore. In light of recent times, it would not be wrong to state that many of the Indian start-ups that went on to become unicorns got listed. SEBI has proposed these changes on the basis of its experience with these start-ups for market stability.
| Name of Unicorn | Listing Period | Offer Price | Price as on November 9 |
| Paytm | November 2021 | 2080-2150 | 651.25 |
| Delhivery | May 2022 | 487 | 395.05 |
| Nykaa | October 2021 | 1085 | 1132 |
| Policy Bazaar | November 2021 | 940 | 385.85 |
| Zomato | July 2021 | 72 | 65.1 |
* Latest start-ups in India which later went on to become unicorns and got listed.
Part III would be highlighting the Valuation mechanism existing in India.
Stay tuned!
The note is prepared for knowledge dissemination and does not constitute legal, financial or commercial advice. AK & Partners or its associates are not responsible for any action taken based on its contents.
