SEBI tightens IPO rules; mandates issuer to disclose offer price based on past transactions, fund raising

The move came against the backdrop of many new-age companies, that do not have a track record of having an operating profit at least in the preceding three years, tapping the IPO route to raise funds

Tightening Initial Public Offering (IPO) norms, capital markets regulator SEBI on Friday cleared the proposal mandating the issuers to disclose the offer price based on past transactions and fund raising activities.

In addition, the board of SEBI approved a proposal introducing an alternative mechanism by permitting "pre-filing" of offer documents for companies contemplating IPOs.

Under this, an issuer should make "pre-filing" of offer documents with SEBI and stock exchanges without making it available to the public for an initial scrutiny period only.

"Pre-filing mechanism allows issuers to carry out limited interaction 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 in a press release after its board meeting.

The existing mechanism of processing offer documents should continue in addition to this alternative mechanism of pre-filing.

"The board approved the proposal to mandate the 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' section of the offer document, and in Price Band Advertisement," SEBI said.