IPO Disclosures Must Clearly Explain Business Drivers: SEBI Chief

Securities and Exchange Board of India (SEBI) chairman Tuhin Kanta Pandey has called on companies planning to go public to raise the quality of disclosures in their IPO offer documents, stressing the need for sharper and more meaningful information for investors. While speaking at an Association of Investment Bankers of India event on Jan. 15, Pandey said issuers must provide clearer explanations around risk factors, valuation rationale, objects of the issue and how the funds raised will be utilised. He highlighted that IPO documents should present a transparent picture of a company's financial and ownership history before it approaches the market. Pandey said that companies must lay out their capital structure in detail, including past fundraising activities, preferential allotments and any changes in control close to the IPO. He also highlighted the importance of explaining the business model with greater clarity, including the key drivers of revenue and costs. "We expect greater business model clarity, with transparent revenue and cost drivers," he said. The SEBI chief also asked issuers to strengthen the Management Discussion and Analysis (MD&A) section of offer documents, saying it should not remain a descriptive exercise. Instead, companies should clearly outline the internal and external factors influencing their performance. He also raised concerns over the quality of due diligence undertaken during the IPO process. "Our inspections show that due diligence is not always independent and, at times, relies on issuer undertakings. Projections, especially for working capital and capex, must be independently verified, and backup papers must be maintained for all material statements. Basic checks, such as site visits, must be evidenced with complete reports and photographs with geo-tagging and time-stamps," Pandey said, as per reports. Pandey's remarks come at a time when India's primary markets have seen strong activity. In the first nine months of the financial year, 311 IPOs raised Rs 1.7 trillion, while total equity mobilisation crossed Rs 3.8 trillion. Debt issuances during the same period added Rs 6.8 trillion, with another Rs 1.5 trillion potentially set to be raised. According to Pandey, India now ranks first globally in terms of the number of IPOs and third by IPO value. He also pointed to valuation gaps between the unlisted market and prices discovered during the IPO book-building process. "There is of course an issue when it comes to listing, there is a mismatch between the pricing they have done on the unlisted side and the prices which are discovered when the book is built," Pandey said. Highlighting the complexity of the issue, he said that pre-listing and post-listing phases operate in very different environments. He added that the large number of unlisted companies presents challenges that need to be examined in consultation with the Ministry of Corporate Affairs.