InvestorQ : How will SEBI prevent poor listing performance of new age digital IPOs?
Arti Chavan made post

How will SEBI prevent poor listing performance of new age digital IPOs?

Rutuja Nigam answered.
2 weeks ago

On the subject of IPO listing performance, Madhabi underlined that the regulator would certainly get involved in two specific areas to ensure that everything was above board. For instance, while the pricing prerogative will be with the issuer and investment banker, SEBI chairperson did suggest that the regulator would go all out to ensure greater levels of transparency and to ensure that big jumps in premiums were justified thoroughly by the companies. To begin with, it would deepen disclosure requirements for such IPOs.

The idea of such in-depth disclosure would that investors have sufficient data and insights at their disposal to take a calculated decision on whether to invest in new age IPOs. SEBI would clearly not compromise on transparency and the regulator would ensure that especially in the case of the digital new age companies, there was adequate transparency and simplicity in the prospectus so that information was available easily. SEBI went to the extent of assuring the audience that the regulator would make deep disclosures mandatory.

But the big difference that SEBI will make is in asking for a detailed justification of premium valuations. Let me explain. There have been several instances where the issuer raised funds from private equity at X valuation and in a short span raised IPO funds at substantial premium to the PE valuation. Madhabi has underlined that in such cases, the SEBI would insist that the company and investment bankers furnish sufficient and credible justification for such a steep escalation in valuation. Beyond that SEBI would not get into micros.

One thing that we have seen in the last few months is that the market forces can be ruthless when it comes to correcting such excesses. IT is after all, the market forces that put pressure on the pricing. That is amply evident the way these days the excesses are unwinding in the primary market. Perhaps, Madhabi is right that this should also be left to the forces of the market to take the final decision.