NASSCOM's response to SEBI Consultation Paper on disclosures for 'Basis of Issue Price' section of offer document

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NASSCOM's response to SEBI Consultation Paper on disclosures for 'Basis of Issue Price' section of offer document

Garima Prakash

@GarimaP

March 9, 2022

Public Policy

387

NASSCOM made a submission to Securities Exchange Board of India (SEBI) in response to the Consultation Paper on Disclosures for ‘Basis of Issue Price’ section in offer document under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018

The Consultation paper sought feedback on the following proposals by SEBI:

Is there a need for disclosure of Key Performance Indicators (KPIs) in “Basis for Issue Price” section in offer document by the Issuer Company?
If yes, whether KPIs should be certified / audited by: (a) statutory auditors only or (b) KPIs can also be certified/ audited by independent Charted Accountant?
Whether a 3 year look back period for KPIs is adequate? Any suggestion on increasing / decreasing this look back period? Any other suggestion on this point?
Whether comparison with global peers would be appropriate as some of the KPIs would be relevant for that country/ economy they operate in. If yes, whether issuer should make comparison with global peers with appropriate notes to explain such differences?
Whether an 18 months look back period for past transactions and disclosure of valuation based on such transactions is adequate? Any suggestion on increasing / decreasing this look back period?

Overall, our submission acknowledged that:

a primary tool to ensure better decision making by a retail investor for investment in loss making New Age Tech Companies (NATCs) may be through appropriate disclosures on parameters that are relevant for assessing the issuer company’s performance.
disclosing details of pre-IPO private funding rounds can go a long way in curbing alleged practices of unjustifiably high valuations by issuer companies.
However, prescriptive norms that may unduly burden a company when raising capital from the public should be avoided if India is to grow as an attractive ecosystem for entrepreneurs to go for public listing.

Specifically, we suggested that:

The requirement to demonstrate the linkage of KPIs to the issue price needs careful review, because it is not always possible to correlate KPIs with the issue price and KPIs can be dynamic, evolve with time, and can be volatile due to technology changes depending on the management’s strategies and learnings from previous quarters. Therefore, a requirement to link KPIs to the basis of issue price and giving an ‘explanation of how these KPIs contribute to form the basis for issue price’ as suggested in the Consultation Paper, may become an onerous compliance requirement without adding any real value to a potential investor.
SEBI should give guidelines on the manner in which KPIs need to be disclosed. For example, the guidelines could specify that the following information should be accompanied with the disclosure of KPIs: a clear definition of the metric, how it’s calculated, a statement indicating why the metric is useful to investors, a statement indicating how management uses the metric in managing or monitoring the company’s performance.
Disclosing KPIs should be made voluntary for the initial few years. We recommend that a ‘trial’ period be adopted by SEBI in adopting this new approach.
Issuer company should not be compelled to define and measure KPIs in the manner reported by peers (whether domestic or global).
The requirement for audit of KPIs should be imposed in consultation with statutory auditors by fully taking into consideration the feasibility of such a requirement. If it is found that the existing framework of statutory auditors is inappropriate, then a new framework should be notified after due consultation with the industry on the possibility of defining KPIs for each sector. Based on industry input, even in other jurisdictions, typically statutory auditor does not perform any activity to authenticate or audit information disclosed through KPIs.
The look-back period for KPIs should be matched with the period for which financial metrics have been disclosed by the issuer company in the offer document.
The disclosure of comparison of KPIs with domestic or global peers should be based on reports/analysis undertaken by third-party entities to ensure that the comparison being presented is unbiased and reliable. Further, where comparing KPIs with peers is not possible, the issuer company should be exempted upon giving reasons for why it is unable to provide a comparison.

Our detailed response is attached below. For more information, kindly write to garima@nasscom.in or tejasvi@nasscom.in.

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Garima Prakash

Manager, Public Policy and Government Affairs

Reach out to me for all things policy about e-commerce, international trade, export controls, start-ups and fintech

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