Sebi set to completely overhaul KPI disclosures for IPO-bound companies

The capital market regulator plans to enhance the disclosure period of past transactions to three years while enhancing the quantum of disclosures to include financial metrics & ratios along with operational parameters as well like long-term sustainability of the business and drivers of its financial performance among other things.

The framework for disclosure of Key Performance Indicators (KPIs) - metrics to assess new-age IPOs and other equity raises - are set for an complete overhaul, learns Moneycontrol, with capital market regulator Sebi looking to widen the standards and make them more measurable, nearly three years after putting them in place.

The capital market regulator plans to increase the disclosure period of past transactions to three years, while finetuning the disclosures to include financial metrics & ratios along with operational parameters such as long-term sustainability of the business and drivers of its financial performance, among other things.

Moneycontrol has also learnt through sources familiar with the development that Sebi is keen that the company's audit committee and a certifying professional should approve all KPIs.

Under the current regulatory framework, companies have to only disclose share sale details for the past 18 months and an undertaking from independent directors that the price band of the public issue is justified.

“It has been nearly three years since the KPI disclosure regime was first introduced to address concerns related to IPOs of new-age companies and start-ups. Now, there is enough data to analyse the industry response and strengthen the regulatory framework for KPI disclosures,” said a person familiar with the development.

The new set of rules have been structured based on feedback and suggestions of the Industry Standards Forum (ISF), which has representations from the three major industry associations - ASSOCHAM, CII and FICCI.

The new standards under consideration classify KPIs in three broad categories - GAAP Financial Measures, Non-GAAP Financial Measures including financial ratios, and Operational Measures, that are not included in the other two categories.

On GAAP and Non-GAAP KPIs, Sebi wants issuer company to disclose all key applicable measures and ratios relevant to its business model and the industry in which it operates, it is learnt.

Sebi also wants all KPI disclosures to be measurable, expressed in numbers, leaving out subjective and qualitative aspects.

Also Read: Sebi gets strict with KPI disclosures to ensure fair IPO valuations

The regulator believes all key financial or operational information related to any private placement or rights issue, or any other form of share sale, shared with any investor three years prior to the date of filing the offer document will need to be disclosed to all investors.

KPIs regularly presented or discussed in board meetings of the company during the three-year period prior to the filing of offer document too shall have to be included in disclosures.

The issuer company must also identify suitable industry peers, and compare its own KPIs with at least three of them, with preference given to India-listed peers, it is learnt. In the absence of a listed, Indian peer, the issuer can compare its data with a global player as well.

All KPIs factored in to arrive at the issue price will also have to be disclosed, and such KPIs shall have to certified by the Managing Director, Chief Executive Officer or Executive Director or a Chief Financial Officer, sources told Moneycontrol.