New Age IPOs: Sebi planning tighter monitoring for IPO proceeds

The Securities and Exchange board of India (SEBI) may increase scrutiny of the utilisation of Initial public offer (IPO) money by new age companies. According to a source close to the development said the market regulator is planning to come out with the discussion paper on enhancing disclosure of IPO proceeds.

“Regulator wants more disclosure from companies and especially from new technologies companies which are coming to market and raising money in IPO,” the source told Zee Business.

Source further added that “Sebi is actively considering third party audit of IPO money utilisation every quarter. Along with this, regulator may increase responsibility of monitoring committee who checks usage of IPO money”.

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Another source told Zee Business, “Sebi may issue discussion paper on this issue and take view of market participants”.

Last week, Sebi appointed Primary Market Advisory Committee (PMAC), which is headed by TV Mohan Das Pai, also discussed this issue. A source who is member of this committee confirmed Zee Business about discussion on this issue.

Source further added: “Sebi has relaxed norms for new age companies for raising money from the market. However, Sebi has concern that these new technology companies mentioning utilisation of IPO money is not much clear. In this situation, more disclosure and close watch by monitoring committee could be the only option for safeguarding investors. These companies are backed by private equity players and ultra high net-worth investors so they also keep tight watch on the company activity”.

Commenting on the development, Anil Chaudhary, Partner, FinSec Law Advisors said: “While the intention of SEBI to closely monitor utilisation of IPO proceeds is laudable, caution should be taken against too much interference requiring third party audits. Companies can be required to make quarterly disclosures about utilisation of IPO proceeds and other such disclosures so that investors are kept informed about the use of IPO proceeds. Over-regulation especially for new age tech companies can be avoided”.

A marker expert who invests in IPO heavily told Zee Business “Unlike traditional business oriented companies, new age tech companies are valued differently and they get higher valuation despite being weak on traditional financial parameters. Interestingly, retail investors lured by high listing gains but cause of worry is clarity about utilisation of IPO proceed”.

Sonam Chandwani, Managing Partner, KS Legal & Associates told Zee Business “Misappropriation of public monies, failure to meet project completion deadlines, inability to track down firms and directors, have escalated drastically. Because there are several regulatory gaps in monitoring IPO proceeds, promoters have a free hand with investors' money”.

In recent time, six new technology companies including PayTm, PB Fintech, Nykaa, Cartrade, Zomato and Nazaraa raised Rs 21680 crores in fresh equity.