India has tightened scrutiny of IPO-bound firms by questioning how key internal business metrics are used to arrive at valuations, unsettling bankers and companies which fear delays in listing plans, sources with direct knowledge told Reuters. India's push comes after the flop listing of SoftBank-backed payments firm Paytm's $2.5 billion IPO in November which sparked criticism of lax oversight of how loss-making companies price issues at what some say are lofty valuations.
The Securities and Exchange Board of India (SEBI) last month flagged concerns in proposing stricter disclosures, saying more and more new-age tech firms which "generally remain loss making for a longer period" were filing for IPOs, and traditional financial disclosures "may not aid investors." But even before the proposal is finalised, SEBI has in recent weeks asked many companies to get their non-financial metrics -- KPIs, or key performance indicators -- audited, and then explain how they were used to arrive at an IPO's valuation, five banking and legal sources said. Typically for a tech or app-based startup, KPIs could be figures like the number of downloads or average time spent on a platform -- metrics sources said are disclosed but difficult to audit or link to a company's valuation. SEBI is asking us to "justify the valuation," said one Indian lawyer advising several companies eyeing IPOs, adding it was "creating uncertainty and increasing cost of compliance." SEBI did not respond to a request for comment.
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