Sebi tightens IPO valuation scrutiny, jolts startups eyeing listing: Report

 

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.

RBI committee to peg excess capital at Rs 3 trillion, says BofAML

Economy News

A panel named by the Reserve Bank of India (RBI) to study its capital structure is likely to identify excess reserves of up to Rs 3 trillion, or 1.5 per cent of gross domestic product (GDP), according to Bank of America Merrill Lynch (BofAML).

The view from BofAML lends itself to a debate over the RBI’s reserves, with one school of thought believing that the monetary authority holds surplus capital that can be handed over to the government and the other saying the RBI has insufficient reserves.

BofAML’s note comes as the panel led by former governor RBI Bimal Jalan prepares to submit its report in the coming weeks. While finance ministry officials have supported transfer of surplus reserves to help the government meet budget goals, a central bank-backed thinktank found that the RBI’s capital buffer that’s below the global average capital to asset ratio.

“Our stress tests throw up a range of one trillion rupees plus only from contingency reserves," Indranil Sen Gupta, chief India economist at BofAML, said in the note.

According to him, the RBI maintains higher contingency reserves as a percentage of its total book compared to its peers in Brazil, Russia and South Africa and a lower cap will release more funds.
As such, if the cap is halved to 3.25 per cent from 6.25 per cent, currently, that will release Rs 1.3 trillion, Sen Gupta added.


 Along with revaluation gains, which range from Rs 3 billion to Rs 1.8 trillion, the RBI would be in a position to transfer the excess reserves to the government, which can be used to recapitalise the country’s struggling state-run banks, he said.