Sebi flags valuation concerns in corporate deals, calls for more safeguards

Sebi's Kamlesh Chandra Varshney voiced concerns over inflated valuations in IPOs and corporate arrangements, urging stronger frameworks to protect minority shareholders and simplify compliance

Securities and Exchange Board of India (Sebi) whole-time member, Kamlesh Chandra Varshney, on Friday expressed concern over valuations of initial public offerings (IPOs) and certain corporate arrangements, calling for stronger guardrails to protect minority shareholders.

 

“There are cases we have seen where corporate arrangements are taking place and promoter-shareholders probably get valuation at an inflated price to get a better swap allocation, which is detrimental to minority shareholders. We are receiving lots of complaints from these minority shareholders that their interests have been compromised,” Varshney said at the Gatekeepers of Governance event organised by Excellence Enablers. 

Valuation of such arrangements is an area where the need for specific guidelines could be explored, Varshney said, adding that Sebi might need to work with the Insolvency and Bankruptcy Board of India (IBBI) on this front. 

Addressing the issue of IPO pricing, he clarified that Sebi does not interfere in valuations and has long moved away from controlling capital issues, leaving pricing to be determined by investors, a practice he described as appropriate. 

“We think that when anchor (institutional) investors are doing valuation, Sebi should keep itself away, which is probably the right thing. But without compromising on this position, how do we ensure that valuations by anchor investments are also taking place properly, effectively, and efficiently. I think that is something we need to talk about,” said Varshney.

 

His remarks come at a time when large IPOs, particularly those from the startup ecosystem, have sparked significant outcry on social media. Sebi Chairman Tuhin Kanta Pandey had on Thursday similarly stated that while the regulator ensures robust disclosure and transparency in IPOs, it does not intervene in pricing, which is left to investors. 

He also pointed to the need for clearer accountability frameworks for independent directors, stating they should be able to question and challenge matters discussed at board and audit committee meetings. 

“These are the things we need to address. At the same time, there is feedback from independent directors that they are also not sure about their functions and responsibilities. And, if there is a violation by the company, these directors are also issued summons and showcause notices. This is one area we have to address because we want good people to come,” he added. 

The Sebi whole-time member further emphasised the need to simplify compliance where there was an overlap between the Companies Act and Sebi’s Listing Obligations and Disclosure Requirements (LODR) regulations. He cited differences in the treatment of related-party transactions under the two frameworks. 

While LODR applies only to listed entities, the Companies Act has broader applicability beyond listed firms. 

Notably, on the same day, the Sebi chairman said at another event that the regulator would soon initiate a comprehensive review of the LODR and settlement regulations. 

Varshney also referred to the idea of an annual information memorandum to streamline compliance across regulations. 

“Companies will have to just file all information at one place — not again and again. It will serve more than one purpose. There is currently information arbitrage between primary and secondary markets. If all information is included in the annual information memorandum, your future public issues will become very convenient,” he added.