Taking a cue from US regulations, market regulator Sebi is making it mandatory for all listed companies to update every year the offer documents filed at the time of their IPOs and wants a much stricter disclosure regime to safeguard the interest of investors.
As per the proposed measure, which has been approved by the Sebi board and would be soon notified, all the listed companies would have to file a comprehensive annual disclosure statement, in addition to the existing requirements, to provide updated information to investors.
After a recommendation made by its Primary Market Advisory Committee (PMAC), Securities and Exchange Board of India (Sebi) has decided to replicate the annual 20F filing prescribed by the US market regulator SEC (Securities and Exchange Commission) for such annual disclosure statements.
These filings would also need to be incorporated into the information memorandum by listed entities during their subsequent capital raising exercises.
Besides, Sebi is looking to rationalise and tighten its overall disclosure norms for the IPO documents, after it recently came across various loopholes that were exploited by certain companies for manipulating the public offer processes.
During its investigations into certain IPOs during 2011, Sebi found that many of the prospectuses did not contain all material, true and adequate disclosures.
However, the companies and their directors had wrongly certified in the offer documents that all the disclosures were true and correct.
The issue managers also apparently colluded with the companies or failed to exercise the required due diligence.
It was also observed that in some cases, the issuers did not make prompt, true and fair disclosure of all the material developments that took place between the date of the offer documents and the date of allotment of shares.
Consequently, Sebi has decided to streamline its entire disclosure regime, while making it mandatory for the companies to make an updated disclosure filing every year on the lines of annual 20-F filing in the US, where companies are required to list out all possible material details.
For companies which are planning IPOs (Initial Public Offers), the requirement of a comprehensive disclosure statement, updated every year, would commence with the IPO.
This would seek to update the disclosures made by the companies at the IPO stage on an annual basis so as to ensure that at any point of time, updated information about them is available in public domain.
Listed companies can incorporate the required disclosures by way of suitable references to the annual filings without the requirement of submitting fresh offer documents during their follow-on offerings (FPOs) and Rights Issues -- thus saving them time and costs for such filings.
Presently, upon closure of the issue, the companies update their Red Herring Prospectus or final offer document with the price discovered through the bidding submit a copy of the final prospectus to Registrar of Companies (RoC) and Sebi.
Thereafter, upon listing, issuers are bound by the continuous disclosure obligations cast on them in terms of various provisions.
These provisions include periodical disclosures about the company's financial information, shareholding related changes, and material developments in the business.
Post the listing, any further developments related to the company are disclosed to the stock exchanges on an "as and when basis and depending on whether the company considers it material or not".
However, all such information is available in fragments and there is no single document which contains all subsequent updates of the company at one place.
As a result, investors in the secondary market have to sift through various individual disclosures made or rely on the reports of the analysts for the purpose.
Also, filing of fresh offer documents for FPOs or rights issues are almost as comprehensive and exhaustive as IPO documents, making it a time-consuming process despite most information being in public domain, although not at one place.