Sebi considers changing IPO rules to lure homegrown start-ups

The Securities and Exchange Board of India (Sebi) is planning rule changes that will make it easier for homegrown start-ups to list their shares on local bourses, sources involved in the process said, helping domestic investors to bet on the country's booming online economy.

The market regulator is considering easing rules on mandatory disclosure for the draft prospectuses of Internet-based companies, the sources said.

While many of the country's largest e-commerce fimrs are set to list in the coming year or two as they mature, none of them is currently expected to make its market debut in the domestic market. That could mean a significant loss for local bourses and investors dues to high valuations of these firms - Flipkart, for instance, has prompted valuations of as high as $11 billion.

To remedy this, sources said, the Securities and Exchange Board of India (Sebi) is considering easing rules on mandatory disclosure for the draft prospectuses of Internet-based companies.

One of the main items that could be scrapped is the need to detail the use of proceeds from the initial public offering (IPO) of shares, they said. This is an obstacle particularly for technology start-ups, as these companies don't typically use cash to build plants or purchase tangible assets.

"The source said other issues including accounting and financial reporting practices used by the e-commerce firms were also under review to ease pre-IPO disclosure requirements.An official at Sebi said separately that the regulator's chairman, UK Sinha, has held meetings with startup executives and bankers to discuss the proposed changes.

All the sources declined to be named, as they were not authorised to speak to the media given the new rules are still being finalised. A spokesman for Sebi did not respond to requests for a comment.

India is seeing a boom in private investments in start-ups and a large number of funds including Temasek Holdings, US-based Accel Partners and Japan's SoftBank Corp have invested billions of dollars in online companies.

Most of these private equity investors are expected to exit from their portfolio companies through share listings, putting a spotlight on the sector and the potential IPO candidates.

Many home-grown start-ups including online marketplaces Flipkart and Snapdeal are expected to be preparing for IPOs, hoping to raise capital and to give some of their early backers an opportunity to cash in on investments worth billions of dollars.

But bankers are expecting them to explore overseas markets, mainly US exchange operator NASDAQ OMX Group. That is due to regulatory requirements in the country as well as the difficulty in finding valuation benchmarks on exchanges on which no comparable rivals trade.

Investment bankers said the Sebi rule changes, if implemented, may encourage some of these companies to consider a listing at home, giving domestic investors the chance to put money into a sector that is expected to boom in the next few years as more Indians shop, live and work online.

(Reuters)