Valuation under SEBI Regulations

Valuation under SEBI Regulations. The Securities and Exchange Board of India (SEBI), the capital market regulator, is important in fostering transparency, protecting investors, and enforcing fair valuation practices in the securities market. Valuation is crucial in several transactions involving listed companies, including mergers and acquisitions, takeovers, delisting, preferential allocations, and initial public offerings (IPOs). SEBI mandates valuation reports under its regulations in some cases to make sure stakeholders are getting fair and reasonable value for their assets. These assessments must be carried out by licensed professionals, such as registered valuers, independent chartered accountants, or SEBI-registered merchant bankers, depending on the nature of the transaction and the laws that apply. The primary objective of SEBI's valuation guidelines is to promote fairness, transparency, and accountability, as well as to avoid conflicts of interest or price manipulation in the market for securities. SEBI revises its valuation-related laws frequently as markets evolve in order to keep up with evolving challenges in financial goods and transactions and to comply with international standards. According to SEBI regulations, valuation aims to shield market participants, notably retail investors and minority shareholders, from the effects of erroneous or biased share or asset values.
Learn more about Valuation Services.
Applicable SEBI Regulations Requiring Valuation
Valuation is necessary for a number of transactions in the capital markets that are subject to SEBI rules. The major objective of the valuation report requirement is to ensure that the prices of securities or assets are fair and sustainable, particularly when they impact public shareholders or include publicly traded firms. Valuation is required by SEBI rules for events like mergers, acquisitions, delisting, related party transactions, initial public offerings (IPOs), and preferential allotments. Depending on the particulars of the transaction, SEBI may mandate that the valuation be performed by a licensed valuer, a chartered accountant with the requisite skills, or an unbiased merchant banker. These specialists are obliged to utilize specific valuation techniques in order to remain unbiased toward everyone involved in the transaction. SEBI's valuation rules are designed to safeguard the interests of minority investors, preserve the integrity of the market, and avoid price fixing. As a result, every corporate decision related to share values or asset transfers must comply with the relevant SEBI regulations and be supported by a reliable valuation report from a licensed expert.
Learn more about SME IPO Listing.
Role of Merchant Bankers in SEBI Valuations
In transactions regulated by SEBI where valuation is essential, merchant bankers are important. The valuation of securities is frequently required by SEBI to be done by a SEBI-registered merchant banker, particularly in cases involving preferential allotments, IPOs, acquisitions, and certain transactions involving related parties. This is mainly because merchant bankers have the financial, regulatory, and market understanding needed to execute complicated assessments and make sure they follow SEBI regulations.
They are primarily responsible for determining the fair value of shares or assets using accepted methods like discounted cash flow (DCF), comparable company multiples, or asset-based valuation. They are expected to work independently, without any conflicts of interest, and offer an unbiased assessment of the actual value of the business or item under consideration.
During corporate events like mergers or rights offerings, merchant bankers also create thorough valuation reports that are provided for stock exchanges and made public to shareholders. By assuring that the pricing of securities is fair and transparent, their participation lends credibility to the valuation procedure and boosts investor confidence.
Eligibility Criteria for Valuers under SEBI
Only professionals who meet the stringent requirements set by SEBI are permitted to conduct valuations in transactions subject to its rules. While the standards differ according to the kind of transaction, they all stress the significance of independence, expertise, and professional proficiency. For the majority of capital market transactions, particularly those involving the public interest directly, SEBI requires that valuation reports be produced by a merchant banker registered with SEBI. In certain circumstances, qualified chartered accountants or registered valuers under the Companies Act, 2013 may also be allowed, as long as they are not involved in any advisory or auditing role and are independent of the parties involved.
A crucial need for valuers is independence; they must have no financial or professional stake in the business or any associated entities. Furthermore, they should possess demonstrable expertise, appropriate academic and professional credentials, and real-world experience in financial analysis or valuation. To maintain investor protection and market integrity, SEBI maintains stringent eligibility criteria guaranteeing that only skilled and impartial professionals are permitted to handle delicate valuation tasks.
Valuation in Preferential Allotments and IPOs
Since the valuation immediately affects the pricing of securities given to investors, it is essential in preferential allocations and initial public offerings (IPOs). In order to prevent dilution of existing shareholders' interests and preserve market transparency, SEBI rules ensure that such issues are priced fairly.
When shares are issued for consideration other than cash, such as via asset transfers or against convertible securities, SEBI requires that the pricing of preferential allotments be backed by a valuation report from an independent merchant banker registered with SEBI. The valuation is typically based on well-known techniques like market comparable or DCF and regulated pricing standards.
In a similar vein, the issue price of an IPO is set by the business in conjunction with its lead merchant banker. Valuation reports are frequently written to support the price range and disclosures in the offer document, even if book-building or fixed price methods are used to price IPOs for the most part. This increases transparency for investors and aids them in making well-informed choices. These steps guarantee that the share issuance procedure is fair and that the value assigned to the firm is accurate and supported by unbiased expert analysis.
Valuation in Mergers, Acquisitions, and Schemes
Valuation is the cornerstone of determining the share exchange ratio and evaluating the fairness of transactions, such as mergers, demergers, acquisitions, and corporate restructuring arrangements. To safeguard the interests of public shareholders and sustain market confidence, SEBI uses its rules and regulatory oversight mechanisms to make sure that such valuations are conducted in an open and fair manner.
A valuation report is necessary in order to ascertain the swap ratio and support the transaction when a listed business engages in a scheme of arrangement under the Companies Act, 2013, and SEBI (LODR) Regulations. A certified chartered accountant or an independent registered valuer who has no conflicts of interest should write this study. The valuation should consider a number of financial factors, including the value of assets, profits, market multiples, and potential for expansion.
In the event of an acquisition, notably when shares are being transferred between connected parties or promoters, SEBI may mandate a valuation to confirm that the transaction is conducted at arm's length. Minority shareholders are protected from unfair disadvantages, and transparency is improved as a result. 
Generally speaking, in these circumstances, valuation is not just a technical formality; it is the basis for well-informed shareholder choice and regulatory authorization, which makes the valuer's role both strategic and responsible.
Learn more about Different Methods of Valuation of Shares.
Valuation for Related Party Transactions (RPTs)
RPTs frequently give rise to conflict-of-interest issues, particularly when they involve the transfer of shares, assets, or liabilities between companies under common control. In many cases, SEBI has mandated that an independent valuation report be obtained in order to guarantee that such transactions are carried out equitably and do not prejudice the interests of minority shareholders.
Listed companies are required by the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, to obtain consent from the audit committee and shareholders for significant RPTs. In order for such approvals, a valuation report prepared by a registered valuer or an independent chartered accountant is frequently necessary to ascertain if the transaction price is fair and at arm's length.
The valuer is essential to RPTs because they must use accepted valuation methodologies to assess the fairness of the transaction, review comparable market transactions, and analyze financial data. Valuers are subject to a strict independence policy that prohibits any personal, financial, or professional connection between them and the parties involved.
SEBI hopes to improve transparency, prevent misuse of business assets, and guarantee sufficient protection for the interests of non-promoter shareholders by requiring independent valuation for RPTs.
Valuation in Delisting and Exit Offers
In delisting situations, when a listed firm attempts to withdraw its shares from stock exchanges and provide an exit strategy for public shareholders, valuation is crucial. The Delisting Regulations of SEBI ensure that such exits occur at a fair price and that minority shareholders' rights are fully protected.
The price at which the promoter or acquirer offers to buy back shares in a voluntary delisting must be established through a transparent reverse book building (RBB) process. The acquirer, however, is frequently obliged to designate an independent valuer, usually a registered valuer or merchant banker, to establish a fair value of the shares as a reference point before beginning this procedure.
The valuation report enhances the offer's legitimacy and transparency, even though the indicative price is made public to shareholders and the stock market, and the ultimate discovered price is determined by bids made throughout the RBB process. In cases of forced delisting, where the stock market begins the delisting procedure because the firm has failed to comply with regulations, an independent valuer performs another valuation to determine an acceptable exit price for public shareholders.
By concentrating on independent valuation in delisting, SEBI ensures that the exit is not arbitrary or detrimental to investors, thereby preserving fairness and market confidence in these delicate transactions.
Asset Valuation in REITs and InvITs
Since these investment vehicles get their value from underlying real estate or infrastructure assets, asset valuation is essential to the operation of real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).To guarantee transparency and investor protection, SEBI establishes specific criteria for asset valuation in its specialized REIT and InvIT Regulations.
SEBI requires that a registered valuer with capability in the appropriate asset class conduct the valuation for both REITs and InvITs. For example, a REIT needs a valuer with expertise in land and buildings, whereas an InvIT needs one who is knowledgeable about infrastructure assets like roads, power plants, or telecommunications towers. Depending on the type of trust, valuations are necessary at the time of listing and sometimes later, usually every six months or every year. Additionally, the valuer must do a comprehensive valuation every year and a summary valuation every six months in some circumstances.
The registered valuer must be impartial and unrelated to the trustee, sponsor, or manager. The value assessment is a crucial component of the information provided to unitholders, as it helps investors decide whether to purchase, sell, or retain units by calculating the Net Asset Value (NAV). By mandating such strict valuation rules, SEBI guarantees that the market prices of REITs and InvITs represent the real worth of the underlying assets and that retail and institutional investors have access to accurate financial data.
Compliance, Disclosure, and Penalties under SEBI
To preserve market integrity and investor confidence, SEBI places a high priority on compliance and timely disclosure in valuation reports. Depending on the nature of the transaction, any valuation performed in accordance with SEBI rules must be properly disclosed to the stock markets, stockholders, and other parties. All essential assumptions, techniques used, valuer qualifications, and a statement of independence must be included in the valuation report. These disclosures promote transparency and allow regulators and investors to determine if the valuation is fair and objective.
Failure to comply with SEBI's valuation-related regulations, such as failing to hire a qualified valuer, hiding important information, providing deceptive reports, or delaying disclosures, may have severe repercussions. This could involve financial penalties, suspension of listing approvals, rejection of the transaction, or even penal action against the issuer company, its directors, or the valuer involved. If SEBI discovers that the valuation has been manipulated or carried out in contravention of its set standards, it also has the power to begin inquiries or send out show-cause notifications. In some cases, valuers who are found guilty of misbehavior or bias may be subject to suspension or blacklisting.
Therefore, complying with SEBI's compliance framework is a legal requirement, not just a procedural formality. It guarantees the integrity of valuation exercises and the wider interests of capital market participants.
If you need expert assistance with valuation, compliance filings, or SEBI-related advisory, reach out to our experienced team at Compliance Calendar LLP. Contact us today for a consultation or write to us at info@ccoffice.in  to discuss your valuation needs.
Frequently Asked Questions (FAQs)
Q1. Who is eligible to issue a valuation report under SEBI regulations?
Ans. Depending on the nature of the transaction, SEBI permits SEBI-registered merchant bankers, independent chartered accountants, or registered valuers (under the Companies Act, 2013) to issue valuation reports, provided they meet independence and qualification criteria.
Q2. Is it mandatory to get a valuation report for preferential allotment?
Ans. Yes, especially when shares are issued for non-cash consideration or not priced as per market norms, a valuation report by a merchant banker is mandatory under SEBI (ICDR) Regulations.
Q3. What is the role of a merchant banker in valuations?
Ans. Merchant bankers assess the fair value of securities using accepted methods and issue detailed valuation reports. They ensure that pricing complies with SEBI norms and protects investor interests.
Q4. Can a company’s internal auditor issue a SEBI-compliant valuation report?
Ans. No. SEBI requires the valuer to be independent, meaning they must not be associated with the company as an auditor, consultant, or employee to avoid conflict of interest.
Q5. Is valuation required for all mergers and acquisitions involving listed companies?
Ans. Yes, in most cases. Valuation is needed to determine fair share exchange ratios or transaction values, and SEBI mandates that such valuations be disclosed and conducted by an independent expert.
Q6. How often must assets be valued in REITs and InvITs?
Ans. Valuation must be conducted annually in full, and a half-yearly summary is also required, both by a registered valuer with experience in the relevant asset class.
Q7. What happens if SEBI finds the valuation report misleading or biased?
Ans. SEBI may initiate action including penalties, suspension of the transaction, or blacklisting of the valuer. Accurate and independent valuation is crucial to avoid regulatory consequences.

The Securities and Exchange Board of India (SEBI), the capital market regulator, is important in fostering transparency, protecting investors, and enforcing fair valuation practices in the securities market. Valuation is crucial in several transactions involving listed companies, including mergers and acquisitions, takeovers, delisting, preferential allocations, and initial public offerings (IPOs). SEBI mandates valuation reports under its regulations in some cases to make sure stakeholders are getting fair and reasonable value for their assets. These assessments must be carried out by licensed professionals, such as registered valuers, independent chartered accountants, or SEBI-registered merchant bankers, depending on the nature of the transaction and the laws that apply. The primary objective of SEBI's valuation guidelines is to promote fairness, transparency, and accountability, as well as to avoid conflicts of interest or price manipulation in the market for securities. SEBI revises its valuation-related laws frequently as markets evolve in order to keep up with evolving challenges in financial goods and transactions and to comply with international standards. According to SEBI regulations, valuation aims to shield market participants, notably retail investors and minority shareholders, from the effects of erroneous or biased share or asset values.

Learn more about Valuation Services.

Applicable SEBI Regulations Requiring Valuation

Valuation is necessary for a number of transactions in the capital markets that are subject to SEBI rules. The major objective of the valuation report requirement is to ensure that the prices of securities or assets are fair and sustainable, particularly when they impact public shareholders or include publicly traded firms. Valuation is required by SEBI rules for events like mergers, acquisitions, delisting, related party transactions, initial public offerings (IPOs), and preferential allotments. Depending on the particulars of the transaction, SEBI may mandate that the valuation be performed by a licensed valuer, a chartered accountant with the requisite skills, or an unbiased merchant banker. These specialists are obliged to utilize specific valuation techniques in order to remain unbiased toward everyone involved in the transaction. SEBI's valuation rules are designed to safeguard the interests of minority investors, preserve the integrity of the market, and avoid price fixing. As a result, every corporate decision related to share values or asset transfers must comply with the relevant SEBI regulations and be supported by a reliable valuation report from a licensed expert.

Learn more about SME IPO Listing.

Role of Merchant Bankers in SEBI Valuations

In transactions regulated by SEBI where valuation is essential, merchant bankers are important. The valuation of securities is frequently required by SEBI to be done by a SEBI-registered merchant banker, particularly in cases involving preferential allotments, IPOs, acquisitions, and certain transactions involving related parties. This is mainly because merchant bankers have the financial, regulatory, and market understanding needed to execute complicated assessments and make sure they follow SEBI regulations.

They are primarily responsible for determining the fair value of shares or assets using accepted methods like discounted cash flow (DCF), comparable company multiples, or asset-based valuation. They are expected to work independently, without any conflicts of interest, and offer an unbiased assessment of the actual value of the business or item under consideration.

During corporate events like mergers or rights offerings, merchant bankers also create thorough valuation reports that are provided for stock exchanges and made public to shareholders. By assuring that the pricing of securities is fair and transparent, their participation lends credibility to the valuation procedure and boosts investor confidence.

Eligibility Criteria for Valuers under SEBI

Only professionals who meet the stringent requirements set by SEBI are permitted to conduct valuations in transactions subject to its rules. While the standards differ according to the kind of transaction, they all stress the significance of independence, expertise, and professional proficiency. For the majority of capital market transactions, particularly those involving the public interest directly, SEBI requires that valuation reports be produced by a merchant banker registered with SEBI. In certain circumstances, qualified chartered accountants or registered valuers under the Companies Act, 2013 may also be allowed, as long as they are not involved in any advisory or auditing role and are independent of the parties involved.

A crucial need for valuers is independence; they must have no financial or professional stake in the business or any associated entities. Furthermore, they should possess demonstrable expertise, appropriate academic and professional credentials, and real-world experience in financial analysis or valuation. To maintain investor protection and market integrity, SEBI maintains stringent eligibility criteria guaranteeing that only skilled and impartial professionals are permitted to handle delicate valuation tasks.

Valuation in Preferential Allotments and IPOs

Since the valuation immediately affects the pricing of securities given to investors, it is essential in preferential allocations and initial public offerings (IPOs). In order to prevent dilution of existing shareholders' interests and preserve market transparency, SEBI rules ensure that such issues are priced fairly.

When shares are issued for consideration other than cash, such as via asset transfers or against convertible securities, SEBI requires that the pricing of preferential allotments be backed by a valuation report from an independent merchant banker registered with SEBI. The valuation is typically based on well-known techniques like market comparable or DCF and regulated pricing standards.

In a similar vein, the issue price of an IPO is set by the business in conjunction with its lead merchant banker. Valuation reports are frequently written to support the price range and disclosures in the offer document, even if book-building or fixed price methods are used to price IPOs for the most part. This increases transparency for investors and aids them in making well-informed choices. These steps guarantee that the share issuance procedure is fair and that the value assigned to the firm is accurate and supported by unbiased expert analysis.

Valuation in Mergers, Acquisitions, and Schemes

Valuation is the cornerstone of determining the share exchange ratio and evaluating the fairness of transactions, such as mergers, demergers, acquisitions, and corporate restructuring arrangements. To safeguard the interests of public shareholders and sustain market confidence, SEBI uses its rules and regulatory oversight mechanisms to make sure that such valuations are conducted in an open and fair manner.

A valuation report is necessary in order to ascertain the swap ratio and support the transaction when a listed business engages in a scheme of arrangement under the Companies Act, 2013, and SEBI (LODR) Regulations. A certified chartered accountant or an independent registered valuer who has no conflicts of interest should write this study. The valuation should consider a number of financial factors, including the value of assets, profits, market multiples, and potential for expansion.

In the event of an acquisition, notably when shares are being transferred between connected parties or promoters, SEBI may mandate a valuation to confirm that the transaction is conducted at arm's length. Minority shareholders are protected from unfair disadvantages, and transparency is improved as a result.

Generally speaking, in these circumstances, valuation is not just a technical formality; it is the basis for well-informed shareholder choice and regulatory authorization, which makes the valuer's role both strategic and responsible.

Learn more about Different Methods of Valuation of Shares.

Valuation for Related Party Transactions (RPTs)

RPTs frequently give rise to conflict-of-interest issues, particularly when they involve the transfer of shares, assets, or liabilities between companies under common control. In many cases, SEBI has mandated that an independent valuation report be obtained in order to guarantee that such transactions are carried out equitably and do not prejudice the interests of minority shareholders.

Listed companies are required by the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, to obtain consent from the audit committee and shareholders for significant RPTs. In order for such approvals, a valuation report prepared by a registered valuer or an independent chartered accountant is frequently necessary to ascertain if the transaction price is fair and at arm's length.

The valuer is essential to RPTs because they must use accepted valuation methodologies to assess the fairness of the transaction, review comparable market transactions, and analyze financial data. Valuers are subject to a strict independence policy that prohibits any personal, financial, or professional connection between them and the parties involved.

SEBI hopes to improve transparency, prevent misuse of business assets, and guarantee sufficient protection for the interests of non-promoter shareholders by requiring independent valuation for RPTs.

Valuation in Delisting and Exit Offers

In delisting situations, when a listed firm attempts to withdraw its shares from stock exchanges and provide an exit strategy for public shareholders, valuation is crucial. The Delisting Regulations of SEBI ensure that such exits occur at a fair price and that minority shareholders' rights are fully protected.

The price at which the promoter or acquirer offers to buy back shares in a voluntary delisting must be established through a transparent reverse book building (RBB) process. The acquirer, however, is frequently obliged to designate an independent valuer, usually a registered valuer or merchant banker, to establish a fair value of the shares as a reference point before beginning this procedure.

The valuation report enhances the offer's legitimacy and transparency, even though the indicative price is made public to shareholders and the stock market, and the ultimate discovered price is determined by bids made throughout the RBB process. In cases of forced delisting, where the stock market begins the delisting procedure because the firm has failed to comply with regulations, an independent valuer performs another valuation to determine an acceptable exit price for public shareholders.

By concentrating on independent valuation in delisting, SEBI ensures that the exit is not arbitrary or detrimental to investors, thereby preserving fairness and market confidence in these delicate transactions.

Asset Valuation in REITs and InvITs

Since these investment vehicles get their value from underlying real estate or infrastructure assets, asset valuation is essential to the operation of real estate investment trusts (REITs) and infrastructure investment trusts (InvITs).To guarantee transparency and investor protection, SEBI establishes specific criteria for asset valuation in its specialized REIT and InvIT Regulations.

SEBI requires that a registered valuer with capability in the appropriate asset class conduct the valuation for both REITs and InvITs. For example, a REIT needs a valuer with expertise in land and buildings, whereas an InvIT needs one who is knowledgeable about infrastructure assets like roads, power plants, or telecommunications towers. Depending on the type of trust, valuations are necessary at the time of listing and sometimes later, usually every six months or every year. Additionally, the valuer must do a comprehensive valuation every year and a summary valuation every six months in some circumstances.

The registered valuer must be impartial and unrelated to the trustee, sponsor, or manager. The value assessment is a crucial component of the information provided to unitholders, as it helps investors decide whether to purchase, sell, or retain units by calculating the Net Asset Value (NAV). By mandating such strict valuation rules, SEBI guarantees that the market prices of REITs and InvITs represent the real worth of the underlying assets and that retail and institutional investors have access to accurate financial data.

Compliance, Disclosure, and Penalties under SEBI

To preserve market integrity and investor confidence, SEBI places a high priority on compliance and timely disclosure in valuation reports. Depending on the nature of the transaction, any valuation performed in accordance with SEBI rules must be properly disclosed to the stock markets, stockholders, and other parties. All essential assumptions, techniques used, valuer qualifications, and a statement of independence must be included in the valuation report. These disclosures promote transparency and allow regulators and investors to determine if the valuation is fair and objective.

Failure to comply with SEBI's valuation-related regulations, such as failing to hire a qualified valuer, hiding important information, providing deceptive reports, or delaying disclosures, may have severe repercussions. This could involve financial penalties, suspension of listing approvals, rejection of the transaction, or even penal action against the issuer company, its directors, or the valuer involved. If SEBI discovers that the valuation has been manipulated or carried out in contravention of its set standards, it also has the power to begin inquiries or send out show-cause notifications. In some cases, valuers who are found guilty of misbehavior or bias may be subject to suspension or blacklisting.

Therefore, complying with SEBI's compliance framework is a legal requirement, not just a procedural formality. It guarantees the integrity of valuation exercises and the wider interests of capital market participants.

If you need expert assistance with valuation, compliance filings, or SEBI-related advisory, reach out to our experienced team at Compliance Calendar LLP. Contact us today for a consultation or write to us at info@ccoffice.in to discuss your valuation needs.

Frequently Asked Questions (FAQs)

Q1. Who is eligible to issue a valuation report under SEBI regulations?

Ans. Depending on the nature of the transaction, SEBI permits SEBI-registered merchant bankers, independent chartered accountants, or registered valuers (under the Companies Act, 2013) to issue valuation reports, provided they meet independence and qualification criteria.

Q2. Is it mandatory to get a valuation report for preferential allotment?

Ans. Yes, especially when shares are issued for non-cash consideration or not priced as per market norms, a valuation report by a merchant banker is mandatory under SEBI (ICDR) Regulations.

Q3. What is the role of a merchant banker in valuations?

Ans. Merchant bankers assess the fair value of securities using accepted methods and issue detailed valuation reports. They ensure that pricing complies with SEBI norms and protects investor interests.

Q4. Can a company’s internal auditor issue a SEBI-compliant valuation report?

Ans. No. SEBI requires the valuer to be independent, meaning they must not be associated with the company as an auditor, consultant, or employee to avoid conflict of interest.

Q5. Is valuation required for all mergers and acquisitions involving listed companies?

Ans. Yes, in most cases. Valuation is needed to determine fair share exchange ratios or transaction values, and SEBI mandates that such valuations be disclosed and conducted by an independent expert.

Q6. How often must assets be valued in REITs and InvITs?

Ans. Valuation must be conducted annually in full, and a half-yearly summary is also required, both by a registered valuer with experience in the relevant asset class.

Q7. What happens if SEBI finds the valuation report misleading or biased?

Ans. SEBI may initiate action including penalties, suspension of the transaction, or blacklisting of the valuer. Accurate and independent valuation is crucial to avoid regulatory consequences.