Key Takeaways: SEBI ICDR Valuation for Preferential Issues (2025 Update)
- Core Regulations: SEBI ICDR Regulations 164 & 166A mandate strict pricing formulas to determine the "floor price" for preferential issues, ensuring protection against unfair dilution.
- Pricing Frequently Traded Shares: If total traded turnover during 240 trading days is ≥10% of total shares, the floor price is the higher of the volume-weighted average prices for the preceding 90 trading days or 10 trading days.
- Pricing Infrequently Traded Shares: For shares not meeting liquidity criteria (less than 10% traded turnover), a valuation certificate from an IBBI-Registered Independent Valuer is mandatory.
- Accepted Methodologies: IBBI-registered valuers typically use Discounted Cash Flow (DCF), Comparable Company Analysis, or Net Asset Value (NAV) methods to determine fair value.
- 2025 Updates: Recent amendments focus on stricter definitions of "frequently traded" shares, enhanced disclosure on fund usage, and mandatory independence declarations from registered valuers.
- Compliance Criticality: Failure to adhere to the floor price or obtaining an improper valuation can lead to SEBI penalties, rejection of the allotment, and shareholder disputes.
When raising capital through preferential allotment, getting the share valuation right isn't just about compliance - it's about protecting shareholder interests and ensuring your fundraising stands up to regulatory scrutiny.
My Valuation, as an IBBI-Registered Valuer under the asset class of Securities and Financial Assets, specializes in providing independent valuations required under SEBI (ICDR) Regulations, 2018. We help startups, SMEs, and corporates navigate the complexities of preferential issue pricing. Whether you're a tech startup planning your Series A or an established company looking to bring in strategic investors, understanding these regulations and obtaining compliant valuation certificates from qualified registered valuers is essential to your capital-raising success.
In this detailed guide, we'll list everything you need to know about valuing equity shares for preferential allotment under the latest SEBI ICDR regulations.
What Is a Preferential Issue and Why Does Valuation Matter?
A preferential issue is a fundraising method where a company allots shares to a select group of investors - typically strategic partners, existing shareholders, or institutional investors - without making a public offer. Unlike an IPO or rights issue, preferential allotment is faster and targeted.
Why valuation is important:
- Protects existing shareholders from dilution at unfair prices
- Ensures regulatory compliance with SEBI ICDR norms
- Maintains market integrity and prevents price manipulation
- Attracts serious investors who want transparent, fair pricing
The valuation determines the floor price, the minimum price at which shares can be issued. Get it wrong, and you risk SEBI penalties, shareholder disputes, or failed fundraising.
What Do SEBI ICDR Regulations 164 and 166A Say About Preferential Issue Valuation?
SEBI's ICDR Regulations set clear rules for pricing shares in preferential allotments. The 2025 updates have refined these requirements for better investor protection.
Regulation 164: Pricing of Frequently Traded Shares
This regulation covers pricing methodology for frequently traded shares:
- Companies must pass a special resolution for preferential allotment
- Shares must be allotted within specified timelines of shareholder approval
- Pricing must follow volume-weighted average price (VWAP) methodology
- The floor price is the higher of 90-day VWAP or 10-day VWAP
Regulation 166A: Additional Valuation Requirements
Regulation 166A specifies when independent registered valuer certificates are mandatory:
For frequently traded shares (standard cases): The floor price is the higher of:
- Volume-weighted average price for 90 trading days preceding the relevant date
- Volume-weighted average price for 10 trading days preceding the relevant date
When registered valuer certificate is mandatory:
- Share swaps (consideration other than cash) - Regulation 163(3)
- Allotments exceeding 5% of post-issue fully diluted share capital - Regulation 166A
- Transactions resulting in change of control - Regulation 166A
- Infrequently traded shares - Regulation 165
The 2025 update has strengthened disclosure requirements and refined the trading frequency criteria to ensure more effective price discovery.
How Is "Frequently Traded" vs "Infrequently Traded" Determined?
This distinction is critical because it determines whether you need an independent valuation certificate from an IBBI-registered valuer.
Frequently Traded Shares are defined as:
Shares where the total traded turnover (total number of shares traded) during 240 trading days preceding the relevant date is at least 10% of the total outstanding shares of that class.
Formula: Traded Turnover (%) = (Total shares traded in 240 trading days / Total outstanding shares) × 100
If Traded Turnover ≥ 10% → Frequently Traded ✓
If Traded Turnover < 10% → Infrequently Traded ✗
If your shares don't meet this 10% threshold, they're considered infrequently traded, and you must obtain a valuation certificate from an IBBI-registered independent valuer.
Here's a quick comparison:
| Aspect | Frequently Traded | Infrequently Traded |
|---|---|---|
| Trading Threshold | Traded turnover ≥10% of total shares in 240 trading days | Traded turnover <10% of total shares |
| Measurement Period | 240 trading days (approximately 11–12 months) | Same measurement period |
| Valuation Requirement | Market-based pricing formula applies | Mandatory certificate from IBBI-registered valuer |
| Pricing Method | Formula-based (90-day / 10-day VWAP) | Valuation using customary parameters (DCF, NAV, Comparable) |
| Who Can Value | Market determines price | Only IBBI-Registered Independent Valuers |
| Regulatory Oversight | Standard compliance framework | Higher scrutiny (valuation report justification) |
Most startups and many unlisted or thinly-traded companies fall into the "infrequently traded" category, making professional valuation services from IBBI-registered valuers essential.
What Valuation Methodologies Are Accepted for Preferential Issues?
When a valuation certificate is required, IBBI-registered valuers typically use one or more internationally recognized methodologies:
1. Discounted Cash Flow (DCF) Method
- Projects future cash flows and discounts them to present value
- Best for companies with predictable revenue streams
- Considers growth rate, WACC, and terminal value
- Commonly used for tech startups and SaaS businesses
2. Comparable Company Analysis (Market Multiple Approach)
- Compares your company to similar publicly traded firms
- Uses multiples like P/E ratio, EV/EBITDA, EV/Revenue
- Works well for manufacturing, NBFC, and established sectors
- Requires quality comparable data
3. Net Asset Value (NAV) Method
- Values company based on fair market value of assets minus liabilities
- Suitable for asset-heavy businesses
- Often used for real estate, hospitality, and manufacturing sectors
- May undervalue companies with significant intangible assets
4. Hybrid Approach
- Combines multiple methods with appropriate weightages
- Provides a balanced, defensible valuation
- Preferred for complex business models
- My Valuation uses hybrid approaches for solar/EPC, e-commerce, and diversified businesses
The choice of methodology depends on your industry, business model, financial track record, and growth stage.
What's the Step-by-Step Process for Preferential Issue Valuation?
Here's how the valuation process typically works:
Step 1: Determine Trading Frequency
Calculate your traded turnover over 240 trading days. Review NSE/BSE trading data: total shares traded in last 240 trading days divided by total outstanding shares. If ≥10%, shares are frequently traded (use VWAP formula). If <=10%, shares are infrequently traded (need IBBI valuer certificate).
Step 2: Check if Registered Valuer is Mandatory
Even for frequently traded shares, you need an IBBI-registered valuer certificate if: share swap transactions (non-cash consideration), allotment exceeds 5% of post-issue capital, or transaction results in change of control.
Step 3: Engage an IBBI-Registered Valuer
If valuation is required:
- Verify the valuer is registered with IBBI (check at www.ibbi.gov.in)
- Confirm registration for "Securities and Financial Assets" asset class
- Ensure complete independence (no conflict of interest)
Step 4: Provide Detailed Information
The valuer will request:
- Last 3-5 years of audited financials
- Business plan and financial projections
- Details of assets, liabilities, and intellectual property
- Management discussion and analysis
- Industry and competitive landscape data
Step 5: Valuation Analysis
The IBBI-registered valuer conducts full analysis using appropriate methodologies. This includes financial modeling, peer comparisons, and risk assessments, applying DCF, comparables, NAV, or hybrid approaches as suitable.
Step 6: Draft Valuation Report
A detailed report is prepared covering:
- Executive summary with fair value determination
- Methodology explanation and assumptions
- Financial analysis and projections
- Comparable company analysis
- Risk factors and sensitivities
Step 7: Board and Shareholder Approval
Present the valuation to your board. Include the valuation certificate in shareholder meeting documents. Pass the special resolution for preferential allotment.
Step 8: File with Stock Exchanges and SEBI
Submit all required documents, including the valuation certificate from the IBBI-registered valuer, to stock exchanges and SEBI within prescribed timelines.
Timeline: The entire process typically takes 3-6 weeks, depending on data availability and complexity.
Who Can Conduct Valuations for Preferential Issues?
This is a critical point that's often misunderstood:
ONLY IBBI-Registered Valuers Can Conduct These Valuations
Under SEBI (ICDR) Regulations, 2018 (as amended) and Section 247 of the Companies Act, 2013:
Qualified Valuers:
- Must be registered with Insolvency and Bankruptcy Board of India (IBBI)
- Registration under Section 247 of Companies Act, 2013
- Must be registered for asset class: "Securities and Financial Assets"
- Must be independent (no conflict of interest)
Red Flags to Avoid
- Valuers who guarantee a specific valuation outcome
- Lack of transparency in methodology
- No IBBI registration or expired registration
- Limited experience in your sector
My Valuation is an IBBI-registered valuer under the Securities and Financial Assets asset class with extensive experience conducting SEBI-compliant valuations across technology, manufacturing, financial services, and emerging sectors like solar/EPC and health tech.
What Documents and Disclosures Are Required?
Detailed documentation is necessary for SEBI compliance:
Company Documents:
- Certificate of incorporation and MOA/AOA
- Board resolutions authorising preferential issue
- Audited financial statements (last 3–5 years)
- Latest unaudited financials (if available)
- Details of existing shareholding pattern
Valuation Certificate Must Include:
- Valuer’s credentials and IBBI registration details
- Methodology explanation with detailed assumptions
- Financial analysis and projections
- Comparable company analysis (if applicable)
- Fair value determination with supporting calculations
- Risk factors and sensitivity analysis
- Declaration of independence
Shareholder Meeting Documents:
- Explanatory statement under Companies Act
- Valuation certificate summary
- Details of proposed allottees
- Pricing rationale and lock-in period
Stock Exchange Filings:
- Preferential issue proposal letter
- Complete valuation certificate from IBBI-registered valuer
- Board resolutions and shareholder approvals
- Post-issue shareholding pattern
What Are Common Challenges in Preferential Issue Valuation?
Even experienced companies face challenges when valuing shares for preferential allotment:
Challenge 1: Limited Financial Track Record
Solution: Early-stage startups may lack 3-5 years of financial data. IBBI-registered valuers can rely more on forward-looking projections, venture capital methods, comparable analysis, and qualitative factors like team expertise and market opportunity.
Challenge 2: Lack of Comparable Companies
Solution: For unique business models or emerging sectors, a combination of cross-industry multiples, DCF analysis, and specialized valuation techniques can provide defensible valuations.
Challenge 3: Volatile Market Conditions
Solution: Sensitivity analysis showing valuation under different scenarios helps justify the chosen fair value range and demonstrates robustness of the valuation.
Challenge 4: Intellectual Property and Intangibles
Solution: Specialized IP valuation techniques combined with relief-from-royalty or excess earnings methods capture intangible value effectively.
Challenge 5: Regulatory Changes
Solution: Work with IBBI-registered valuers who actively track SEBI updates and can interpret new regulations correctly, ensuring ongoing compliance.
Challenge 6: Tight Timelines
Solution: Start the valuation process early. Have your financial data organized and ready. Choose experienced IBBI-registered valuers who can work efficiently without compromising quality.
How Has the 2025 Update Changed Preferential Issue Valuation?
The latest SEBI amendments have introduced several refinements:
- Enhanced Disclosure Requirements: Companies must now provide more detailed explanations of preferential issue rationale, use of funds, and impact on existing shareholders.
- Refined Trading Frequency Measurement: The measurement of frequently traded shares continues to use the 240 trading days and 10% threshold (established in January 2022) to ensure better price discovery.
- Valuer Independence Requirements: Stronger emphasis on valuer independence with mandatory disclosures of any conflicts of interest or past relationships with the company.
- Lock-in Period Compliance: Clearer guidelines on lock-in periods for preferential allottees, with differential treatment for promoters vs. non-promoters.
- Digital Filing and Tracking: SEBI has streamlined the digital submission process, making it easier to track application status and reducing processing time.
- Control Premium Guidance: When preferential issues result in change of control, valuation certificates must provide specific guidance on control premium calculations.
These changes aim to protect minority shareholders while maintaining the efficiency of preferential allotment as a capital-raising tool.
Why Choose Professional Valuation Services for Preferential Issues?
While the process might seem straightforward, preferential issue valuation requires deep expertise:
- Regulatory Compliance: Only IBBI-registered valuers are legally authorized to provide the required certificates. Working with unqualified professionals can invalidate your entire preferential issue.
- Technical Expertise: Understanding SEBI regulations, valuation methodologies, and sector-specific issues requires years of experience and active IBBI registration.
- Regulatory Acceptance: Professional IBBI-registered valuers know what SEBI expects in terms of documentation, disclosure, and methodology defense.
- Risk Mitigation: A detailed valuation certificate from a qualified IBBI-registered valuer protects you from shareholder disputes, regulatory challenges, and pricing controversies.
- Efficiency: Experienced IBBI-registered valuers can complete the process faster, helping you capitalize on market opportunities.
- Credibility: A certificate from an IBBI-registered independent valuer adds credibility to your fundraising and attracts quality investors.
My Valuation, as an IBBI-registered valuer, offers end-to-end SEBI-mandated valuation services for preferential issues, combining technical expertise with deep industry knowledge across technology, manufacturing, financial services, and emerging sectors.
How Can My Valuation Help with Your Preferential Issue?
Whether you're a startup planning your first institutional fundraising or an established company bringing in strategic investors, My Valuation provides complete support:
Our Preferential Issue Services:
- SEBI ICDR-compliant valuation certificates as an IBBI-registered valuer
- Multi-methodology analysis tailored to your business
- Industry-specific expertise across 10+ sectors
- Fast turnaround times without compromising quality
- Post-valuation support for SEBI queries
- Full compliance with Regulations 163(3), 164, 165, and 166A
Additional Services That Complement Preferential Issue Valuation:
- Virtual CFO Services - Financial structuring and compliance
- Pitch Deck Preparation - Presenting your valuation to investors
- Financial Modeling - Supporting projections for DCF analysis
- 409A Valuation - If you have stock options outstanding
- Business Valuation - For other corporate actions or internal purposes
We've helped 500+ clients across technology, SaaS, health tech, manufacturing, NBFC, solar/EPC, and e-commerce sectors successfully complete preferential issues with full SEBI compliance.
Conclusion: Get Your Preferential Issue Valuation Right
Valuing equity shares for preferential issues under SEBI ICDR Regulations 164 and 166A isn't just a compliance checkbox - it's a critical step that determines your fundraising success, protects shareholder interests, and builds investor confidence. The 2025 regulatory updates have made the process more transparent and investor-friendly, but they've also reinforced the importance of working with properly qualified IBBI-registered valuers. Whether your shares are frequently or infrequently traded, engaging an IBBI-registered independent valuer ensures you:
Valuing equity shares for preferential issues under SEBI ICDR Regulations 164 and 166A isn't just a compliance checkbox - it's a critical step that determines your fundraising success, protects shareholder interests, and builds investor confidence. The 2025 regulatory updates have made the process more transparent and investor-friendly, but they've also reinforced the importance of working with properly qualified IBBI-registered valuers. Whether your shares are frequently or infrequently traded, engaging an IBBI-registered independent valuer ensures you:
- Meet all SEBI compliance requirements without delays or rejections
- Work with legally authorized professionals (IBBI-registered valuers)
- Use appropriate valuation methodologies for your industry and business model
- Determine fair, defensible pricing that attracts serious investors
- Avoid shareholder disputes and regulatory penalties
- Complete your fundraising efficiently within tight timelines
Ready to start your preferential issue? My Valuation, as an IBBI-registered valuer specializing in Securities and Financial Assets, brings deep expertise in SEBI-mandated regulatory valuations across technology, manufacturing, financial services, and emerging sectors. Our team understands exactly what SEBI requires and delivers valuation certificates that stand up to scrutiny.
Get in touch today for a consultation: Visit myvaluation.in to discuss your preferential issue valuation needs. Let's ensure your capital raise is compliant, fair, and successful.
Contact My Valuation for Expert SEBI-Compliant Preferential Issue Valuations
Don't leave your fundraising to chance. Partner with an IBBI-registered valuation expert who understands both regulations and your business. Schedule your free consultation now.
