New Delhi: The Securities and Exchange Board of India (Sebi) on Wednesday announced stricter regulations for initial public offerings (IPOs) of small and medium enterprises (SMEs) to address concerns about transparency, governance, and misappropriation of funds in the SME segment. could
The market regulator said it would strengthen the SMEIPO market, improve listing standards and protect investors.
As per the newly approved guidelines, companies seeking SME Exchange listing must have an operating profit (earnings before interest, depreciation, and tax) of at least two of the last three financial years of Rs 1 crore at the time of filing their draft. – EBITDA) must be disclosed. Red Herring Prospectus (DRHP), only financially strong and reliable companies ensure access to the market.
The rules also restrict selling shareholders from divesting more than 50% of their shares during an initial public offering. Sebi also said that the sale share offer cannot exceed 20% of the total issue size.
Additionally, the watchdog also imposed restrictions on the use of IPO proceeds. Companies are now prohibited from using these funds for settlement of loans from promoters, directors or related parties, ensuring proper utilization of the fund by limiting the allocation for general corporate purpose (GCP) to 15 percent of the total issue size. or Rs.10 crore, whichever is less, is the limit.
Also, the allocation procedure for non-institutional investors (NIIs) in SME IPOs will be similar to the procedure followed in central board IPOs and the DRHP requires a 21-day public comment period.
Companies should advertise in newspapers and include a QR code to facilitate easy access to DRHP. SME firms can access additional funding without transferring to the central board, provided they adhere to the Sebi (LODR) regulations applicable to organizations listed on the central board.
Companies listed on the SME platform must follow the same Related Party Transaction (RPT) guidelines as listed on the Main Board.
However, Sebi has not mandated a minimum issue size or a minimum required subscription for small business IPOs.
Earlier in November, Sebi had proposed raising the minimum application size for IPOs of SMEs from Rs 100,000 to Rs 200,000 in a consultation paper.
Despite small and medium-sized enterprises receiving windfall capital this year, issues related to market inflation, corporate governance and share price manipulation have drawn regulatory attention.
Sebi recently canceled the SME IPO of Trafiksol ITS Technologies and directed the firm to return investors’ funds, citing significant errors in the prospectus and suspected collaboration with a shell outfit.
In October, BSE delayed the listing of Trafiksol ITS Technologies’ SME platform following investor concerns. The Rs 45 crore IPO received an overwhelming response with 345 times oversubscription, taking the bid to over Rs 10,000 crore.
Small businesses with an annual turnover between Rs 5 crore and Rs 250 crore list in separate segments of BSE and NSE. These listings face less disclosure requirements and are cleared by exchanges unlike larger IPOs which require Sebi clearance.
About 230 SMEs raised Rs 8,414 crore this year, of which 126 IPOs were oversubscribed 100 times, and the average bid doubled to 178 times.
Meanwhile, Sebi also announced measures to enhance operational efficiency for debenture trustees, ESG rating providers, InvITs, REITs, and SM REITs. It also chose to revise investment banking regulations.