Sebi plans tighter IPO rules for SMEs, higher investment amount
To combat misuse of funds, India's Securities and Exchange Board is proposing stricter regulations for small and medium enterprise IPOs. These include raising the minimum investment amount and requiring a minimum issue size, along with increased s...
By ET Bureau | Updated:
ETMarkets.com
The Securities and Exchange Board of India (Sebi) has proposed to revamp the rules for initial public offerings of small and medium enterprises (SME), including increasing the minimum investment amount to ₹4 lakh from the current ₹1lakh and setting up a monitoring agency to keep a tab on the utilisation of IPO money.
This comes in the wake of instances of diversion of issue proceeds to shell companies controlled by promoters and inflation of revenue by circular transactions through related parties. As per Sebi's analysis, one out of two SME-listed entities have undertaken related party transactions of more than ₹10 crore.
Sebi has proposed that an SME company would be eligible for an IPO only if the issue size is more than ₹10 crore and have an operating profit of ₹3 crore from operations for at least any two out of three financial years preceding the application.
In the current financial year till October 15, 159 small and medium enterprises have raised more than ₹5,700 crore through IPOs. While FY 24 witnessed the highest number of SME public issue with 196 firms tapping the market to mobilise over ₹6,000 crore.
The regulator has also suggested limiting offer for sale (OFS) by promoters to 20% of the issue size.
"The purpose of setting up of SME Exchange was to make finance available to needy small and medium enterprises for their growth," Sebi said in a discussion paper on Tuesday.
From SME IPO data it is noted that there were two 100% OFS SME IPO in FY 24 and one in FY 25 till October, it said.
"It is observed that the promoter of the proposed IPO dilutes its stakes which was not the objective of forming the SME Platform," the regulator said. It has also suggested mandating disclosure of merchant bankers fees in the prospectus.
This comes in the wake of instances of diversion of issue proceeds to shell companies controlled by promoters and inflation of revenue by circular transactions through related parties. As per Sebi's analysis, one out of two SME-listed entities have undertaken related party transactions of more than ₹10 crore.
Sebi has proposed that an SME company would be eligible for an IPO only if the issue size is more than ₹10 crore and have an operating profit of ₹3 crore from operations for at least any two out of three financial years preceding the application.
In the current financial year till October 15, 159 small and medium enterprises have raised more than ₹5,700 crore through IPOs. While FY 24 witnessed the highest number of SME public issue with 196 firms tapping the market to mobilise over ₹6,000 crore.
The regulator has also suggested limiting offer for sale (OFS) by promoters to 20% of the issue size.
"The purpose of setting up of SME Exchange was to make finance available to needy small and medium enterprises for their growth," Sebi said in a discussion paper on Tuesday.
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From SME IPO data it is noted that there were two 100% OFS SME IPO in FY 24 and one in FY 25 till October, it said.
"It is observed that the promoter of the proposed IPO dilutes its stakes which was not the objective of forming the SME Platform," the regulator said. It has also suggested mandating disclosure of merchant bankers fees in the prospectus.
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