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Reforms aim to provide voice records for SMEs, an opportunity to raise funds from the public while protecting investors’ interests
Market regulator SEBI has notified a stricter regulatory framework for small and medium-sized enterprises (SMEs) IPOs by introducing profitability requirements and limiting a 20% limit (OFS).
The reform aims to provide a voice record for SMEs, an opportunity to raise funds from the public while protecting the interests of investors.
The move is an increase in the issue of small and medium-sized enterprises, which has attracted a large number of investors to participate.
Regarding profitability standards, SEBI said that small and medium-sized enterprises planning to launch an IPO must have at least Rs 1 crore of Rs 1 crore in the first three fiscal years, requiring a minimum operating profit (interest, depreciation and tax or EBITDA earnings) of Rs 1 crore.
Additionally, the OFS component by selling shareholders in the SME IPO has been limited to 20% of the total issuance scale. In addition, sales shareholders will not be allowed to unload more than 50% of their existing shares, Sebi said in a March 4 notice.
In addition, the promoter’s equity to Minimum Promoter Contribution (MPC) will go through a phased lock-in period. After a year, half of the excess holdings will be released, while the remaining 50% will be unlocked in two years.
The allocation methodology of African Institutional Investors (NII) in SME IPO will be consistent with the approaches followed in the mainboard IPO to ensure uniformity.
Makarand M. Joshi M. Joshi, Makarand M. Joshi, said: “Further SEBI increases the minimum application size of SME IPOs to two batches, thus making unnecessary speculation into SME IPOs more stringent. This will help protect the interest of deceiveable investors who typically invest in increasing the stock price that rises.
The amount allocated for general corporate purposes (GCP) in the SME IPO has been capped at 15% of the total issuance or Rs 100 crore whichever is lower.
Whether directly or indirectly, SME issues will not allow the use of IPO proceeds to repay loans obtained from promoters, promoters groups or related parties.
“The purpose of the issue should not include the repayment of the issue’s direct or indirect benefits from the loan from the promoter, the promoter group or any affiliate,” Sebi said.
The draft prospectus for Red Herring for SME IPO must provide public comment within 21 days. The issuer will be required to publish an announcement in the newspaper and include a QR code for easy access to DRHP.
Mr Josh said that IPOs in the SME sector, which have been cleared by the stock exchange, are now available for comment on the public on SME Exchange, issuer’s website, issuer’s website and merchant bankers. Public advertising will make the public aware that SME IPO DRHP is available for public comment.
“This will allow the public to roughly submit comments or file a complaint about the Red Herring draft, that is, companies that conduct IPOs in the SME sector,” he added.
SME companies can be allowed to raise funds through further issues without moving to the Chairman’s Board of Directors as long as they are complied with SEBI (LODR) rules applicable to the Chairman’s Board of Directors.
“If the issue of rights, priority issues, reward issues (including rights issues) may exceed Rs 25 crore, the issuer may issue capital further without having to exchange from SMEs to the master board, and the provisions of the lodr committee may be followed in 2015, and the committee is not listed on the master board, otherwise the issuer may comply with the committee in 2015, and not listed on the transaction in 2015, and therefore, the issuer may increase capital at Rs 25 crore, and thus, the issuer may issue at Rs 25 crore.
SME listed entities will have to comply with relevant party transactions (RPT) specifications applicable to the Directors’ Board of Directors’ listed companies.
To exert this impact, the Securities and Exchange Commission of India (SEBI) has notified the ICDR (Capital and Disclosure Required Issuance) rules.
The number of public problems in SMEs has increased significantly over the past two years, driven by strong performance in the Indian stock market.
According to data provided by Primedatabase.com, about 240 small and medium-sized enterprises raised over Rs 87 billion in 2024, almost double the Rs 4686 crore raised in 2023.
publishing – March 10, 2025 at 03:04 pm
