SME IPO: SEBI tightens regulations for smaller size IPOs to protect investor interest

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 says that small and medium-sized enterprises planning to initiate an IPO must have minimum operating profit (income prior to interest, depreciation and taxes or EBITDA) ₹In the first three fiscal years, at least 10 million were found.

In addition, the OFS component of shareholders by selling the SME IPO has been limited to 20% of the total issuance size. In addition, sales shareholders will not allow more than 50% of existing shares to be unloaded, 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.

“Further SEBI increases the minimum application size of SME IPO to two batches, thus making unnecessary speculation into SME IPO more stringent. This will help protect the interests of vulnerable investors who are often investing in rising stock prices.

The amount allocated for general corporate purposes (GCP) in an SME IPO has been capped at 15% of the total number of problems or ₹100 million, 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 repayment of loans from the promoters, the promoters group or any affiliates, directly or indirectly,” 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.

Josh said that until now the IPO in the SME sector cleared by the stock exchange, DRHP can now post public comments on SME Exchange, issuer’s website, issuer’s website and merchant banker’s website. Public advertising will make the public aware that SME IPO DRHP is available for public comment.

He added that this will allow the public to roughly submit comments or file a complaint about the Red Herring draft, which is a company that conducts IPOs in the SME sector.

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 capital after issuance is issued based on further issuance capital, including rights issues, preferential issues, bonus issues, may increase ₹Regulators say that issuers can not apply to compliance with the 2015 LODR regulations in companies listed on stock exchanges without having to conduct further capital issuance from SMEs to the head board, the regulator said. ”

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.

In 2024, about 240 small and medium-sized enterprises have risen ₹87 billion, almost twice ₹According to data provided by Primedatabase.com, 46.86 million were raised in 2023.