SEBI Tightens Regulations for SME IPOs
The Securities and Exchange Board of India (SEBI) has strengthened regulations for Small and Medium Enterprises (SME) Initial Public Offerings (IPOs). These changes aim to enhance investor protection and provide capital-raising opportunities to SMEs with a b track record.
New Profitability Criteria and 20% Limit on Promoters' Offer for Sale
Under the new SEBI guidelines, SME IPOs must demonstrate an operating profit (EBITDA) of at least ₹1 crore in at least one of the preceding two financial years. Furthermore, the Offer for Sale (OFS) by promoters is capped at 20% of the total IPO size. This ensures promoters cannot sell more than 50% of their holdings.
Stricter Norms to Protect Investor Interests
The allocation method for Non-Institutional Investors (NIIs) in SME IPOs has been standardized to ensure equitable participation. Additionally, SEBI has increased the minimum application size to two lots for SME IPOs, discouraging speculative trading and encouraging only serious investors.
New Policy Regarding SME Allocation
SEBI has also limited the amount allocated for Corporate General Purposes (CGP) for SMEs to 15% of the total issue size or ₹10 crore, whichever is lower. Crucially, funds raised by SMEs cannot be used to repay promoter loans.
Benefits for Investors
These changes offer increased protection to investors in SME IPOs, particularly smaller investors who often invest based on perceived share price appreciation.
New Requirements for Documentation and Disclosures
According to SEBI, the Draft Red Herring Prospectus (DRHP) for SME IPOs will be available for public comments for 21 days. Issuers will also be required to include QR codes to facilitate easy access to the DRHP and ensure timely dissemination of announcements.
