SEBI Calls For Stricter Norms For SME IPOs, Suggests A Hike In Minimum Application Size

The regulator suggested that a SME company should be eligible for a maiden offer only if the issue size crosses Rs 100 million, as alternative funding sources are available for lower capital needs

SEBI noted that in light of the recent boom in SME IPOs and the surge in risk of misconduct like diversion of funds, it became crucial to evaluate the framework around these issues.

Source : PTI

The Securities and Exchange Board of India on Tuesday suggested that norms for initial public offerings of smaller companies should be made stricter. The regulator proposed tighter rules for SME IPOs such as setting up an issue size for firms planning to go public and increasing the minimum investment amount by double for prospective investors.

The capital markets regulator’s consultation paper suggested that the minimum application size for the IPOs of small and medium enterprises (SMEs) should be hiked to Rs 2 lakh from Rs 1 lakh reported Reuters. The authority called for inputs on whether the minimum application amount should be higher at Rs 4 lakh.

The regulator suggested that a SME company should be eligible for a maiden offer only if the issue size crosses Rs 100 million, since alternative funding sources are available for lower capital requirements.

Backed by the booming equity market in India, public listings by SMEs have increased in the last two years. In the current fiscal year till October 15, more than 159 SMEs raised Rs 57 billion via maiden offers, in comparison to Rs 60 billion raised in the same period a year earlier.

SEBI noted that in light of the recent boom in SME IPOs and the surge in risk of misconduct like diversion of funds, it became crucial to evaluate the framework around these issues.

Further, the regulator suggested to let firms file for SME IPO if they clocked an operating profit of Rs 30 million in atleast two of the three fiscal years leading up to the application. 

SEBI suggested that the offer for sale (OFS) component of these issues should be restricted to 20 per cent of the overall issue size and the shares provided via the OFS should be under 20 per cent of the shareholders’ overall stake in the firm.