The Securities and Exchange Board of India (SEBI) is planning to tighten the rules for small and medium enterprise (SME) IPOs. Key changes include increasing the minimum investment amount from ₹1 lakh to ₹4 lakh and introducing a monitoring agency to oversee how IPO funds are used.
Why These Changes?
SEBI has observed instances where IPO proceeds were misused, with funds being diverted to shell companies or revenues inflated through circular transactions with related parties. Their analysis revealed that half of SME-listed companies had related party transactions exceeding ₹10 crore.
Proposed Eligibility Rules
SEBI suggests that SMEs can launch an IPO only if:
- The issue size is over ₹10 crore.
- The company has generated at least ₹3 crore in operating profit during two of the last three financial years.
SME IPOs This Year
Between April and mid-October of FY24, 159 SMEs raised over ₹5,700 crore through IPOs. The previous fiscal year set a record with 196 SME IPOs raising over ₹6,000 crore.
New Restrictions for Promoters
SEBI plans to limit promoters’ Offer for Sale (OFS) to 20% of the issue size. This is to ensure the platform fulfills its original goal—helping SMEs access growth capital—rather than allowing promoters to exit entirely. SEBI noted cases of SME IPOs with 100% OFS, which defeats the platform’s purpose.
Other Suggestions
The regulator also wants merchant bankers to disclose their fees in the IPO prospectus, enhancing transparency.
In a discussion paper, SEBI emphasized that these measures aim to ensure SME platforms meet their goal of providing growth opportunities for deserving enterprises while protecting investor interests.
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