SEBI Plans Tougher Rules For SME IPOs To Ensure Investor Safety

New Delhi, Nov 20 (KNN) The Securities and Exchange Board of India (SEBI) has proposed significant changes to the process of Initial Public Offerings (IPOs) for small and medium enterprises (SMEs), aiming to enhance investor safety, enforce stricter compliance requirements, and increase the costs for SMEs to remain listed.

These proposals were outlined in a recent consultation paper, reflecting SEBI's intent to address concerns about transparency and accountability in the SME segment.

One of the key proposals includes setting a minimum IPO size of Rs 10 crore, a move away from the current system where no such threshold exists. SEBI has also suggested raising the minimum IPO application size for retail investors from Rs 1 lakh to Rs 2 lakh and, in certain cases, up to Rs 4 lakh.

To prevent potential misuse of funds, the regulator has recommended limiting the offer-for-sale by promoters to 20 per cent of the total issue size and establishing a compliance monitoring agency to oversee the utilisation of funds raised through SME IPOs.

These measures follow SEBI’s findings of inflated valuations and instances of fund misuse by certain SMEs in the past, which often left investors with significant losses.

The regulator has already taken action against some SMEs for non-compliance and fund diversion.

In the consultation paper, SEBI highlighted that retail participation in SME IPOs has grown in recent years, necessitating measures to protect smaller investors from risks associated with these offerings, especially when market sentiment shifts post-listing.

Additional proposals include making IPO offer documents publicly available for at least 21 days before the issue opens, introducing a minimum operating profit requirement of Rs 3 crore in at least two out of the three years preceding the IPO filing, and restricting IPOs aimed primarily at repaying loans to promoters or promoter groups.

SEBI has also suggested that listed SMEs adopt quarterly reporting of financial results and shareholding patterns, similar to larger listed companies.

SEBI has invited public comments on these proposals until December 4, signalling its commitment to refining the regulatory framework for SME IPOs in alignment with market needs and investor protection.

(KNN Bureau)