New Delhi: A Leap Towards Secure Investments

In a significant move to protect investor interests and ensure the credibility of small and medium enterprise (SME) IPOs, the Securities and Exchange Board of India (Sebi) has rolled out a stricter regulatory framework. This initiative is designed to offer SMEs with a robust track record an avenue to raise public funds while bolstering investor confidence.

Key Reforms Unveiled

Among the pivotal changes, Sebi has mandated a profitability criterion, requiring SMEs to demonstrate a minimum EBITDA of Rs 1 crore for at least two of the preceding three financial years. Additionally, the Offer for Sale (OFS) component has been capped at 20% of the total issue size, with selling shareholders restricted from offloading more than 50% of their existing holdings.

Enhanced Transparency and Investor Protection

Further measures include a phased lock-in period for promoters' shareholding beyond the Minimum Promoter Contribution (MPC), ensuring a gradual release of shares into the market. The allocation methodology for non-institutional investors (NIIs) in SME IPOs will mirror that of main-board IPOs, promoting uniformity and fairness.

Sebi has also increased the minimum application size for SME IPOs to two lots, aiming to curb speculative trading and protect novice investors. The cap on the amount allocated for general corporate purposes (GCP) at 15% of the total issue size or Rs 10 crore, whichever is lower, further underscores the regulator's commitment to prudent financial management.

A New Era for SME Fundraising

This regulatory overhaul not only fortifies the IPO process but also allows SME-listed entities to raise additional funds without migrating to the main board, provided they adhere to the Listing Obligations and Disclosure Requirements (LODR) Regulations applicable to main-board listed companies. With these reforms, Sebi aims to sustain the momentum of SME public issues, which have seen a remarkable uptick in recent years, reflecting the vibrant dynamics of India's equity markets.