SEBI Tightens Rules For SME IPOs - See What's Changed

The Securities and Exchange Board of India ( SEBI ) has tightened the regulatory framework for SME IPOs to allow only those entities that have an operating profit in at least two of the previous three years while barring companies from raising funds to repay loans to promoter entities. The Board approved  amendments  to  the  SEBI  (ICDR)  Regulations,  2018  and  SEBI (LODR) Regulations, 2015.

SEBIs Regulations For SME IPO

The SEBI Amendments included the following:

• "An issuer shall make an IPO, only if the issuer has an operating profit (earnings  before  interest,  depreciation  and  tax)  of  Rs.  1  crore  from operations for any 2 out of 3 previous financial years at the time of filing of its draft red herring prospectus (DRHP)." The SEBI circular said.
• The offer for sale (OFS) by selling shareholders in SME IPO shall not exceed 20 per cent  of  the  total  issue  size  and  selling  shareholders  cannot  sell  more than 50 per cent of their holding, the circular added.
• Lock-in  on  promoters’ (founders or main owners) share, that is, those shares will be locked and cannot be sold. Atleast 50 per cent promoters' holding has to be locked in and can be released in a phased manner after one year. More than 50 per cent of the shareholding must be released after two years.
• Allocation  methodology  for  non-institutional investors (“NIIs”) in SME IPOs will be same as main stock market IPOs
• Amount  for  General  Corporate  Purpose  (GCP)  shall  be capped to 15 per cent of amount being raised by the issuer or Rs. 10 crores, whichever is lower. GCP is fund for general business like expansion, working capital, etc.
• SMEs cannot use the money raised via IPO to pay off loans to promoters, or their families, or anyone else directly and indirectly
• Before an SME can file an IPO, the public can review the Draft Red Herring Prospectus for 21 days. The required documents shall be published in newspapers along with a QR code to access them.
• Further issue of shares by the SME can be done without having to move to the main stock market. They will have to still follow the rules that bigger companies have to follow.
• Related party  transaction  (RPT)  norms,  that is, rules applicable to family and close associates will be the same as they are for larger companies. The transaction will be important if it is either 10 per cent of company's total revenue or Rs 50 Cr, whichever is lower

Also Read: Gold Price Today: Check Gold Rate In Your City Today, December 19, 2024 - List | Republic Business