SEBI Paper On SME IPO Proposes Doubling Application Size, 20% OFS Limit, And More
SEBI has proposed to increase the minimum application size for SME IPOs from Rs 1 lakh at present to Rs 2 lakh to attract informed investors.
The Securities and Exchange Board of India on Tuesday released its much-awaited proposals for tighter oversight of initial public offerings in the small and medium enterprise segment.
The regulator has proposed to increase the minimum application size for SME IPOs from Rs 1 lakh at present to Rs 2 lakh to attract informed investors.
The market watchdog has also alternately suggested raising the minimum application size to Rs 4 lakh, which would require adjustments in the retail investor allocation structure.
The consultation paper released by SEBI also proposes to increase the number of allottees required for an SME IPO to be considered successful from 50 at present to 200.
Under the new proposals, the non-institutional investors or the NII category is to be split into two sub-categories: one for applications up to Rs 10 lakh and another for applications above Rs 10 lakh.
The allocation for NIIs will be divided accordingly, with one-third of the NII quota to be reserved for smaller applications and two-thirds for larger ones, the paper proposed.
In the event of oversubscription, the current proportionate allotment system would be replaced with a “draw of lots” method, similar to the approach used in main board IPOs, it added.
SEBI also intends to extend the minimum lock-in period of promoters from one year to five years. Additionally, it has proposed a phased release of promoter holdings, with 50% of the excess promoter holding being released after one year and the remaining 50% after two years.
Among other proposals, SEBI has pitched that the offer-for-sale component in an SME IPO should be limited to 20% of the overall issue size.
To improve the oversight of SME IPOs, SEBI has proposed making the appointment of a monitoring agency mandatory for companies raising more than Rs 20 crore in fresh capital.
In cases where a monitoring agency is not required, SEBI has proposed that a statutory auditor’s certificate be submitted every six months, confirming the proper utilisation of funds. This certificate must be submitted to the stock exchanges along with the issuer company’s financial statements.
Along the same lines, if a company raises more than Rs 5 crore for working capital, it will be required to submit a statutory auditor’s certificate on a half-yearly basis to confirm that the funds are being used appropriately, in line with the disclosures made in the offer document.
Under the new proposals, SME-listed companies with a paid-up capital of over Rs 10 crore and a net worth above Rs 25 crore must submit quarterly disclosures on board composition, committee meetings, and governance.
They will also need to file shareholding patterns, financial results, and any deviations every quarter, instead of every six months, to improve transparency and accountability.
Another key proposal is that a company must have been in existence for at least two full financial years before it can file a draft red herring prospectus for an IPO. Additionally, SEBI proposed introducing a two-year cooling-off period for companies that experience a change in promoters or a change in ownership exceeding 50% prior to the filing for an IPO.
SEBI has invited public comments on these proposed changes till Dec. 4, 2024.
