The Securities and Exchange Board of India (SEBI) has introduced stricter rules for Initial Public Offerings (IPOs) for Small and Medium Enterprises (SMEs).
These changes aim to help SMEs with a good track record raise funds while protecting investor interests. The new regulations address profit requirements and limitations on the Offer for Sale (OFS) by promoters.
Profit Requirements for SMEs
SMEs planning to launch an IPO must meet specific profit criteria. They are required to have a minimum operating profit (Earnings Before Interest, Tax, Depreciation,
and Amortization or EBITDA) of at least Rs 1 crore for at least two out of the previous three financial years.
Key Rules for Offer for Sale (OFS)
OFS Limit: Promoters and shareholders can sell up to only 20% of the total issue size under OFS.
Existing Holdings: Shareholders cannot sell more than 50% of their existing holdings in the company.
Other Important Guidelines
Allotment Process: The allotment process for Non-Institutional Investors (NIIs) in SME IPOs will be aligned with the main stock exchange platforms for uniformity.
General Corporate Purpose (GCP): Funds allocated for GCP are capped at 15% of the total issue size or Rs 10 crore, whichever is lower.
Usage of Funds: Proceeds from SME IPOs cannot be used to repay loans taken directly or indirectly from promoters, the promoter group, or related parties.
Prospectus (DRHP) Availability: The Draft Red Herring Prospectus (DRHP) will be open for public comments for 21 days. Issuers must publish announcements in newspapers and include a QR code for easy access to the DRHP.
These new measures are designed to bring transparency and fairness to SME IPOs, ensuring a safer environment for investors while encouraging genuine SME growth.
