Capital market regulator Sebi has come out with a consultation paper on November 19, to review the listing framework of Small and Medium Enterprises (SME), suggesting an increase in the minimum application size to Rs 2 lakh per application, among other recommendations.
Key Proposals
Another proposal by Sebi suggests changing the allocation methodology for non-institutional investors, wherein the proportionate allotment for the NII category may be discontinued and “draw of lots” allotment be introduced, as is applicable for the retail category.
The Sebi consultation paper has also proposed to the merchant bankers and the stock exchanges to limit the 'Offer For Sale' portion in the SME public issue to 20-25% of the total issue size.
Under the existing method, there is a requirement for SME issues to be considered successful there should be minimum of 50 allottees in the public issue. Sebi proposes to suggest that this requirement of minimum allottees in public issue be raised to 200.
Suggestions have been received regarding the appointment of a monitoring agency for issue size of Rs 20-50 crore, as against the current requirement of such appointment from Rs 100 crore.
The minimum promoter contribution in an SME IPO is locked in for 3 years. One of the suggestion received by Sebi is to release the lock in of securities held by promoter in a phased manner, instead of releasing the entire holding in one go.
It has also been suggested that the General Corporate Purpose, cited in the offer document, should be restricted to 10% instead of 25% of the issue size, with an absolute limit of Rs 10 crore.
Sebi's discussion paper also proposes to include the Related Party Transaction provisions to also be applicable to listed SMEs, and entities be required to submit shareholding pattern every quarter.
Another proposal by Sebi requires that the SMEs seeking a listing on bourses must have an EBITDA of over Rs 3 crore in the two of the last three years before seeking the IPO route.
Irrational Exuberance
Sebi's consultation paper noted that investor participation has increased with the rising number of SME offerings. Applicant to allotted investor ratio rose from 4x in FY22 to 46x in FY23, and further to 245x in FY24.
The capital market regulator's whole-time member Ashwani Bhatia had hinted in October that that it come out with a discussion paper to tighten the regulatory framework for SME IPOs. The public issues in the SME space have been under the scanner for unusually high levels of subscription and listing gains, as well as concerns relating to overall disclosure standards.
"SME listings are closely monitored by exchanges and SEBI to ensure they don't engage in irrational exuberance price manipulation or fraudulent trade practices," Bhatia had said.
Record SME Fund Raise
Calendar year 2024 has already set a record in terms of funds raised via SME IPOs. Prime Database shows that in CY24 till September, around 205 SME IPOs were launched with the cumulative find raising pegged at Rs 7,016 crore -- significantly higher than last year's Rs 4,687 crore.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
