Priyanka
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In the previous year, the IPOs of small and medium enterprises (SMEs) performed well in the market. Several enterprises significantly increased the wealth of numerous investors, while some of them also lost money. Now, SEBI has taken a considerable step to safeguard the interests of investors. The market regulator SEBI has introduced stricter norms in the IPOs of SMEs. These norms include a profit margin, as well as a restriction of 20 percent being placed on the promoters’ offer for sale (OFS). The intention of making these rules stringent is to enable public investment for well-performing SMEs while ensuring protection for the investors’ money.
SMEs’ IPOs are sprouting like mushrooms
This comes after the excessive number of SMEs’ IPOs that have captured the attention of investors and include significant investment participation. Regarding the profitability conditions, SMEs looking to offer IPOs should have a minimum operating profit (earnings before interest, depreciation and tax or EBITDA) of 1 crores for two out of the last three financial years.
As per the notification made by the Securities and Exchange Board of India on March 4, SME IPO shareholders are also given an upper limit of twenty percent of the total issue size when it comes to selling their stake under ‘offer for sale’. Furthermore, shareholders who wish to sell will also not be permitted to sell more than half of their current holding. In order to achieve a level of consistency in the allocation methodology for non-institutional participants’ (NIP’s) in SME IPOs, the methodology used for IPOs on the main platform of the stock market will be aligned with the methodology used for IPOs on the main platform of the stock market.
Applications must be submitted for a minimum of 2 lots.
As to Makrand M Joshi who is the founder/partner of the corporate compliance firm MMJC & Associates, “At the same time, it has been decided by SEBI to raise the minimum application limit in this case to 2 lots for SME IPOs She adds that ‘This, of course, will eliminate wild rumors and pricing in SME IPOs and unfairly protect the helpless, innocent investors who blindly purchase shares watching them go up in value."
In the case of SME IPOs, GCP has been capped to a maximum of 15% of the entire issue size or INR 10 crores, whichever is lower.
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As stated by SEBI, funds raised from the SME issue cannot be used to pay back loans taken from the promoters, promoter group, or related parties, nor from them directly or indirectly. The draft IPO prospectus will be open for public scrutiny for 21 days. Issuers will publish notice in the newspapers and the DRHP will be sited via QR code.
