SEBI tightens IPO, listing norms for SMEs to enhance market transparency Under the new regulations, companies seeking to launch an IPO in the SME segment must meet certain profitability thresholds. SEBI has made it mandatory for firms to have earned at least Rs 1 crore in profit from operations in the last 2-3 financial years, ensuring that only financially stable businesses can tap into public markets.
“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 its draft red herring prospectus (DRHP),” said SEBI.
The Securities and Exchange Board of India (SEBI), announced a series of reforms to tighten IPO and listing norms for small and medium enterprises (SMEs). These changes, revealed after a recent SEBI board meeting, are designed to improve transparency, reduce risks, and ensure better investor protection in the SME segment.
Another key change involves the offer for sale (OFS) portion of SME IPOs. SEBI has capped the OFS by selling shareholders to no more than 20% of the total issue size, a move aimed at limiting the dilution of ownership for new investors. Moreover, SME IPOs will no longer be allowed to raise funds to repay loans from promoters or related parties.
A significant restriction has also been imposed on selling shareholders. They will not be permitted to sell more than 50% of their shareholding in the SME IPO. SEBI has also introduced stricter lock-in norms for promoters of SME companies. The lock-in period for promoters’ shares in excess of the minimum public shareholding (MPS) requirement will be one year, with the remaining 50% of shares locked in for two years.
SEBI has mandated that the allocation of shares under the non-institutional investors (NII) category will be determined by a “draw of lots” method. SEBI has also placed restrictions on the amount that can be raised for general corporate purposes. The cap has been set at 15% of the total amount raised or Rs 10 crore, whichever is lower. Additionally, related party transactions (RPTs) have come under stricter scrutiny. For listed SMEs, RPTs will be deemed material if they constitute 10% of the company’s annual consolidated turnover or Rs 50 crore, whichever is lower.
