The market regulator’s transfer to tighten SME IPO norms has sparked a combined response throughout market members, with investor safety advocates welcoming the adjustments whereas some worry the stricter guidelines might make capital elevating harder for small and medium enterprises.
The most recent modification will increase the minimal utility dimension to 2 heaps, raises fund utilization oversight, and restricts using IPO proceeds for repaying loans to associated events.
Moreover, Draft Pink Herring Prospectuses (DRHPs) will now be open for public feedback, and a better profitability threshold has been launched to make sure solely secure SMEs faucet public markets.
This was the second spherical of tightening of norms for SMEs, with the primary one being ratified within the December board assembly.
Safety or Overreach?
The transfer is anticipated to scale back speculative retail participation, however some market members anticipate it might additionally shut out real small buyers on the lookout for publicity to SME progress tales.
“It was noticed by SEBI that plenty of small, less-informed buyers have been making use of in SME IPOs, drawn by the potential for fast beneficial properties and the low bid quantity of Rs 1 lakh. This led to losses when SME inventory costs tanked,” mentioned Makarand M. Joshi, founder companion of MMJC and Associates.
By elevating the appliance dimension and lot requirement, SEBI is making certain that solely these with a high-risk urge for food and enough information put money into these IPOs, Joshi mentioned.
For corporations trying to checklist, SEBI has made fundraising extra stringent. The brink for IPO proceeds monitoring has been lowered from ₹100 crore to ₹50 crore, which means extra SMEs should disclose and account for the way they use funds.
Moreover, a cap on Provide for Sale (OFS) at 20 per cent of the problem dimension and a lock-in interval of as much as two years for extra promoter holdings might restrict liquidity for early buyers.
“These reforms are important for fostering a extra clear and sustainable SME IPO ecosystem,” mentioned Tarun Singh, Founder & MD at Intellectual Securities. “The requirement for SMEs to exhibit a minimal of ₹1 crore EBITDA in no less than two of the final three years ensures that solely financially secure corporations entry public markets. This not solely reduces danger for buyers but in addition improves the standard of listings.”
Nonetheless, he additionally mentioned that the brand new necessities may make it more durable for smaller, high-growth companies to faucet public funding.
The SME IPO platform has seen an inflow of speculative buying and selling, resulting in issues about governance and investor security. With the regulator now implementing stricter disclosure and monetary viability necessities, the standard of SME listings is anticipated to enhance. Nonetheless, some business gamers fear that the compliance burden might deter startups from going public.
“By limiting extreme dilution and making certain IPO funds are used productively, SEBI is taking a balanced method,” Singh mentioned. “Nonetheless, there might be short-term challenges for SMEs adjusting to those stricter norms.”
For now, the response to SEBI’s transfer stays divided. Whereas retail buyers could profit from lowered dangers, SMEs in search of public funding might face more durable hurdles
