The market regulator’s transfer to tighten SME IPO norms has sparked a combined response throughout market contributors, with investor safety advocates welcoming the adjustments whereas some worry the stricter guidelines might make capital elevating tougher 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 Crimson Herring Prospectuses (DRHPs) will now be open for public feedback, and a better profitability threshold has been launched to make sure solely steady 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 contributors anticipate it might additionally shut out real small traders searching for publicity to SME progress tales.
“It was noticed by SEBI that numerous small, less-informed traders had been making use of in SME IPOs, drawn by the potential for fast positive factors 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 applying dimension and lot requirement, SEBI is making certain that solely these with a high-risk urge for food and satisfactory data put money into these IPOs, Joshi mentioned.
For firms trying to record, SEBI has made fundraising extra stringent. The edge 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 Supply for Sale (OFS) at 20 per cent of the difficulty dimension and a lock-in interval of as much as two years for extra promoter holdings might restrict liquidity for early traders.
“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 display a minimal of ₹1 crore EBITDA in a minimum of two of the final three years ensures that solely financially steady firms entry public markets. This not solely reduces threat for traders but additionally improves the standard of listings.”
Nonetheless, he additionally mentioned that the brand new necessities may make it more durable for smaller, high-growth corporations 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 imposing 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 strategy,” Singh mentioned. “Nonetheless, there will probably be short-term challenges for SMEs adjusting to those stricter norms.”
For now, the response to SEBI’s transfer stays divided. Whereas retail traders might profit from decreased dangers, SMEs looking for public funding might face harder hurdles
