What Sebi's latest reforms mean for SME IPOs and MFs

Mint explains:

- Neha Joshi

MUMBAI: On December 18, the Securities and Exchange Board of India (Sebi) approved several key amendments to improve business operations, investor protection, and the efficiency of market participants.

How has Sebi tightened the rules for small businesses to access the public markets?

Sebi has imposed stricter requirements to ensure that only financially sound and operationally viable small and medium enterprises (SMEs) can raise capital through initial public offerings (IPOs). An SME can launch an IPO only if it had a minimum operating profit of ₹1 crore in at least two of its three most-recent fiscal years. This is to ensure that only businesses with a proven record can access public funding, reducing risks for investors.

Sebi has imposed new restrictions on the offer for sale (OFS) portion in an SME IPO. Shareholders in a pre-IPO SME can now sell up to 20% of the total issue size, but not more than 50% of their total holding.

The lock-in period for promoters' shares has also been revised: 50% of excess shares will be unlocked one year after the IPO, and the remaining 50% after two years.