Sebi Tightens Norms for SME IPOs

Reforms aim to provide SMEs with a sound track record and an opportunity to raise funds from the public while protecting investor interests

- OUR CORRESPONDENT

NEW DELHI: Markets regulator Sebi has notified a stricter regulatory framework for small and medium enterprise (SME) IPOs by introducing a profitability requirement and capping a 20 per cent limit on offer-for-sale (OFS).

The reforms aim to provide SMEs with a sound track record and an opportunity to raise funds from the public while protecting investor interests.

This move follows a rise in SME issues, which has driven significant investor participation.

With regard to profitability criteria, Sebi said SMEs planning to launch an IPO are required to have a minimum operating profits (earnings before interest, depreciation and tax or EBITDA) of Rs 1 crore for at least two out of the three previous financial years.

Also, the OFS component by selling shareholders in SME IPOs has been capped at 20 per cent of the total issue size. Additionally, selling shareholders will not be allowed to offload more than 50 per cent of their existing holdings, Sebi said in a notification dated March 4.

Further, promoters' shareholding over the Minimum Promoter Contribution (MPC) would be subject to a phased lock-in period. Half of the excess holding would be released after one year, while the remaining 50 per cent would be unlocked after two years.