SEBI Amends SME IPO Rules: Key Changes and Impact -
1. Profitability Requirement Introduced -
SMEs planning to launch an IPO must have a minimum EBITDA of ₹1 crore in at least 2 out of the last 3 financial years.
2. Cap on Offer-for-Sale ( OFS ) - OFS by selling shareholders is capped at 20% of the total issue size.
Selling shareholders cannot offload more than 50% of their existing holdings.
3. Promoter's Lock-in Period - Promoter's shareholding over Minimum Promoter Contribution ( MPC ) will be subject to a phased lock-in:
50% of excess holding released after one year.
Remaining 50% released after two years.
4. Alignment of Allocation Methodology for NIIs - Non-Institutional Investors ( NIIs ) allocation in SME IPOs will now follow the same approach as main-board IPOs to ensure uniformity.
5. Increase in Minimum Application Size
Minimum application size increased to two lots to avoid unnecessary speculation and protect retail investors.
6. Cap on General Corporate Purpose ( GCP ) - GCP allocation capped at 15% of total issue size or ₹10 crore, whichever is lower.
7. Restriction on Use of IPO Proceeds -
IPO proceeds cannot be used to repay loans from promoters, promoter groups, or related parties, directly or indirectly.
8. Public Comments on Draft Red Herring Prospectus ( DRHP ) - #DRHP must be available for public comments for 21 days.
Issuers must publish newspaper ads and QR codes for easy access to DRHP.
Public can submit comments or complaints on the DRHP.
9. Further Fundraising Without Migration to Main Board - #SMEs can raise funds via further issues without moving to the main board if they comply with SEBI ( LODR ) Regulations applicable to main-board companies.
If post-issue paid-up capital exceeds ₹25 crore, they may issue further capital without mandatory migration, subject to LODR compliance.
10. Compliance with Related Party Transaction ( RPT ) Norms - SME-listed entities must comply with RPT norms similar to main-board listed companies.
11. Notification under SEBI ICDR Regulations - All these amendments have been notified under SEBI ( Issue of Capital and Disclosure Requirement ) Regulations.
12. Context and Background - Driven by booming markets, 240 SMEs raised over ₹8,700 crore in 2024, almost double the ₹4,686 crore raised in 2023.
The new norms aim to ensure only quality SMEs with a sound track record raise public funds and protect investor interests.
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1. Profitability Requirement Introduced -
SMEs planning to launch an IPO must have a minimum EBITDA of ₹1 crore in at least 2 out of the last 3 financial years.
2. Cap on Offer-for-Sale ( OFS ) - OFS by selling shareholders is capped at 20% of the total issue size.
Selling shareholders cannot offload more than 50% of their existing holdings.
3. Promoter's Lock-in Period - Promoter's shareholding over Minimum Promoter Contribution ( MPC ) will be subject to a phased lock-in:
50% of excess holding released after one year.
Remaining 50% released after two years.
4. Alignment of Allocation Methodology for NIIs - Non-Institutional Investors ( NIIs ) allocation in SME IPOs will now follow the same approach as main-board IPOs to ensure uniformity.
5. Increase in Minimum Application Size
Minimum application size increased to two lots to avoid unnecessary speculation and protect retail investors.
6. Cap on General Corporate Purpose ( GCP ) - GCP allocation capped at 15% of total issue size or ₹10 crore, whichever is lower.
7. Restriction on Use of IPO Proceeds -
IPO proceeds cannot be used to repay loans from promoters, promoter groups, or related parties, directly or indirectly.
8. Public Comments on Draft Red Herring Prospectus ( DRHP ) - #DRHP must be available for public comments for 21 days.
Issuers must publish newspaper ads and QR codes for easy access to DRHP.
Public can submit comments or complaints on the DRHP.
9. Further Fundraising Without Migration to Main Board - #SMEs can raise funds via further issues without moving to the main board if they comply with SEBI ( LODR ) Regulations applicable to main-board companies.
If post-issue paid-up capital exceeds ₹25 crore, they may issue further capital without mandatory migration, subject to LODR compliance.
10. Compliance with Related Party Transaction ( RPT ) Norms - SME-listed entities must comply with RPT norms similar to main-board listed companies.
11. Notification under SEBI ICDR Regulations - All these amendments have been notified under SEBI ( Issue of Capital and Disclosure Requirement ) Regulations.
12. Context and Background - Driven by booming markets, 240 SMEs raised over ₹8,700 crore in 2024, almost double the ₹4,686 crore raised in 2023.
The new norms aim to ensure only quality SMEs with a sound track record raise public funds and protect investor interests.
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