look news india
Market regulator Securities and Exchange Board of India (SEBI) has come up with a proposal to reform IPO rules for small and medium enterprises (SMEs).
SEBI has proposed changes in IPO rules to make this segment safer for investors. It also aims to increase compliance requirements on SMEs and increase the costs for these entities to remain intact as listed companies. In this regard, many proposals have been presented by SEBI in the consultation paper. These include increasing the size of SME IPO to Rs 10 crore and increasing the application size of IPO four times to Rs 4 lakh, increasing the offer for sale limit for promoters to 20 percent of the issue size and what is the use of the funds raised? Things like monitoring are important for what has been done by SMEs through IPOs. It is noteworthy that at present there is no minimum limit on the size of IPO.
Recently, it has been observed that small and medium-sized companies, after raising funds through IPOs at high valuations, were disappointing investors. That is, the share price was inflated like a balloon by offering it at a higher price than the actual value and later the bubble burst burst, due to which investors had to face financial loss. Also, several cases were detected by SEBI in which funds were diverted or funds were misused by listed SMEs. After such irregularities came to light, SEBI had proposed to make important changes in the rules to make SME IPOs more transparent. SEBI has also identified some SMEs for committing such irregularities.
The proportion of individual retail investors in SME IPOs has increased over the last few years. Therefore the amount of risk in SME IPO has also increased. Also, if sentiment changes after listing, investors fear massive losses. Therefore, with the intention of protecting the interests of small investors, SEBI has introduced the above proposal. A proposal has been presented by SEBI that the minimum application size of SME IPO should be increased from Rs 1 lakh to Rs 2 lakh. SEBI has also proposed to make the IPO offer documents of SMEs public for at least 21 days. Also, a proposal has been presented by SEBI that the company should have a profit of at least Rs 3 crore three years before filing the IPO papers. However, currently no such profit condition is applicable for filing IPO papers.
Valuation concerns amid fund diversion
The proposal to change the rules comes after it emerged that some SME IPOs in the past few years have seen investors quickly abandon them after raising money at high valuations.
Several cases were detected by SEBI in which funds were misappropriated or misappropriated by listed SMEs. According to market players, while from a market perspective many of SEBI’s proposals are aimed at making the SME sector healthy, certainly some things like increasing the minimum subscription amount may hinder adoption.