The Securities and Exchange Board of India (SEBI) has proposed that the minimum application size in SME IPOs be doubled or quadrupled from the existing ₹1 lakh.
Issuers should be eligible to make an offer only if the issue size is more than ₹10 crore and if the operating profit is ₹3 crore for at least two out of three financial years preceding the application.
Related party norms under LODR Regulations will be extended to SME listed entities except for those whose paid-up capital and net worth does not exceed ₹10 crore and ₹25 crore. Listed firms will be required to submit shareholding pattern, statement of deviations and financial results every quarter.
“Instances have been observed of diversion of issue proceeds to related parties and inflation of revenue by circular transactions through related parties or shell companies. Entities have diverted money raised through IPOs and subsequent rights issues to shell companies controlled by the promoters,” the consultation paper said.
TWO SUB-CATEGORIES
The regulator plans to divide the non-institutional category (NII) into two sub-categories akin to mainboard IPOs. One-third of the allocation earmarked for NIIs will be for application sizes up to ₹10 lakh and two-thirds for NIIs with application sizes above ₹10 lakh.
Minimum allottees in SME public issues may be increased to 200 from existing 50. The offer for sale (OFS) in SME IPOs may be restricted to 20 per cent of the issue size. For selling shareholders, shares offered for sale in SME IPOs shall not exceed more than 20 per cent of their pre-issue shareholding on fully diluted basis.
Appointment of monitoring agency will be mandatory if fresh issue size is higher than ₹20 crore or if issue objects are to fund subsidiary, repay loans and/or invest in a joint venture or subsidiary. SME issues where objects consist of loan repayment of promoter, promoter group or any related party will not be permitted.
Lock-in on minimum promoter contribution (MPC) in SME IPO will be increased to five years from 3 years. Lock-in for 50 per cent promoters’ holding in excess of MPC will be released after 1 year and lock-in for remaining 50 per cent promoters’ holding in excess of MPC will be released after two years.
On fund-raise
Funds raised for general corporate purposes in SME IPO may be restricted to 10 per cent of issue size or ₹10 crore, whichever is lower. Raising funds for unidentified target or acquisition may not be permitted. If the amount raised for working capital exceeds ₹5 crore, statutory auditor certificate on half year basis with respect to use of fund in working capital will be made mandatory.
Post-listing exit opportunity for dissenting shareholders may be provided in SME chapter in line with main board provisions.
Fees paid to merchant bankers will have to be disclosed in the RHP. SME companies may be mandated to disclose senior level employees in various departments and salary details. DRHP of SME IPOs filed with the stock exchanges will be made available to public for comments for at least 21 days from the date of public announcement. Bankers will need to submit due-diligence certificate to exchanges at the time of filing of draft offer document.
Tighter rules
Minimum application size in SME IPOs to be raised to ₹2 lakh or ₹4 lakh
Lock-in on minimum promoter contribution to be increased to 5 years from 3 years
Minimum allottees to be increased to 200 from existing 50
Appointment of monitoring agency mandatory if fresh issue size higher than Rs 20 crore
Fees paid to merchant bankers to be disclosed in RHP