In continuation of SEBI’s consultative paper on SME IPO, dated 19th Nov, 2024 recommending certain changes to the SME IPO – Eligibility and Disclosure requirements wherein certain regulatory concerns were flagged and to protect the interest of the investors and market as a whole, now, SEBI has approved amendments to the SEBI (ICDR) Regulations, 2018 and SEBI (LODR) Regulations, 2015 w.r.t. eligibility requirements and corporate governance aspects of SME Issue in its Board Meeting dated 18th Dec, 2024 so that companies with sound track record make IPO/ raise funds and get listed on stock exchanges and comply with post listing requirements.
It has been observed that out of the 25 points recommended by SEBI in its consultative paper dated 19th Nov, 2024, SEBI has approved changes in only 7 such instances. The outcome of SEBI’s Board Meeting in which such changes have been approved may be read in full on the website of SEBI – https://www.sebi.gov.in/media-and-notifications/press-releases/dec-2024/sebi-board-meeting_90042.html
The changes approved by SEBI pertains to the following points-
1) Allocation methodology for Non Institutional Investors (NII) as per Draw of lots,
2) Restriction on overall Offer for Sale (OFS) portion of SME Issue to 20% of Issue Size,
3) Gradual release of promoter shareholding beyond the minimum promoter holding (MPC) in 2 years by way of 50% each year, post IPO,
4) Limiting General Corporate Purpose object to the issue to 15% of Issue Size with overall capping of INR 10 cr.,
5) Permitting increase of capital beyond INR 25 cr. on SME board subject to compliance of SEBI (LODR) Regulations, 2015 as applicable to the companies listed on the Main Board,
6) DRHP of SME IPO filed with the Stock Exchanges shall be made available to public for comments, if any, for a period of at least 21 days by making public announcement in newspaper with QR code and
7) SME issues shall not be permitted for of Repayment of Loan from Promoter, Promoter Group, related party.
Thus, no changes or additional conditions or restrictions are approved w.r.t.
1) Minimum Issue / Application Size,
2) Minimum No. of Public Shareholders,
3) Monitoring Agency,
4) Promoter Group Eligibility,
5) Track record for conversion of Firm/LLP,
6) Change in Promoters,
7) Face Value per share,
8) Working Capital Certifications
9) Additional disclosures in DRHP,
10) Post-listing exit opportunity for dissenting shareholders,
11) Shareholding Pattern and Financial Results etc.
A comparative of the existing and updated Eligibility and Disclosure requirements of SME IPO is summarised herein with changes highlighted in bold below-
S.No. | Issue | Earlier Provision | Updated Provision |
1. | Minimum Application Size / Market Lot | INR 1 Lacs | No change |
2. | Allocation methodology for Non Institutional Investors (NII) | Proportionate Allotment | Draw of Lots Allotment approved as in Mainboard IPO |
3. | Minimum No. of Public Shareholders | 50 | No change |
4. | Offer for Sale (OFS) | No Restrictions | OFS restricted to 20% of Issue Size and selling shareholders cannot sell more than 50% of their holding |
5. | Monitoring of Issue Proceeds | Mandatory above INR 100 Cr. Issue Size | No change |
6. | Promoter Lock In | 20% minimum promoter contribution (MPC) by promoters locked in for 3 years and holding in excess of MPC locked in for 1 year post IPO. | Excess of promoters holding in excess of MPC to be released in phased manner – locked in for 1 year (50%) and 2 years (50%), post IPO. |
7. | General Corporate Purpose (GCP) | 25% of Gross Issue Size. 35% of Gross Issue Size including Unidentified Acquisitions | GCP amount in SME IPO to be restricted to 15% of issue size or Rs. 10 crore (whichever is lower). |
8. | Promoter Group Eligibility | Existing restrictions upon “Promoter group” pertains to Debarment from accessing capital markets | No change |
9. | Track record in case of Conversion from Partnership / LLP | Considered | No change |
10. | Change in Promoters before DRHP | 1 Year cooling period | No change |
11. | Minimum Issue Size | No such requirement | No change |
12. | Minimum Operating Profit (EBITDA) | No such requirement | INR 1 Cr. for 2 out of 3 previous Financial Years before DRHP |
13. | Face Value per share | No such requirement | No change |
14. | Capital Increasing beyond INR 25 Cr. | Not permitted | If ineligible to migrate to mainboard, enhanced capital permitted due to Fund Raising, subject to meeting Main board compliances including Corporate Governance and Quarterly results. |
15. | Repayment of Promoter / Promoter Group / Related Party Loans | No such requirement | SME issues shall not be permitted, where objects of the issue consist of Repayment of Loan from Promoter, Promoter Group or any related party, from the issue proceeds, whether directly or indirectly |
16. | Working Capital Funding | No such requirement | No change |
17. | Additional Disclosures in DRHP w.t. Merchant Bankers Site Visit, Fees etc. | – | No change |
18. | DRHP to be made public for comments | No such requirement | DRHP of SME IPO filed with the Stock Exchanges shall be made available to public for comments, if any, for a period of at least 21 days by making public announcement in newspaper with QR code |
19. | Conversion of outstanding securities before IPO | No such requirement | No change |
20. | Merchant Banker Due Diligence certificate submission | No such requirement | No change |
21. | Post-listing exit opportunity for dissenting shareholders | No such requirement | No change |
22. | Applicability of Related Party Provisions (RPT) | As per Companies Act, 2013 | Related party transaction (RPT) norms, as applicable to listed entities on Main Board, to be extended to SME listed entities, provided that the threshold for considering RPTs as material shall be 10% of annual consolidated turnover or Rs. 50 crore, whichever is lower. |
23. | Disclosure of composition and meetings of the board of directors and its committees | No such requirement | No change |
24. | Disclosure of firm arrangement of finance up to seventy- five % of issue proceeds | – | No change |
25. | Shareholding Pattern and Financial Results | Six Monthly basis | No change |
