The Securities and Exchange Board of India (SEBI) on Wednesday strengthened the framework for initial public offerings (IPOs) by small and medium enterprises (SMEs).
The new norms will provide opportunities to SMEs with a sound track record to raise funds from the public and get listed on stock exchanges while protecting the interests of investors.
An SME will be allowed to take out an IPO only if it has an operating profit (earnings before interest, depreciation and tax) of Rs 1 crore from any 2 of the previous 3 financial years at the time of filing the draft red herring. Prospectus (DRHP), SEBI said in a press release issued after its board meeting.
In SME IPOs, the offer for sale (OFS) to shareholders should not exceed 20 percent of the total issue size and shareholders cannot sell more than 50 percent of their holdings.
Lock-in on promoter holdings exceeding the Minimum Promoter Contribution (MPC) will now be released in a phased manner – lock-in for promoters holding more than 50 per cent of the MPC will be locked-in after one year. The remaining 50 per cent holdings of promoters in excess of MPC will be released after two years.
The regulator has set a limit of 15 per cent of the amount raised by the issuer in an SME IPO for general corporate purpose (GCP) or Rs 10 crore, whichever is lower. Proceeds from the SME IPO will not be allowed to repay loans from the promoter, promoter group or related parties.
Related Party Transaction (RPT) norms, applicable to main board listed entities, will be extended to SME listed entities, with the threshold for considering RPTs being 10 percent of annual consolidated turnover or Rs 50 crore, whichever is lower.
The SEBI Board revised the regulatory framework for net worth, including the registration of merchant bankers (MBs), their qualifications, the activities they can undertake and the liquid net worth criteria.
The regulator has allowed merchant bankers, other than banks, public financial institutions and their subsidiaries, to carry out only permitted activities.
“Activities other than those permitted by the MB will be divested into a separate legal entity with a separate brand name within a period of two years,” it said. A separate entity may allow activities other than those permitted by sharing resources with the MB on an arm’s length basis without imposing any legal obligation on the MB.
SEBI has classified MBs into two on the basis of their total assets and activities.
Category 1 MB will have a net worth of less than 50 crores and will be allowed to carry out all permitted activities. Category 2 MBs shall have a net worth of less than Rs 10 crore and shall be permitted to carry out all permitted activities except managing equity issues on the main board.
To enhance regulatory clarity, certainty and consistency in compliance across the ecosystem, the Board approved amendments to the definition of Unpublished Price Sensitive Information (UPSI) by expanding the list of events considered as material events requiring disclosure.
To push online or digital transactions, the regulator announced to align modes for dividend and interest payment for demat account holders in line with physical security holders.
Other major decisions announced by the SEBI Board included ease of doing business measures for ESG Rating Providers (ERPs) and Small and Medium Real Estate Investment Trusts (SM REITs) and review of conservatorship regulations. It also announced norms towards ease of doing business and investor protection for Infrastructure Investment Trusts (InvITs) and Real Estate Investment Trusts (REITs).
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