The Securities and Exchange Board of India (SEBI) is likely to discuss and approve various norms, including initial public offering (IPO) by small and medium enterprises (SME), unpublished price, at its board meeting on December 18. Sensitive Information for Venture Funds (UPSI) and Regulatory Framework.
The market regulator may increase the minimum application size for SME IPOs from the current Rs 1 lakh to Rs 2-4 lakh. The high size will limit the participation of retail investors who are increasingly applying for such IPOs.
There has been an increase in SME IPOs in recent years, especially since 2022-23. Since the inception of the SME platforms, FY 2023-24 witnessed the highest number of SME public issues and highest SME fundraising with 196 IPOs tapping the market to mobilize over Rs 6,000 crore. In FY2024-25 (up to 15 October, 2024), over 5,700 crores have been raised through 159 SME IPOs.
Along with the increase in the number of SME issues, the increase in investor participation in such offerings has also given Sebi cause for concern. The ratio of applicants to allocated investors increased from 4 times in FY 2022 to 46 times in FY 2073 and 245 times in FY 2074.
For such a public issue to be successful, SEBI may increase the minimum allottee requirement for SME IPOs from the current 50 allottees. To ensure that promoters of SME companies continue to have some skin in the game, SEBI may increase the lock-in on minimum promoter contribution (MPC) in SME IPOs from the existing three years to 5 years.
The regulator can allow an SME company to issue an IPO only if it has an issue volume of more than Rs 10 crore and an operating profit of Rs 3 crore for at least 2 financial years in the 3 financial years preceding the IPO application.
The SEBI Board may also review the definition of Unpublished Price Sensitive Information (UPSI) to bring regulatory clarity, certainty and uniformity in compliance of listed companies. UPSI refers to any information, relating directly or indirectly to a company or its securities, which is not generally available. Once generally available, UPSI is likely to materially affect the price of securities.
The regulator may include in the definition of UPSI debt restructuring/one-time settlement, initiation of forensic audit, action initiated by any enforcement authority against the listed company or senior management, fundraising and control of company contracts.
As part of its review of the regulatory framework for angel funds in the Alternative Investment Fund (AIF) Rules, SEBI may remove the proposal to allow only accredited investors to invest in angel funds. Such accredited investors will be required to meet the same net-worth criteria, which will be verified by a third-party accreditation agency.
Allowing accredited investors will ease the concerns of investors without the necessary risk appetite, evaluating and investing in start-ups through angel funds.
In start-ups, the minimum investment limit of angel fund can be reduced from 25 lakh rupees to 10 lakh rupees and the maximum investment limit can be increased from 10 crore rupees to 25 crore rupees.
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