Sebi Plans Tighter Rules For Listing Of Small Businesses, Say Sources
According to sources, some of these issues were subscribed 500 to 1000 times, raising concerns around misuse of the platform
India’s markets regulator and exchanges will tighten rules for initial public offerings (IPOs) of small and medium enterprises (SMEs), according to sources, after complaints of misuse of a separate listing platform introduced in 2012 to enable small businesses access the capital markets.
The regulator, the Securities and Exchange Board of India (Sebi), is considering raising the minimum size of such public offers to Rs 300 million to 500 million, said the sources who are directly familiar with the discussions.
The news rules are slated to be issued later this year after the regulator and exchanges consult stakeholders, they said.
Currently there is no minimum issue size prescribed but companies listing on the platform are required to have a post issue capital base of Rs 250 million.
"A minimum offer size will ensure that serious companies are accessing the capital markets and in turn safeguard the interest of investors," said one of the sources.
Buoyed by India's surging equity markets, public issues by SMEs soared in the financial year ending March 2024 to 205 companies raising Rs 60 billion compared to the 125 firms that raised Rs 22 billion in the previous year, according to prime database, a capital markets data provider.
Some of these issues were subscribed 500 to 1000 times, raising concerns around misuse of the platform, the sources said.
Alongside introducing a minimum issue size, these companies will also be asked to make more disclosures, the sources said.
"The merchant bankers will be asked to make more upfront disclosures of objects of the issue, financials of the issuer and risk factors," said the first source.
Earlier this year, Sebi chairperson Madhabi Puri Buch said some issuers and bankers were misusing the framework provided for SME listing. SEBI is collecting evidence following complaints of price manipulation in the segment, Buch said.
In the past week, Sebi barred three SME companies from capital markets on charges of misusing funds raised via public offers. These companies used funds for purposes other than those specified, misstated facts in offer documents and alleged manipulated financial statements, the regulator said.
Sebi said in one of its orders that retail investors need to exercise a certain level of due diligence while investing in SME companies and not be swayed by “seemingly attractive returns that may quickly come their way.” (Reuters)
