SMEs can only launch IPOs if they have an operating profit of ₹1 crore for 2 out of the last 3 financial years.

The SEBI board on Wednesday tightened norms for SME firms going public and merchant bankers, while broadening the definition of unpublished price sensitive information (UPSI) to include more material events.

SME firms can make a public offering only if the issuers have an operating profit of ₹1 crore from operations for any 2 out of 3 previous financial years at the time of filing of its draft prospectus. Offer for sale (OFS) by selling shareholders in SME IPOs will not exceed 20 per cent of the total issue size and selling shareholders cannot sell more than 50 per cent of their holding.

Lock-in on promoters’ holding held in excess of minimum promoter contribution will be released in a phased manner: lock-in for 50 per cent promoters’ holding in excess of MPC will be released after a year and the rest after two years. The allocation methodology for non-institutional investors in SME IPOs will be aligned with that used for NIIs in mainboard IPOs.

SME issues 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, will not be permitted. Related party transaction (RPT) norms, as applicable to listed entities on mainboard, to be extended to SME listed entities as well.

Merchant bankers

Merchant bankers other than banks, financial institutions and their subsidiaries can undertake only permitted activities as specified by SEBI. Other regulated activities may be carried out as a separate business unit after obtaining the required regulatory nod. Non-permitted activities will be hived off to a separate legal entity with a separate brand name within two years.

Bankers with a net worth of at least ₹50 crore will fall under Category 1 and will be allowed to undertake all activities that fall under SEBI’s ambit. Those with net worth of Rs 10 crore will fall under Category 2 and will not be allowed to handle equity mainboard issues.

UPSI

The Sebi board has approved amendments to include several more material events in the definition of Unpublished Price Sensitive Information (UPSI). According to a study by SEBI on material events disclosed to the stock exchanges, companies were seen to be categorizing only the items explicitly mentioned in the PIT Regulations as UPSI, and not complying with the law in spirit.

The board gave its nod to a proposal for specifying timelines for deployment of funds collected by mutual funds in new fund offers as per the specified asset allocation of a scheme.

The Board approved sharing of ESG rating reports with subscribers and the rated issuer at the same time; and process of dealing with appeal and representation by the rated issuer. This is being done to facilitate ease of doing business for ERPs following a subscriber-pays business model. The Board also approved an activity based regulatory framework for ERPs to undertake activities falling under the purview of other financial sector regulators and to hive off non-regulated activities to a separate entity.

Published on December 18, 2024