In its Board meeting, the capital market regulator introduced profitability requirements as well as put a cap on shares to be sold through the offer for sale (OFS) route
An SME can come out with an IPO only if it has an operating profit of INR 1 Cr from operations for any two out of three previous financial years
The OFS size should not exceed 20% of the total issue size
The Securities and Exchange Board of India (SEBI) has tightened the regulatory framework governing initial public offerings (IPOs) for small and medium enterprises (SMEs).
In its Board meeting yesterday (December 18), the capital market regulator introduced profitability requirements as well as put a cap on shares to be sold through the offer for sale (OFS) route.
In terms of the profitability clause, an SME can come out with an IPO only if it has an operating profit (earnings before interest, depreciation and tax) of INR 1 Cr from operations for any two out of three previous financial years at the time of filing the draft red herring prospectus (DRHP).
Also, the OFS size should not be more than 20% of the total issue size. Additionally, these shareholders cannot sell more than 50% of their total holding through the IPO.
The new rules do not allow SME IPO proceeds to be used to repay loans to promoters, promoter groups, or related parties. Apart from that the public will now have 21 days to review SME IPO DRHPs and provide feedback. Stock exchanges will make the DRHPs accessible through public announcements and QR codes.
(The story will be updated soon)
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