SME-listed entities are typically promoter-driven or family-owned businesses, with a high concentration of shareholding among a few promoters or entities within the promoter group. These companies often have limited presence of private equity or sophisticated investors who can act as a check on the influence of the promoters.
With the increasing number of SME issues, investor participation in such offerings has also grown significantly. The ratio of applicants to allotted investors has surged from 4 times in FY22 to 46 times in FY23, and further to 245 times in FY24.
SEBI has observed instances where SME listed entities diverted IPO and Rights Issue proceeds to shell companies controlled by promoters, and others inflated revenue through circular transactions among related parties. Such practices create misleading positive sentiment to attract investors.
In this regard, SEBI has amended the ICDR Regulations on March 08, 2025 to introduce significant changes impacting SME IPOs. These reforms are set to redefine capital-raising norms, streamline compliance and enhance investor protection.
𝐊𝐞𝐲 𝐃𝐢𝐬𝐜𝐮𝐬𝐬𝐢𝐨𝐧 𝐏𝐨𝐢𝐧𝐭𝐬 𝐢𝐧 𝐭𝐡𝐞 𝐰𝐞𝐛𝐢𝐧𝐚𝐫 𝐚𝐫𝐞:
- Revised eligibility criteria for SME IPOs
- Stricter Offer for Sale (OFS) restrictions
- IPO proceeds: Restrictions on repayment of promoter-linked loans
- Revised lock-in period for promoter holdings
- Public comment period extended to 21 days
- New monitoring agency requirement for issues above ₹50 Cr
- Minimum application size & allotment criteria changes
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