SEBI to Tighten Listing Rules for Small Businesses

by | May 14, 2024 | 0 comments

The public offers minimum size may be increased to around 300 million rupees or 500 million rupees ($3.59m-$5.99m), according to two sources who took part in the discussion.

To regulate the public offers of small and medium enterprises (SMEs), Securities and Exchange Board of India (SEBI) along with market exchanges has decided to switch on the screw. The move is in response to concerns over misuse of a dedicated listing platform started in 2012 that was meant to ease small businesses’ access capital markets.

According to knowledgeable sources, the regulator may consider raising it from currently between INR 300 million and INR 500 million ($3.59-$5.99 million). After talking with different stakeholders, these changes are anticipated to be decided and will likely be declared later this year.

Currently there is no stipulated minimum issue size if companies listed here have post issue capital base not less than Rs. 250 Mn. Implementing a minimum offer size will screen out unworthy companies thus safeguarding investors’ interests.

No responses have been given by the market regulator or the exchanges despite requests for comments.

India’s equity markets rally has seen a surge in public issues by SMEs. According to PRIME Database, only 125 firms had raised Rs22 bn at end-March 2023 FY while data indicates a record high of about Rs60 bn obtained from 205 entities during March26 FY24.

Small and Medium Enterprises (SMEs) in India are defined as those having annual turnover ranging between INR50m – INR2.5bn. There have been worries due to oversubscriptions reaching even up to times beyond what was offered like say 500-1000 times.

Additional measures will include more detailed disclosures required from corporates going IPO? One source among them stated “Merchant bankers would need disclose more about the purpose of the issue, financial health of issuer, associated risk factors”.

Madhabi Puri Buch, chairperson SEBI had earlier pointed out cases where some issuers and bankers misused the SME listing framework like price manipulation. SEBI has since initiated investigations based on these allegations.

In one of its recent crackdowns, Securities Exchange Board of India (SEBI) banned three SME companies from accessing capital markets for defrauding funds they mobilized through public offers as well as other contraventions, thus underscoring the importance of retail investors to conduct thorough due diligence before investing in such stocks. High returns that are not sustainable should not be a basis of drawing investors in, warns SEBI.

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