SEBI
CHANGES ON IPO’S: ECONOMY
NEWS: Why SEBI might
introduce changes to SME IPOs, what new norms could say
WHAT’S IN THE NEWS?
SEBI has
proposed stricter norms for SME IPOs to address issues like price manipulation,
fund diversion, and fraudulent transactions. Key changes include increasing the
minimum application size, raising the promoter lock-in period, and tightening
eligibility criteria for IPOs.
Concerns
Raised by SEBI:
- Price manipulation, fund
diversion to shell companies, and fraudulent financial transactions.
- Limited checks due to
insufficient involvement of private equity and sophisticated investors.
Surge in
SME IPO Activity:
- 159 SME IPOs in FY2024 (till
October 15), raising ₹5,700 crore.
Concerns
Highlighted by SEBI:
- Promoter-Driven Companies: High concentration of
shares among promoters with limited external oversight.
- Misuse of Funds: Diversion of IPO proceeds
to related parties or shell companies and inflated revenue through
circular transactions.
- Excessive Related Party
Transactions (RPTs).
- Oversubscription Frenzy and Fraudulent Cases.
Proposed
Changes to SME IPO Norms:
- Increase in Minimum
Application Size:
Raise from ₹1 lakh to ₹2-4 lakh to curb speculation.
- Higher Minimum Allottees
Requirement:
Increase from 50 to 200 investors for IPO success.
- Stricter Promoter Lock-In
Period:
Lock-in period raised from 3 years to 5 years to ensure long-term
commitment.
- Eligibility Criteria for IPO:
- Issue size to exceed ₹10
crore.
- Operating profit of ₹3
crore in at least 2 of the last 3 financial years.
Related
Party Transactions (RPTs):
- Transactions between a
company and its related parties (subsidiaries, directors, significant
shareholders).
- Involves subsidiaries
dealing with related parties, directly or indirectly.
Source : https://indianexpress.com/article/explained/explained-economics/sme-ipo-new-changes-sebi-9729511/#:~:text=The%20tightening%20of%20regulations%20would,such%20issues%20to%20shell%20companies.