IPO eligibility norms won't apply to SMEs

Economy News Details
As a part of the initiatives to encourage SMEs to go public, SEBI has exemplified them from the eligibility requirements applicable for initial public offerings (IPOs) and follow-on public offerings of having minimum pre-issue networth and profit making track record and hence it will open up the avenues for such enterprises, which are highly dependant on expensive loans and often informal finance, to list their stocks and raise money from the public.
Ruling out the need for a separate exchange for SMEs, SEBI declared that the stocks can be listed in the existing exchanges using a separate trading platform and the cut-off limit for such enterprises has been fixed at Rs. 25 crore. Additionally, enterprises listed on the SME segment will have to shift to the equity segment on exceeding the post issue paid-up capital limit of the same amount and if follow-on offer / rights issue results in triggering of that limit.

Moreover, SEBI has indicated a minimum trading lot of Rs 1 lakh for shares in the SME segment in order to restrict participation to informed, financially sound and well-researched investors with having certain risk-taking ability. It also instructed such enterprises to disclose financial results to exchanges on a half yearly basis.

Though for the IPO, there will have to be a minimum number of investors but such norms will not be applicable on a continuous basis. Again, though the merchant banker itself is required to mandatorily underwrite only 15% of the issue size, they should ensure that the issue is 100% underwritten. Further, the responsibility for market making for a minimum period of three years will be borne by the merchant bankers and they can do so along with a disclosed nominated investor like private equity fund, high networth individual or qualified institutional buyer. The promoters will be allowed to dilute their holdings during such period only through offer for sale or to an acquirer and not to a market maker.

Presently, ICDR regulations permit reservation up to 10% of the issue size for employees in public issues and provide for discount up to 10% of issue price to retail individual investors and shareholders but not to employees. SEBI modified the existing norms and is planning to allow the same discount to employees also under the reserved category only in public issues for application size up to Rs 1 lakh.

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