SEBI tightens rules for IPOs of small firms

Market regulator Securities and Exchange Board of India (SEBI) late on Wednesday (December 18, 2024) issued tighter regulations for initial public offerings (IPOs) by small businesses, mandating that entities listing should have been profitable in recent years.

The SEBI’s tighter rules followed a boom in IPOs by small- and medium-sized firms, which are defined in the country as companies with an annual turnover of ₹50 million ($589,157.15) to ₹2.5 billion ($29.46 million).

More than 159 small and medium enterprises (SMEs) have raised ₹57 billion ($675.46 million) through such issues in the financial year till Oct. 15, compared with the previous year's record of ₹60 billion, data from SEBI showed.

A small business can only launch an IPO if it has made a profit of 10 million rupees from operations in two of the three financial years, SEBI said.

It added that the offer for sale or the portion of shares being sold by existing shareholders cannot exceed 20% of the total issue size.

SEBI also said funds from these IPOs cannot be used to repay loans from large shareholders or other related parties.

The market regulator, however, stayed away from mandating a minimum size for the issue or the least required subscription for small business IPOs.

SEBI, in a consultation paper in November, had proposed to raise the minimum application size for the IPOs of SMEs to ₹2,00,000 from ₹100,000.

It had also proposed that an SME company should be eligible for an IPO only if the issue size is more than ₹100 million.