The Securities and Exchange Board of India (SEBI), in its board meeting scheduled on December 18, is likely to discuss and approve various norms, including those relating to initial public offer (IPO) by small and medium enterprises (SME), unpublished price sensitive information (UPSI) and regulatory framework for angel funds.
The market regulator may raise the minimum application size for an SME IPO to Rs 2-4 lakh from the present Rs 1 lakh. The higher size will limit the participation of retail investors, who have been increasingly applying for such IPOs.
The SME IPOs have witnessed a surge in recent years particularly from 2022-23 onwards. Since the establishment of SME platforms, FY 2023-24 witnessed the highest number of SME public issues and highest SME fund raising with 196 IPOs tapping the market to mobilize more than Rs 6,000 crore. In FY2024-25 (till October 15, 2024), more than Rs 5,700 crore has been raised through 159 SME IPOs.
With an increase in the number of SME issues, the rise in investor participation in such offerings have also seen a jump, causing concerns for SEBI. The applicant-to-allotted investor ratio has surged from 4 times in FY22 to 46 times in FY23 and 245 times in FY24.
Sebi may increase the requirement of minimum allottees for an SME IPO to 200 for such public issue to be successful, from the present 50 allottees. In order to ensure that a promoter of an SME company continues to have certain skin in the game, SEBI may increase the lock-in on minimum promoter contribution (MPC) in SME IPO to 5 years from the existing three years.
The regulator may allow an SME company to float an IPO only if the issue size is over Rs 10 crore and the operating profit is Rs 3 crore for at least any 2 out of 3 financial years preceding the IPO application.
Sebi board may also review the definition of Unpublished Price Sensitive Information (UPSI) to bring about regulatory clarity, certainty and uniformity in compliance for the listed companies. UPSI refers to any information, relating to a company or its securities, directly or indirectly, that is not generally available. On becoming generally available, UPSI is likely to materially affect the price of the securities.
The regulator may include restructuring/one-time settlement in relation to loans, initiation of forensic audit, action initiated by any enforcement authority against the listed company or senior management, fundraising and agreements control of the company in the definition of UPSI.
As part of reviewing the regulatory framework for angel funds in alternative investment funds (AIF) regulations, SEBI may clear the proposal to allow only accredited investors to invest in angel funds. Such accredited investors will be required to meet commensurate net-worth criteria, which will be verified by a third-party accreditation agency.
Allowing accredited investors would allay concerns regarding investors without the necessary risk appetite, evaluating and making investments in start-ups through angel funds.
The minimum investment limit by an angel fund in a start-up is likely to be reduced to Rs 10 lakh from Rs 25 lakh, and the maximum investment may be hiked to Rs 25 crore from the existing Rs 10 crore limit.
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