This follows cases of diversion of issue proceeds to shell companies controlled by promoters and revenue inflation through circular transactions by related parties. According to SEBI’s analysis, one in two SME-listed entities have related party transactions of more than ₹10 crore.
SEBI has proposed that an SME company will be eligible for an IPO only if the issue size is more than ₹10 crore and has an operating profit of ₹3 crore from operations in at least two of the three financial years preceding the application.
As of October 15, 159 small and medium enterprises have raised over ₹5,700 crore through IPOs in the current financial year. While FY24 saw the highest number of SME public issues with 196 companies tapping the market to raise over ₹6,000 crore.
The regulator has also suggested limiting the offer for sale (OFS) by the promoters to 20% of the issue size.
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“The objective of setting up the SME Exchange was to provide finance to needy small and medium enterprises for their growth,” Sebi said in a discussion paper on Tuesday.
From the SME IPO data, it was noted that there were two 100% OFS SME IPOs in FY 24 and one in FY 25 till October, it said.
“It has been observed that the promoter of the proposed IPO diluted its stake which was not intended to create an SME platform,” the regulator said. It has also suggested mandating the disclosure of merchant bankers’ fees in the prospectus.
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