SEBI wants to tighten eligibility criteria for SME IPOs. Here’s how

Market regulator Securities and Exchange Board of India (SEBI) is considering changing the eligibility criteria for SME companies seeking to list on exchanges through initial public offering (IPO). It has sought public feedback on a proposal to add a promoter group to the rules that prohibits the issuer of an IPO if its promoters or directors are barred from entering the capital market.

SEBI said that when the issuing companies proposing to be listed on the SME IPO are closely held by the promoter and the promoter group and the business is managed by the promoter as well as the promoter group, any action against members of the promoter group may have a significant impact on the issuer as well. . .

The proposal is part of a consultation paper released by Sebi on Tuesday in which the market regulator wants to tighten rules around the launch of SME IPOs to protect retail investors.

“An issuer is not eligible to make an initial public offer: (a) if the issuer, any of its promoters, promoter group or directors or selling shareholders are debarred by the Board from accessing the capital market; (b) if any of the promoters or directors of the issuer is a promoter or director of any other company which has been debarred by the Board from entering the capital market; (c) if the issuer or any of its promoters or directors is a willful defaulter or a fraudulent borrower. (d) if any of its promoters or directors is a fugitive economic offender,” the proposed rule says.

The current rule does not include promoter groups and only promoters or directors of twelve companies (also promoters or directors of any other company), willful defaulters or fraudulent borrowers or fugitive economic offenders.

The consultation paper also seeks feedback on the proposal to have a 2-year cooling off period before an SME IPO for a limited liability partnership or a company formed after conversion from a partnership firm.

Also, SEBI sought views on whether there should be a 2-year cooling off period before an SME IPO for a company if there is a change in promoter(s) or new promoter(s) after acquisition of more than 50% shareholding. To file a draft offer document.

Due to sharp growth in market size and to protect small retail investors, the regulator increased the application size of IPOs of small and medium companies to Rs. 4 lakh is also considering the proposal.

Also Read: SME IPO: SEBI considers doubling application size to 4 lakh, floats consultation paper

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