Sebi Tightens Rules for SME IPOs to Enhance Investor Protection

Sebi has strengthened the regulatory framework for SMEs undertaking IPOs by instituting a profitability requirement and capping the offer-for-sale. The reforms aim to protect investors while allowing SMEs to raise funds. Rules also include phased lock-in for promoters and a limit on general corporate purpose allocations.

The Securities and Exchange Board of India (Sebi) unveiled a more stringent regulatory framework for small and medium enterprises (SMEs) undertaking initial public offerings (IPOs).

Among the key changes is a profitability requirement, mandating SMEs to demonstrate EBITDA of at least Rs 1 crore in two out of the preceding three years at the time of filing their Draft Red Herring Prospectus (DRHP).

Reforms also limit the offer-for-sale to 20% of the issue size and impose a phased lock-in period for the promoters' shares. This enhanced regulation aims to safeguard investor interests while encouraging a stable environment for SMEs to raise capital through public funds.