Sebi Tightens Rules for SME IPOs with Profitability Mandate

The Securities and Exchange Board of India (Sebi) has introduced stricter regulations for SMEs launching IPOs, including a profitability requirement and a 20% cap on offer-for-sale. These measures aim to protect investors and standardize procedures, aligning SME regulations with those for larger public offerings.

The Securities and Exchange Board of India (Sebi) has unveiled a more stringent regulatory framework for small and medium enterprise (SME) initial public offerings (IPOs). The initiative includes a profitability requirement and a cap of 20 percent on offer-for-sale (OFS) components, targeting better alignment with main-board IPOs while safeguarding investors.

Under the new rules, SMEs aiming to undertake an IPO must show a minimum operating profit of Rs 1 crore for at least two of the preceding three financial years. Furthermore, the OFS allowance has been capped, preventing shareholders from selling more than 50 percent of their existing holdings.

The reforms also dictate the method of allocation and minimum application size to harmonize with main-board IPO standards. These measures are designed to mitigate unnecessary speculation and protect gullible investors, ensuring a fair and transparent IPO process for SMEs.

(With inputs from agencies.)