EconomyMarkets regulation
SEBI proposes market value test for SME listings and halves minimum bid to ₹1 lakh
Small companies worth up to ₹1,000 crore after an IPO would have to list on the SME platform, and the profit bar would rise to an average of ₹3 crore a year.
Key points
- SEBI wants SME platform eligibility based on post-issue market value, not paid-up capital.
- The minimum application would be cut from ₹2 lakh to ₹1 lakh.
- Public comments on the proposals are due by 4 November.
The Securities and Exchange Board of India (SEBI) on Wednesday proposed a broad rewrite of the rules for small and medium enterprise (SME) share sales, tying eligibility to a company’s market value and lowering the minimum amount investors must put in.
Under the plan, set out in a consultation paper, companies with a post-issue market capitalisation of up to ₹1,000 crore would have to list on the SME platform. Those valued between ₹1,000 crore and ₹4,000 crore could choose it, but would need restated consolidated accounts under Indian accounting standards. Today eligibility is based on paid-up capital.
A higher profit bar
The profit test would get tougher. Instead of an operating profit of at least ₹1 crore in two of the previous three years, a company would need an average operating profit of at least ₹3 crore a year over three years. Companies that fall short could still list through book-building, provided at least 75% of the net offer goes to qualified institutional buyers. If that portion is not filled, all the money would be refunded.
SEBI also wants to halve the minimum application to ₹1 lakh from ₹2 lakh, with each lot worth at least ₹25,000, so investors would bid for at least four lots. After listing, shares would trade in lots of one.
Other proposals include a separate framework for offers for sale, with a one-year holding requirement for shares sold, simpler lock-in rules for promoters and a cut in the lock-in for pre-issue non-promoter shares to six months from a year. The ₹10 crore cap on using IPO money for general corporate purposes would go, though the 15% limit would stay.
Industry welcomes lower threshold
Vinod Kumar, president of the India SME Forum, welcomed the smaller ticket size. “We had specifically cautioned that raising application thresholds would exclude smaller investors,” he said. He said dropping the forced move to the main board once paid-up capital crosses ₹25 crore “addresses an obstacle to continued fundraising by growing SMEs.”
SME platforms have raised ₹40,222 crore since they began, and 365 companies have moved up to the main board, according to SEBI data to 31 July. Comments on the paper are due by 4 November.