SEBI proposes stricter rules for SME IPOs: Higher minimum application size, OFS ban and more

SEBI has released a consultation paper suggesting tighter regulations for SME IPOs, which could limit retail investor participation.

Here are some key proposals:

Higher minimum application size

The minimum application size for SME IPOs may double from ₹1 lakh to ₹2 lakh or even ₹4 lakh, making it harder for smaller investors to participate.

HNI allotment rules overhaul

SEBI plans to divide HNIs into two sub-categories:

– 1/3 of the allocation for applications up to ₹10 lakh.

– 2/3 for applications above ₹10 lakh.

The allotment process for HNIs will switch from proportional to a “draw of lots” system, and public issues must have at least 200 allottees, up from 50.

Offer for Sale (OFS) restrictions

OFS in SME IPOs could either be banned entirely or capped at 20%-25% of the total issue size.

Monitoring use of funds

The requirement for appointing a monitoring agency may be expanded to cover all IPOs, irrespective of issue size. Alternatively, the threshold for fresh issue size could be reduced from ₹100 crore to as low as ₹20 crore.

Lock-in period for promoters

SEBI recommends a phased release of promoter lock-ins, with 50% of holdings locked for 2 years post-IPO and the rest for 1 year.

General Corporate Purpose (GCP)

The allocation for GCP will be capped at 10% of the issue size, down from the current 25%, with a limit of ₹10 crore. Unidentified acquisitions in draft filings will also be disallowed.