SEBI proposes SME-only IPO route for firms valued up to Rs 1,000 crore

Mumbai: The Securities and Exchange Board of India (SEBI) on Wednesday proposed a major revamp of the SME initial public offering (IPO) framework, including restricting SME-platform listings to companies valued up to Rs 1,000 crore, easing fundraising norms and reducing compliance requirements to improve market efficiency.

Under the proposals, companies with a valuation of up to Rs 1,000 crore would be required to list only on SME platforms. Firms valued between Rs 1,000 crore and Rs 4,000 crore would have the flexibility to choose between SME and mainboard listings, while companies with valuations exceeding Rs 4,000 crore would be eligible to list only on the mainboard platform.

The market regulator has also proposed tightening profitability requirements for SME IPO candidates. Companies seeking an SME listing would need to report an average annual operating profit of at least Rs 3 crore.

However, loss-making firms could still access the market provided that qualified institutional buyers (QIBs) subscribe to at least 75 per cent of the net offer, offering an alternative route for high-growth businesses.

In another key proposal, SEBI has recommended scrapping the mandatory 100 per cent underwriting requirement for SME IPOs. Instead, issues would need to achieve at least 90 per cent subscription, failing which investor funds would have to be refunded within four days.

The regulator has also proposed doing away with the compulsory three-year market-making requirement for SME-listed stocks. Additionally, it suggested introducing one-share trading lots for SME stocks to improve liquidity and reducing the minimum application size for SME IPOs to Rs 1 lakh. At the same time, the minimum number of allottees in an SME IPO could be increased to 500 from the current 200 to broaden investor participation.

SEBI has further proposed removing the existing Rs 10 crore cap on funds that can be allocated for general corporate purposes, potentially giving issuers greater flexibility in deploying IPO proceeds.

The consultation paper comes shortly after the regulator extended a temporary relaxation that allows companies to revise their IPO issue size by up to 50 per cent without filing a fresh draft red herring prospectus (DRHP). The relief, originally scheduled to expire on September 30, 2026, has now been extended until March 31, 2027.

Introduced in April, the measure enables companies to increase or reduce the size of a fresh issue by up to 50 per cent after filing draft documents, helping issuers respond to changing market conditions without undertaking a fresh regulatory filing process.

The extension follows representations from investment bankers and issuers, who cited subdued investor participation and heightened geopolitical uncertainties, particularly in the Middle East, as factors complicating capital-raising plans and valuation assessments.

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