India’s Securities and Exchange Board (SEBI) and stock exchanges are set to implement tighter regulations for public offerings by small and medium enterprises (SMEs) following reports of misuse of a dedicated listing platform introduced in 2012. According to media reports, the proposed measures include raising the minimum size for such offerings to between Rs 30 crore and Rs 50 crore ($3.59 million to $5.99 million), a significant increase from the current standards.

Media reports indicate that the new rules are expected to be announced later this year after consultations with stakeholders. Presently, there is no prescribed minimum issue size, but companies opting for the SME listing platform are required to have a post-issue capital base of Rs 25 crore.

Emphasising the need for a minimum offer size, the media reports stated that this measure would ensure that only serious companies access the capital markets, thereby safeguarding the interests of investors.

Buoyed by the buoyant equity markets in India, SMEs witnessed a surge in public offerings in the fiscal year ending March 2024, with 205 companies raising Rs 60 billion compared to 125 firms raising Rs 2,200 crore in the previous year, as per PRIME Database, a leading capital markets data provider.

However, concerns have arisen over the potential misuse of the platform, with some issues being oversubscribed by 500-1000 times. To address these concerns, alongside introducing a minimum issue size, companies will be required to provide more detailed disclosures, including upfront information on the purpose of the issue, financials, and risk factors.

Earlier this year, SEBI Chairperson Madhabi Puri Buch highlighted instances of misuse of the SME listing framework, indicating that the regulator is gathering evidence following complaints of price manipulation in the segment. Recently, SEBI took action against three SME companies, barring them from the capital markets due to allegations of fund misuse, misstated facts in offer documents, and manipulated financial statements.

SEBI underscored the importance of retail investors conducting due diligence before investing in SME companies and cautioned against being swayed solely by potentially attractive returns.

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