Sebi has introduced stricter regulations for SME IPOs, requiring profitability and aiming to protect investors. The new framework also includes reforms for Debenture Trustees, ESG rating providers, and more.

The Securities and Exchange Board of India has tightened the regulatory framework governing initial public offerings for SMEs

The Sebi board on Wednesday approved a series of measures, including stricter regulatory norms for SME IPOs, a comprehensive overhaul of investment banking regulations, and an expanded definition of Unpublished Price Sensitive Information (UPSI).

At a time when there has been a surge in public issues on Indian stock exchanges, market regulator SEBI has revised IPO (initial public offerings) rules for small and medium enterprises in a bid to safeguard investor interest and curb malpractices.

Moin Ladha, Partner at Khaitan & Co, expressed the view that the recent changes are positive developments. He highlighted that the listing rules for the main board have also evolved over time.

SME IPOs will also be prohibited from using proceeds to repay loans from promoters, promoter groups, or related parties.

The board of the capital-markets regulator approved a proposal to limit the offer for sale (OFS) by promoters in small and medium enterprises (SME) IPOs to 20% of an issue size. It also said they cannot sell more than 50% of their holding in an IPO.

The net worth requirements for merchant bankers have been hiked to Rs 50 crore, with merchant bankers with Rs 10-crore net worth won’t be allowed to handle mainboard IPOs.

Sebi has introduced stricter regulations for SME IPOs, mandating a minimum operating profit and limiting selling shareholders' divestment to 50% of their stake. These measures aim to enhance transparency,

Under the new regulations, companies seeking to launch an IPO in the SME segment will need to meet certain profitability thresholds. SEBI has made it mandatory for firms to have earned at least ₹1 crore in profit from operations in the last 2-3 financial years,