MUMBAI: The Securities and Exchange Board’s (Sebi) board meeting slated for Wednesday is likely to come out with a slew of measures to clean the SME IPOs space that has, of late, received a lot of regulatory attention.
The regulator is likely to bring in more transparency and accountability in the listing of SMEs, improve disclosures of unpublished price-sensitive information and further improve the ease of doing business, a source told TNIE on Tuesday.
Some of the SME listings have seen highly irrational subscriptions that in some cases topped even 1000x, and the Sebi is likely to come up with some measures with an overall objective to encourage and protect retail investors’ interest in the SME listing space, the source said.
Some of the likely proposals to be approved include increasing the minimum application size to Rs 2 lakh from the current Rs 1 lakh, introducing a draw-of-lot allotment method for non-institutional investors and increasing the minimum number of allottees to 200 from the current 50.
Most of these measures are meant for investor protection and to dissuade retail investors from taking bigger risks. For example, draw of lots to decide on an allotment is proposed as the proportionate allotment currently done, encouraging leverage leading to mispricing, said a market participant.
Late October the Sebi said it would come out with a discussion paper aimed at finalising some measurers to tighten the regulatory framework for SME IPOs.
In a stern action on December 3, the Sebi cancelled the issue by Trafiksol ITS Tech and ordered the company to refund the Rs 45 crore collected through the issue to investors within a week after an investigation had found malpractices including material misstatements in the prospectus and suspected collusion with a shell entity.
Sebi had also found that Trafiksol offered multiple and conflicting explanations for its engagement with the shell entity named TPV but failed to provide a single credible justification for engaging such an entity in the first place.
The 45-crore IPO of the a Noida-based firm that provides transportation systems and automation solutions for traffic and toll management projects was oversubscribed by over 345 times, attracting bids worth over Rs 10,000 crore. The issue was launched on September 10.
The market watchdog also directed the BSE to oversee the refund process, which will be completed within one week of the date of this order.
Among other proposals for post-listing include extending the applicability of provisions of related-party transactions under listing obligations and disclosure requirements regulations to listed SMEs, mandating disclosures on composition and meetings of their boards, and mandating quarterly submissions of financials and shareholding patterns.
The board may also review the definition of unpublished price-sensitive information under the prohibition of insider trading regulations, and allow for expanding it.
Since its launch in 2012, as of October 2024, there are over 400 small companies listed on the BSE’s SME Platform, making it the largest in SME exchange and these 400 companies have market capitalization of over Rs 1 trillion. The NSE’s small issue platform, NSE Emrge, has 397 companies listed since its launch in 2017 These companies have raised more than Rs 7,800 crore through their IPOs.
"We are working on a discussion paper on SME IPOs that should be coming out soon. What we have been observing for some time now is pretty disturbing," Sebi whole-time member Ashwani Bhatia had said on October 22.
"There's concern regarding the IPO participation, particularly in SME IPOs. We and also the exchanges are closely monitoring SME listings so as to ensure that they don't engage in irrational exuberance by price manipulation or fraudulent trade practices," he had said.
He added that “the number of times IPO issues are oversubscribed, the way market-making happens, the way underwriting are done... obviously we don't feel very comfortable about what's going on."
The comments assume significance as several SME IPOs that got subscribed in multiples of 100x with a couple of them getting subscribed over 1,000 times.
For instance a Delhi-based two-wheeler dealer Resourceful Automobile, also known as Sawhney Automobiles, Rs 12-crore issue in August created national media headlines after the issue was overbought by 419 times or worth Rs 4,768.88 crore. Stated differently, the issue received bids for 40.76 crore shares against 10.25 lakh shares on offer.
The current year has already set a record in terms of funds mobilised by SME issues. Data from Prime Database show that till September this year, around 205 SME issues, which cumulatively raised Rs 7,016 crore, significantly higher Rs 4,687 crore raised last year.