MUMBAI: The markets watchdog Sebi has, in a consultation paper, suggested a steep increase in the minimum application size to Rs 2 lakh per application for SME IPOs, which of late has left many eyebrows raised due to the sheer oversubscription of some of such issues.
The calendar year 2024 so far has seen a record in terms of funds raised via SME issues. According to Prime Database data, till September 2024, around 205 SME issues, which are not listed/traded on the main platforms were launched with the cumulative find raising pegged at Rs 7,016 crore -significantly higher than last year's Rs 4,687 crore.
The consultation paper released Tuesday aims to review the listing framework of small and medium enterprises (SMEs) along with their disclosure norms. Sebi also wants the requirement of minimum allottees in public issues be raised to 200 from the present 50. Another proposal in the paper is to change the allocation methodology for non-institutional investors, wherein the proportionate allotment for the NII category may be discontinued and allotments based on “draw of lots” be introduced, as is applicable for the retail category now.
The consultation paper also proposes to limit the offer-for-sale portion in the SME public issue to 20 percent of the total issue size. Under the existing method, there is a requirement for SME issues to be considered successful there has to be a minimum of 50 allottees in the public issue. Sebi proposes to suggest that this requirement of minimum allottees in public issue be raised to 200.
The whole-time Sebi member Ashwani Bhatia had hinted last month that it would come out with a discussion paper to tighten the regulatory framework for SME issues. The public issues in the SME space have been under the scanner for unusually high levels of subscription and listing gains, as well as concerns relating to overall disclosure standards.
"SME listings are closely monitored by exchanges and Sebi to ensure they don't engage in irrational exuberance price manipulation or fraudulent trade practices," Bhatia had said, adding, "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,"
Bhatia had told a Morningstar event last month, "There's concern regarding the IPO participation, particularly in SME IPO by investors. 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. The number of times IPO issues are oversubscribed, the way market-making happens, the way underwriting is done. We don't feel very comfortable about what's going on."
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 with a market capitalisation of over Rs 1 trillion.
The NSE’s small issue platform called NSE Emrge has 397 companies listed since its launch in 2017 These companies have raised more than Rs 7,800 crore through their IPOs. The Sebi paper assumes significance as several SME IPOs that got subscribed in multiples of 100x with a couple of them getting subscribed even over 1,000 times. Such oversubscription trends have attracted a lot of retail investors to the segment even as the minimum trading lot size has been fixed at Rs 1 lakh for the segment.
For instance, Delhi-based two-wheeler dealer Resourceful Automobile, also known as Sawhney Automobiles' Rs 12-crore issue in August created national media headlines after it was overbought by 419x or worth Rs 4,769 crore. Stated differently, the issue received bids for 40.76 crore shares against 10.25 lakh shares on offer.