Sebi seeks to tighten eligibility criteria for SME IPOs. Here’s how

Market regulator Securities and Exchange Board of India (Sebi) is considering making changes in the eligibility criteria for an SME company looking to list on the exchanges via initial public offering (IPO). It has sought a public feedback on the proposal to add promoter group in regulations that restrict the IPO issuer if its promoters or directors are debarred from accessing capital market.

Sebi said that when issuer companies proposed to be listed on SME IPO are closely held by Promoter & Promoter group and the business is being handled by the Promoter as well as Promoter group, any action against promoter group members may also have significant bearing on the issuer.

The proposal is a part of a consultation paper floated by Sebi on Tuesday where the market regulator intends to tighten rules around the launch of SME IPOs in a bid to protect retail investors.

“An issuer shall not be eligible to make an initial public offer: (a) if the issuer, any of its promoters, promoter group or directors or selling shareholders are debarred from accessing the capital market by the Board; (b) if any of the promoters or directors of the issuer is a promoter or director of any other company which is debarred from accessing the capital market by the Board; (c) if the issuer or any of its promoters or directors is a wilful defaulter or a fraudulent borrower. (d) if any of its promoters or directors is a fugitive economic offender,” the proposed rule says.

The current rule does not include promoter group and only bars company’s promoters or directors (are also promoters or directors of any other company), wilful defaulter or fraudulent borrower or fugitive economic offender.

The consultation paper also seeks feedback on a proposal to have a 2 year cooling off period before SME IPO for a company formed after conversion from Limited Liability Partnership or from Partnership firm.Also, Sebi sought opinion on whether there should be a 2 year cooling off period before SME IPO for a company if there is a change of promoter(s) or new promoter(s) have come after the acquisition of more than 50% shareholding prior to filing of draft offer document.The regulator is also considering a proposal to raise the application size of IPOs of small and medium companies to up to Rs 4 lakh on account of the sharp rise in the market size and with a view to protect smaller retail investors.

Also Read: SME IPO: Sebi mulls doubling application size up to Rs 4 lakh, floats consultation paper

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