NSE implements stricter eligibility criteria for SME IPOs following Sebi's new rules

The National Stock Exchange (NSE) has implemented stricter eligibility criteria for small and medium enterprises (SMEs) seeking to list on its NSE Emerge platform. This move comes into effect following the Securities and Exchange Board of India's (Sebi) recent amendments to the SEBI (ICDR) Regulations, 2018, and SEBI (LODR) Regulations, 2015.

Sebi, on Wednesday, December 18, 2024, approved a set of measures aimed at strengthening the SME IPO framework. These include:

* Limiting Promoter OFS: The offer for sale (OFS) by promoters in SME IPOs is now capped at 20% of the issue size. Promoters are also restricted from selling more than 50% of their holding in an IPO.

* Profitability Requirement: SMEs must demonstrate operating profits of Rs 1 crore for any two of the three preceding financial years to be eligible for an IPO.

* Restriction on Loan Repayment: SMEs cannot use IPO proceeds to repay loans from promoters or promoter groups.

* Cap on General Corporate Purposes: The amount allocated for general corporate purposes in SME offerings is capped at 15% of the amount raised or Rs 10 crore, whichever is lower.

These new rules aim to enhance investor protection and prevent instances of fund diversion and revenue inflation.

NSE, in its circular issued on Friday (December 20), stated that all SMEs seeking to list on NSE Emerge must now comply with these additional eligibility criteria. The new rules will be applicable to all draft red herring prospectuses (DRHPs) filed on or after December 19, 2024.

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