India's markets regulator is proposing tighter regulations for initial public offerings of small and medium-size enterprises.

The Securities and Exchange Board of India wants to raise the minimum application size for IPOs of SMEs to Rs200,000 (US$2,369) from Rs100,000 currently in a bid to allow only informed investors with risk-taking appetite and capability to apply for SME IPOs. The regulator has also floated the idea of the minimum application size being raised to Rs400,000.

Sebi is proposing that offers for sale, or the amount of shares existing shareholders sell through an issue, should be restricted to 20% of the total issue size and shares offered through OFS should not exceed 20% of the shareholder's total stake in the company. Currently, there are no restrictions on OFS in SME IPOs.

Sebi also wants only companies with an operating profit of Rs30m in at least two of three financial years preceding the application to be allowed to file for an SME IPO. Among other proposals, the regulator also suggested tighter monitoring of the use of funds from these issues.

The proposals come at a time when India's IPO market is booming, with issuances by SMEs surging over the last two years. In the current fiscal year ending March 31, more than Rs57bn has been raised from 159 SME IPOs up to October 15. Last fiscal year, 196 SMEs raised Rs60bn from IPOs. The regulator said the rising risk of misconduct amid this surge prompted the need to review the listing framework.

India defines SMEs as companies with annual turnover of Rs50m to Rs2.5bn.

Sebi is seeking public comments on the proposals by December 4.

Source: IFR