“Tightening checks on SME IPOs need of the hour: Securities regulator”
The securities market regulator has highlighted the need for stricter scrutiny of initial public offerings (IPOs) by small and medium enterprises (SMEs) being listed on stock exchanges. As per a senior official from the regulator, adequate due diligence as mandated does not seem to be followed in letter and spirit for such issuances.
His remarks come at a time when many SME listings have witnessed enormous oversubscription levels of 500-700 times without proper assessment of company fundamentals and long term viability. The regulator believes all relevant intermediaries like merchant bankers, chartered accountants and exchanges have an important role to play here in carrying out robust evaluations of businesses looking to raise funds from public markets.
Drawing parallels with medical practices, he emphasized on careful examination of company profiles rather than assuming all can sustain high valuations post listing. If procedures are not adhered to sincerely, it could damage credibility of participants over the long run. The securities watchdog also noted some SMEs portraying misleading projections to investors after initial fundraising.
Since their inception around a decade back, SME platforms have enabled over 14 thousand crore rupees to be mobilized, with last fiscal accounting for six thousand crore rupees. While providing an additional avenue for emerging companies, relaxed norms should not compromise on disclosed standards of due process. With annual listing numbers and amounts mopped up rising sharply in recent years, bridging any governance gaps in the segment is the need of the hour.
