Investment bankers want the Securities and Exchange Board of India (SEBI) to allow anchor investors in public issues of small and medium enterprises (SMEs) while also enhancing the upper limit for paid-up capital of such companies to allow relatively larger firms to enter the capital market while ensuring institutional investor participation in the dedicated segment.
The segment for SMEs, unveiled separately by BSE and the National Stock Exchange (NSE) in 2012, has seen a lot of action with a more than 200 companies currently listed on the platform. While BSE has more than 170 companies listed on its SME segment, NSE has close to 50 entities on board.
Incidentally, the recent past also saw a few institutional investors participate in the segment but that has been far and few. Fund houses like Reliance Mutual Fund and DSP BlackRock Mutual Fund have invested in a few SME IPOs. Union Bank of India and SIDBI also invested in this segment, which saw a foreign investor participate once.
Regulatory push
Merchant bankers said that if the segment receives a regulatory push then entities like banks, mutual funds, foreign institutional investors (FIIs) and financial institutions would subscribe to SME IPOs quite frequently.
Merchant bankers want the regulator to evaluate the option of allowing anchor investors in SME IPOs — as is the case with public issues on the main board. Anchor investors are institutional investors that can bid for shares ahead of the IPO and have a lock-in of 30 days.
“With SME segment growing leaps and bounds, we are being approached by many institutions who are keen to participate as ‘anchors’ in SME IPOs,” said Mahavir Lunawat, Managing Director, Pantomath Capital, an investment banking entity that has handled the maximum number of SME IPOs. However, the existing regulatory framework does not permit it, he said
Market participants also want the regulator to enhance the paid-up capital cap from the current ₹25 crore so that slightly larger companies can tap the segment to get acclimatised with the compliance requirements before moving to the main board.
Recently, Euro India Fresh Foods came out with an IPO to raise ₹51 crore — the largest till date. Data from Prime Database showed that the 2016-17 saw a total of 78 SME IPOs raising a cumulative amount of over ₹800 crore — a close to a threefold jump from the previous fiscal that saw ₹311 crore being raised from 50 issues.
A group of investment bankers are to meet the new SEBI chairman Ajay Tyagi next week and these proposals are expected to be part of the larger suggestions that the banking community presents to the regulator.
