In a press release, the regulator said that SMEs have raised over Rs 14,000 crore since platforms for trading in SME stocks were launched in 2012.Of the total, Rs 6,000 crore was raised in fiscal 2024 alone.
Recently, NSE had tightened rules for IPOs by SMEs and said that effective Sept 1, only companies with positive free cash flow can list on its platform. Free cash flow refers to the cash that is left after paying all capital and operating expenses.
Sebi has noted that after listing, some SMEs and/or their promoters have been using ways to project an unrealistic picture of their operations. “These announcements are typically followed up with various corporate actions such as bonus issues, stock splits, and preferential allotments. (Such) actions create a positive sentiment amongst investors, which induces them into purchasing such securities. Simultaneously, this also presents an easy opportunity to the promoters to off-load their holdings in such companies at elevated prices,” the release said.
Sebi has recently passed orders against such entities. “It can be seen that the modus operandi of these entities follows a pattern that is by and large similar to what has been mentioned above.”
Earlier this week, Sebi passed an order against an SME entity named Debock Industries and three of related entities including promoters. The company was listed on NSE’s SME platform in June 2018 and migrated to the main board in March 2022.
In this case, after listing, the promoters resorted to rampant related-party transactions to show a sharp jump in business and revenues. After that, it migrated to the main board and soon launched a preferential allotment to entities related to the promoters. Soon after the shares from this allotment were transferred to the promoters through off-market transactions and subsequently sold in the market. By the time Sebi started investigating the company, the promoters had made illegal gains aggregating Rs 89.2 crore while its shareholders were left with nearly worthless shares.