Guidance for Merchant Bankers on SME IPO Offer Documents by BSE

Introduction

This Guidance Note has been prepared to assist merchant bankers in the preparation and submission of offer documents for SME Initial Public Offerings (IPOs). The guidance provided herein outlines the key regulatory requirements, compliance standards, and best practices that merchant bankers must adhere to when preparing the offer documents. It aims to help ensure that the information presented to potential investors is clear. this guidance will help merchant bankers navigate complexities of SME IPO. Some key point which a merchant banker should remember while submitting offer document for SME IPO are as follows

Key Highlights

1. Disclosure Requirements

• Follow Schedule VI of SEBI ICDR Regulations, 2018, for mandatory disclosures.
• Include a “Definitions and Abbreviations” section clearly define and explain all technical terms.

2. Compliance-Related Disclosures

• Past Non-Compliance:
  • Disclose any past non-compliance with laws and corrective actions in the “Risk Factors” section.
  • Mention whether compounding applications have been filed with authorities.
• Independent Directors:
  • Appoint directors per Section 149(6) of the Companies Act, 2013.
  • Ensure they are registered with the Indian Institute of Corporate Affairs (IICA).
• Board Committees:
  • Verify compliance of statutory committees like the Audit Committee, Nomination and Remuneration Committee, Stakeholders Relationship Committee with the Companies Act, 2013.
• Conversion from Partnership Firm:
  • Ensure the partnership firm was registered under the Indian Partnership Act, 1932, before conversion.

3. Business Operations Disclosures

• If peer-reviewed auditors (other than statutory auditors) are appointed disclose as a key risk factor.
• Highlight steps for collecting substantial trade receivables.
• If funds are proposed to be raised for loan repayment, include a statutory auditor’s certificate confirming loan utilization.
• For IPO proceeds proposed to be used in subsidiaries, provide detailed utilization breakdown and maintain monitoring until funds are fully utilized.
• Ensure all RPTs are conducted at arm’s Length and Include the percentage of related party transactions (RPTs) and highlight associated risks in “Risk Factors” section.

4. Due Diligence & Other Disclosures

• Verify all past fundraising activities with valuation reports and bank statements showing movement and utilization of funds along with terms and conditions filed with ROC.
• Evaluate the credentials of third-party vendors, especially for major capital expenditure.
• Address risks for ongoing/potential litigations involving amounts exceeding net worth and plan of action if litigation materializes.
• Justify frequent changes in auditors in the “Risk Factors” section.
• Explain significant changes in financial metrics like profits or receivables over the past three years.
• Ensure accurate calculations for net worth, tangible assets, and leverage ratios.

5. Draft Offer Document Rejections

• Inadequate disclosures may lead to return or rejection of the draft. Refer to Guidelines for Return/Rejection of Draft Offer Document on BSE SME platform for detailed criteria.

This guidance is made effective form 18^th November, 2024 and submitting of draft offer document by merchant bankers henceforth is expected to be according to this guidance.

For More information click on the link below:https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20241118-55