NOTIFICATION States

In exercise of the powers conferred by section 30 of the Securities and Exchange Board of India Act, 1992 (15 of 1992), the Board hereby makes the following regulations to further amend the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, namely: These regulations may be called the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) (Amendment) Regulations, 2025. They shall come into force on March 4, 2025, except for the provisions relating to the expedited allocation of unsubscribed portion in rights issues, which shall come into force on April 4, 2025.

The complete text of these regulations shall be available on the website of the Securities and Exchange Board of India (www.sebi.gov.in).

Effective Date: March 4, 2025
Rights Issue Changes Apply From: April 4, 2025

By Order of the Board
Secretary, Securities and Exchange Board of India

What is SEBI’s ICDR Regulation?

Before we get into the updates, let’s first understand what ICDR regulations are. These rules govern how companies raise money from the public through Initial Public Offerings (IPOs), rights issues, and other capital-raising methods. SEBI ensures that companies follow these rules to maintain fairness, transparency, and investor protection.

Now, SEBI has introduced some major updates in 2025 to make the capital-raising process faster and more investor-friendly. Let’s dive in.

Key Updates in SEBI ICDR (Amendment) Regulations, 2025

1. Offer for Sale (OFS) Limitations in SME IPOs

• New Rule: SEBI has set a 20% limit on the Offer for Sale (OFS) in Small and Medium Enterprises (SME) IPOs. This ensures that the existing shareholders cannot offload more than 50% of their pre-IPO holdings.
• Why This Matters: This change is aimed at ensuring more equity remains with the company and its promoters, providing stability post-IPO.

2. General Corporate Purpose (GCP) Capping

• New Rule: GCP is now capped at 15% or ₹10 crores, whichever is lower. Additionally, the combined GCP and unidentified acquisitions are capped at 25% of the issue size.
• Why This Matters: This ensures that more funds raised through IPOs go toward actual business expansion rather than vague corporate purposes, improving investor confidence.

3. Lock-In Period for Promoters

• New Rule:
  • Minimum Promoter Contribution (MPC): 20% of post-issue capital is locked-in for 3 years.
  • Excess MPC:
    • 50% of the excess is released after 1 year.
    • Remaining 50% after 2 years.
• Why This Matters: This lock-in ensures that promoters remain committed to the company post-IPO, which aligns their interests with the shareholders.

4. Increased Minimum Application Lot Size

• New Rule: Individual investors must now buy at least 2 lots in SME IPOs, promoting serious participation. The number of allottees has increased from 50 to 200.
• Why This Matters: This change ensures that more investors participate actively in the IPO process, improving liquidity and market depth.

5. Restriction on Loan Repayment

• New Rule: SMEs cannot use IPO funds to repay loans taken by promoters or related parties.
• Why This Matters: This prevents misuse of funds raised through IPOs and ensures the funds are directed toward genuine business needs.

6. Public Comments on DRHP

• New Rule: SME IPO Draft Red Herring Prospectus (DRHP) now requires a 21-day public review, with newspaper advertisements within 2 days of filing the DRHP and a QR code for seamless investor access.
• Why This Matters: This change ensures more transparency and makes it easier for investors to access key information about an IPO.

7. Fundraising Through Further Issues

• New Rule: SMEs can raise further capital without shifting to the main board, provided they comply with SEBI (LODR) regulations.
• Why This Matters: This gives SMEs greater flexibility in raising capital while maintaining their position on the SME platform.

8. Mandatory 1-Year Existence for Converted Entities

• New Rule: SMEs must have completed 1 financial year as a company after converting from a proprietorship, partnership, or LLP before filing for an IPO.
• Why This Matters: This ensures that newly converted entities have a stable operational track record before going public.

9. Change in Promoter Holding

• New Rule: A 1-year waiting period is required for filing offer documents if an SME undergoes a major promoter change exceeding 50% ownership.
• Why This Matters: This regulation provides a cooling-off period to ensure that major ownership changes do not disrupt the IPO process.

10. Profitability Requirements

• New Rule: SME IPOs require ₹1 crore EBITDA in any 2 of the past 3 years, ensuring financial stability.
• Why This Matters: This ensures that SMEs have a solid financial history before attempting to raise funds through an IPO.

11. Monitoring Agency

• New Rule: Appointment of a monitoring agency is mandatory if the issue size exceeds ₹50 crores. If the monitoring agency is not mandatory, a certificate from the statutory auditor (along with quarterly financial statement filings with the SME exchange) is required for fund utilization, especially where working capital exceeds ₹5 crores.
• Why This Matters: This ensures transparency in the use of IPO proceeds, helping to safeguard investor interests.

How Do These Changes Benefit You as an Investor?

• More Transparency: No hidden legal issues, and clearer financial disclosures help you understand the risks.
• Faster Processes: Rights issues won’t get stuck, and SMEs can raise funds efficiently.
• Better Decision-Making: Clearer financial disclosures and promoter commitments give you the tools to make informed investment choices.
• Improved Trust: Stronger investor protection measures ensure your investments are safer.

Final Thoughts – Why This is a Big Deal

The SEBI ICDR (Amendment) Regulations, 2025 are designed to make investing safer, faster, and more transparent. With better disclosures, investors can make informed choices, and companies can raise funds efficiently. Whether you’re an investor looking for safer IPOs or a company raising capital, these new SEBI rules are a game-changer.

Stay updated. Stay informed. Invest wisely.

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https://muds.co.in/how-to-launch-ipo-in-india-a-complete-guide-for-startups-and-established-companies/

https://muds.co.in/iepf-share-recovery-tips-tricks-and-essential-guidelines/

https://muds.co.in/choosing-the-right-ipo-services-key-considerations-for-going-public/

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