Guidance for Merchant Bankers on SME IPO Offer Documents by BSE

Point of guidance

Guidance

Disclosure requirements

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

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

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.

Due Diligence & Other Disclosures

• Verify all past fundraising activities with valuation reports and bank statements showing the 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.

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.