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The Bombay Stock Exchange (BSE) made an unprecedented move by postponing the listing of Trafiksol ITS Technologies, an IT services firm, just days before its scheduled debut. The decision came after investors raised significant concerns about the company's fundamentals, balance sheet, and the intended utilization of the IPO proceeds. The Rs 45-crore initial public offering (IPO) by the small and medium-sized enterprise (SME) firm had attracted bids worth over Rs 10,000 crore, indicating a high initial level of interest.
The BSE's decision to postpone the listing stemmed from a complaint filed with the market regulator, the Securities and Exchange Board of India (Sebi). Investors had expressed doubts about several key aspects of Trafiksol's financial performance and operations. These included frequent resignations by auditors, the allocation of a substantial portion of the IPO proceeds to software purchases from a company of questionable reputation, and a sudden and significant surge in share capital during FY23, achieved through bonus issues in private placements.
Furthermore, investors questioned the exceptional rise in Trafiksol's profits in FY24, which occurred just before the IPO filing. These concerns raised alarm bells among market participants and prompted a thorough review by the BSE. As a result, the exchange decided to postpone the listing until all queries were addressed by the issuer, Trafiksol.
This incident reflects a growing trend of increased scrutiny and caution regarding SME IPOs. The Sebi has issued warnings to investors, urging them to exercise due diligence when considering such investments. The market regulator is also working on a consultation paper aimed at strengthening norms around SME listings, motivated by recent instances of fraudulent practices and blatant violations of securities regulations by some promoters.
The proposed changes under consideration include stricter disclosure requirements, more stringent eligibility conditions for SME listings, revised portions reserved for qualified institutional buyers (QIBs) and anchor investors, and a more robust audit process. The BSE has also implemented measures to filter out SMEs with weak financial performance, including stricter eligibility criteria and a 90 percent cap on listing gains to prevent excessive price spikes.
This move by the BSE and the ongoing efforts by the Sebi to tighten regulations around SME IPOs are crucial steps towards safeguarding investor interests and promoting a more transparent and accountable capital market. The emphasis on enhanced scrutiny, increased disclosure, and stricter compliance standards for SME listings is intended to deter fraudulent activities, build investor confidence, and create a more robust ecosystem for emerging businesses seeking public funding.
Source: BSE defers IT services firm Trafiksol's IPO after investors' concern