Within minutes, the blessing turned into a curse as GMP also fell to zero. Investors now find their money stuck in an escrow account with no clarity on the listing date.
Read also | SME IPO with 135% GMP gets a surprise on listing day, BSE postpones debut in a last-minute move
BSE said it has advised the Noida-based company, which provides traffic management solutions on several highways in India, to hold the entire proceeds of the issue in an escrow account until it satisfactorily explains the issues raised in a complaint and a video on social media.
Responding to the complaints, the Stock Exchange, which also acts as a first-level regulator in the capital markets, decided to postpone the listing until the concerns raised by the company are resolved.
The Rs 44.87 crore IPO, which was entirely a fresh share sale of 64.1 lakh shares, received a strong response from investors with an overall subscription of over 345.65 times. For the year ended March 2024, the company posted a total revenue of Rs 65 crore and a net profit of Rs 12.01 crore. In its RHP, Trafiksol said it intends to invest Rs 17.7 crore to buy software from Oasis Corpcare. Social media users raised questions about the software provider claiming that it looks like a shell company that has not filed any report since 2021.
BSE’s action is apparently based on complaints on social media.
In recent weeks, several SMEs that went public have been criticized on social media. Resourceful Automobile’s IPO SME, which only owns two Yamaha showrooms and eight full-time employees, managed to gain 400 subscriptions.
Similarly, Boss Packaging Solutions was also ridiculed on social media for having a shabby-looking office.
Problems in the world of SMEs
This rare action by the BSE could be the start of a broader crackdown on SMEs that have been violating guidelines or even misleading investors.
Just a fortnight ago, Sebi member Ashwani Bhatia had publicly said that stock exchanges should learn to say no to public listings of SMEs. Listings of SMEs are directly authorised by the stock exchanges (BSE and NSE) without direct approval from Sebi.
“Nobody says no to listed SMEs, even when they inflate their balance sheets. Auditors should be good doctors – don’t give them steroids when they can survive on paracetamol,” Bhatia said, adding that lack of due diligence by auditors had led to inadequate checks and balances.
The regulator is expected to review SME listing rules, tightening rules related to disclosure and eligibility. The NSE has already stepped up scrutiny of companies seeking to list on its SME platform and introduced positive free cash flow to equity (FCFE) requirements.
BSE has a 90% trading day limit, meaning no IPO can trade above the 90% mark, while NSE introduced it recently amid an outcry from market participants over the froth building up in less-followed sectors of Dalal Street.
Sebi had recently issued an advisory saying that investors in the SME market should exercise caution.
“Some of the SMEs and/or their promoters have resorted to certain media which project an unrealistic image of their operations. It has been seen that such companies/promoters make public announcements which create a positive image of their operations. These announcements are usually followed by various corporate actions such as bond issues, share splits, preferential allotments etc.,” Sebi said.
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