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SME IPO Readiness · Question
Short answer
IPO money may generally be used for the purposes stated in the offer document, called the objects of the issue. Common ones are funding capacity expansion, meeting working capital needs, repaying certain borrowings, covering issue expenses and general corporate purposes within a regulated cap. Some uses, such as lending to related parties or speculative investments, are restricted. Once stated, the objects bind the company.
The objects of the issue are the promise made to investors about where their money goes. They are written into the offer document, reviewed by the exchange, and later reported against. A company cannot quietly redirect proceeds.
| Use | General position |
|---|---|
| Plant, machinery or building for expansion | Common and well understood, usually backed by quotations |
| Working capital | Allowed if the requirement is reasoned and supported by projections |
| Repayment of borrowings | Allowed subject to conditions and disclosure of the loans |
| Acquisition or strategic investment | Needs identification and disclosure of the target where known |
| General corporate purposes | Permitted but limited to a modest share of the issue |
| Issue expenses | Allowed and itemised |
Using proceeds to repay loans taken from promoters or related parties, or to invest in unrelated financial instruments, faces tighter conditions, and SME rules differ from main board rules. Treat each such plan as something to be cleared with your merchant banker early.
Vague objects such as business growth draw queries. Reviewers want specifics: what will be bought, from whom, with what quotation, and by when.
Unspent funds are usually parked in safe instruments and tracked. Changing the objects later generally needs shareholder approval and public disclosure, and the process is intentionally cumbersome. Utilisation is reported to the exchange, and some issues need an independent monitor.
Do not size the issue before the plan
Raising more than a project or working capital need can justify leaves idle cash and awkward questions. Build the use plan first, then decide the amount.
Caps and conditions are set by current regulation, so confirm them with your merchant banker.
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This answer is general information, not advice on your particular case. Terms, eligibility, and requirements change, so check the current position with the relevant institution or authority. Lalsar Holdings' financial advisory and financing work is advisory and facilitation only. Lalsar Holdings is not a lender. Sanction and disbursement of any credit facility is at the sole discretion of the partner bank, NBFC, or financial institution involved, subject to their own eligibility criteria and credit policy.