SME IPO
Overview and evolution
SMEs plays a crucial role in contributing to Indian economy by way of generating employment, effective mobilization of funds, wealth distribution, constituting industrial base and contributing to exports and thereby to GDP.
Statistically, SME contributes to 45% of the manufactured output, 40% to employment and is among the largest contributor to exports in Indian economy. Today, Indian SMEs operate in sectors such as IT, entertainment, media and the like represent the new and modern face of India.
In India, due to their low scale and poor adoption of technology, SMEs have very poor productivity. Financing is the biggest challenge and the lack of it is the main reason for an SME going out of business.
Despite the benefits associated with the public listing, the SMEs were not able to access the capital markets through extant Stock Exchanges due to several factors such as stringent regulatory, disclosure and financial requirements and the like. The creation of a separate stock exchange for SMEs has been on the policy makers’ agenda for quite some time, and finally, in March 2012, SME Exchange was launched. A dedicated stock exchange for SMEs would allow them accessing capital markets easily, quickly and at lesser costs.
Why SME IPO???
Benefits to Company
- Easy access to capital/funds;
- Vast exposure and Brand recognition
- Encourages SME establishment and Growth
- Equity financing through venture capital
- Enhanced visibility and credibility
- Efficient Risk Distribution
- Unlocking hidden values
- Migration to main Board on seasoning
- Talent retention tool
Benefits to Investors and other Stakeholders
- Easy Exit
- Tax Benefits
- Enables Liquidity
Acts Involved:
- Companies Act, 1956/ Companies Act, 2013
- Securities Contracts (Regulations) Act 1956
- Securities and Exchange Board of India Act 1992
- SEBI (Merchant Bankers) Regulations 1992
- SEBI (Substantial Acquisition of Shares and Takeovers) Regulations
- SEBI(Issue of Capital and Disclosure Requirement) Regulations
- Any rules and/or regulations framed under foregoing statutes, as also any circular, clarifications, guidelines issued by the appropriate authority under foregoing statutes
Intermediaries Involved:
- Merchant Banker
- Registrar to the issue
- Banker to the Issue
- Underwriters and syndicate members
- Stationary printers
- Depositories
- Stock Brokers
Key Requirements and Eligibility Norms
| Criteria | BSE SME Platform | NSE EMERGE Platform |
|---|---|---|
| Incorporation | The Issuer should be a company incorporated under the Companies Act 1956 / 2013 in India | |
| Post Issue Paid up Capital | The post-issue paid up capital of the company shall be at least Rs. 3 crore. | The post issue paid up capital of the company (face value) shall not be more than Rs. 25 crore. |
| Net worth | Net worth (excluding revaluation reserves) of at least Rs.3 crore as per the latest audited financial results | |
| Net Tangible Assets | At least Rs.3 crore as per the latest audited financial results | No Corresponding provision |
| Track Record | Distributable profits in terms of Section 123 of the Companies Act 2013 for at least two years out of immediately preceding three financial years (each financial year has to be a period of at least 12 months). Extraordinary income will not be considered for the purpose of calculating distributable profits. The net worth shall be at least Rs.5 crores | |
| BIFR Company | The applicant Company has not been referred to Board for Industrial and Financial Reconstruction (BIFR) | The applicant Company has not been referred to Board for Industrial and Financial Reconstruction (BIFR) |
| Winding-up | No petition for winding up is admitted by a Court of competent jurisdiction against the applicant Company | No petition for winding up is admitted by a Court of competent jurisdiction against the applicant Company |
| Disciplinary action | No material regulatory or disciplinary action by a stock exchange or regulatory authority in the past three years against the applicant company | No material regulatory or disciplinary action by a stock exchange or regulatory authority in the past three years against the applicant company |
Other Requirements:
| Particulars | Requirements |
|---|---|
| Website | It is mandatory for a company to have a website |
| Dematerialization of securities | It is mandatory for the company to facilitate trading in DEMAT securities and enter into an agreement with both the depositories |
| Registration on SCORES | SEBI scores registration is mandatory/td> |
| Site Verification and promotes’ interview | Promoters to attend to interview with Listing Advisory Committee |
| Trading lot size |
However in functionality the market lot will be subject to revival after a stipulated time. |
| Underwriting | The issues shall be 100% underwritten and Merchant Bankers shall underwrite 15% in their own account. |
| Change in promoters’ holding | There should not be any change in the promoters of the company in preceding one year from date of filing the application |
| Market making | Mandatory for min 3 years |
| Public Shareholding | Min. 25% Min. 50 investors (No post-listing continuous requirement) |
