SME IPO
- It provides a chance to companies to raise capital.
- It increases visibility, prestige and credibility of the company that issues the IPO.
- Net worth and working capital of the company is increased.
- It helps companies to raise capital borrowed at a higher rate.
- It serves as an exit route to provide equity investors.
What is the idea behind SME IPO?
Although SME contribute a large portion to Indian Economy like 40% of the workforce in India , 45% of manufacturing output etc. Yet previously, SMEs used to demand only on Banks and Financial Institutes for capital requirement that too subjected to various loan constraints.
But since 2012, BSE and NSE have launched SME platforms where they could raise funds from the capital markets. Also, after few years the company can get their share transferred from SME platform to the Main Board.
What are the prerequisites to launch SME IPO?
The company should
- make necessary changes in the Board of Directors like appointment of Independent Director, CFO etc.
- Have its own website which contains the financial statement of last 3 years.
- Consult merchant bankers, share transfer agents and carry out agreement with them.
Eligibility criteria for IPO:
- As per latest audited financial statements, net tangible assets and net worth of company must be at least 3 crores separately.
- In terms of section 123 of the Companies Act , track record of distributable profit be at least 5 crores for last 5 years.
- The post- paid up capital of the company should at least be 3 crores.
- Draft offer document
- Copy of the Prospectus
- Copy of resolution passed by the Board of Directors
- Copy of the shareholders resolution passed under 62(1)(c) of Companies Act, 2013
- Certificate from either of the following:the Managing Director / Company Secretary or PCS / Statutory or Independent Auditors
- Copy of all show cause notice/orders issued
- PAN & TAN of the Company.
- DIN & PAN of Promoters and Directors.
- Balance Sheets, P&L Statements and Cash Flow Statements for the last 5 years (or for such applicable periods)
- Copies of major orders or contracts
- Details if the present or any previous application of the Company/Group Company for listing of any securities has been rejected earlier by SEBI or by any stock exchange and reasons also.
- Name of the exchange which is proposed to be designated Exchange for the issue.
- Copies of agreements and memoranda of understanding between the Company and its promoters/ directors.
- Articles & Memorandum of Association of the Company.
- A certificate issued by the statutory auditor/practicing chartered accountant
- Association, if any, of the directors/ promoters of the Company with any public or rights issue made during last 10 years.
What is the procedure for SME IPO?
- After 45 days of start of the assignment, completion of all due diligence takes place.
- Then 10 days later, filing of offer letter occurs.
- On 70th day of start, approval by the stock exchange takes place.
- Further 5 days later, ROC filing happens.
- Again on 80 and 85 of the start, issue opening and closing takes place respectively.
- Finally, 5 days later listing of the IPO happens.
Yes, there are capital tax benefits on SME, but it varies for listed and unlisted securities. For unlisted securities, short term capital gains are upto 30% while long term capital gains are upto 20%. Whereas, for listed securities, short term capital gains are upto 15% and long term capital gains are NA, if the company has paid Securities Transaction Tax.
Yes there are annual maintenance charges. It is higher of either 25000 or 0.01% of full market capitalization. Market Capitalization is calculated as average of the prices on the last day of the financial year.
Since, regulation 260 is not applicable to SME IPO , therefore IPO grading is not required for listing on SME exchange.
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