SME IPO – AN OPPORTUNITY TO CAPITALIZE YOUR BUSINESS
27 Aug 2020
In India, micro, small & medium enterprises contribute around 6.11% of the manufacturing GDP & around 24.63% of the service sector GDP. They provide employment to around 120 million people & account for nearly 45% of our country’s exports. Thus, in order to boost the fund-raising capacity of small & medium enterprises, a need was felt to regularize the listing & subsequent trading of such shares. In 2012 NSE & BSE inaugurated their SME platforms for listing & trading of shares. Keeping in mind the nascent stage of these industries, various relaxations are provided to these corporates as regards the criteria for listing & the post listing compliances. However, there is never a relaxation of corporate governance norms. The minimal yet stringent compliances lay the groundwork for companies who will eventually migrate to the Main Board.
Benefits of Listing
· Easy access to funds
· Growth, expansion, mergers, acquisitions
· Creditor’s confidence while lending
· Better corporate governance
· Improved credit rating
· ESOP to employees ensures better performance
· Exit option to private equity investors
SME listing norms
Minimum subscribers in IPO
Minimum application amount/ trading lot
Rs. 1 Lakh
100% mandatory (of which 15% has to be done by MD in his own account)
Through exchange registered market makers for min 3 years
Not subject to SEBI observation
Post issue paid up capital
Min Rs. 3 Cr Max Rs. 25 Cr
Max Rs. 25 Cr
Min Rs. 3 Cr (excluding revaluation reserve)
Should be positive
Net tangible assets
Min Rs. 3 Cr (as per latest audited financials)
Distributable profits for 2 out of 3 immediately preceding financial years Or Min net worth of Rs. 5 Cr
Min track record of 3 years Positive cash accruals from operations for min 2 years prior to listing application
Company should not be referred to BIFR
Trading of shares in demat form & agreements with NSDL & CDSL
No winding up petition has been filed & accepted against the company nor has any liquidator been appointed
No change in promoters 1 year before date of filing of application for listing to stock exchange
No material regulatory or disciplinary action by a stock exchange or regulatory authority in the last 3 years against the company
Certificate stating that company is not under currently BIFR
Any material regulatory or disciplinary action by a stock exchange or regulatory authority in the past one year
Certificate stating that no winding up petition has been filed & accepted against the company nor has any liquidator been appointed
Defaults in respect of payment of interest and/or principal to the debenture/bond/fixed deposit holders, banks, FIs
Litigation record, the nature of litigation, and status of litigation
Status of criminal cases filed or nature of the investigation being undertaken with regard to alleged commission of any offence by any of its directors and its effect on the business of the company
· Appointment of Merchant Banker& legal advisors
· Due diligence (financials, material agreements, government approvals, promoter details)
· Planning IPO structure & timelines
· Re-statement of accounts
· Corporate restructuring & Board re-shuffling
· Preparation of DRHP & submission to Stock exchanges & SEBI
· Observations of stock exchange
· Site visit by stock exchange
· Appointment of other intermediaries: Depositories, Registrar to Issue, Market maker, Bankers to issue, Printers, Advertising agency
· Dematerialization of shares
· Promoters interview with Listing Advisory Committee
· BSE gives in-principal approval based on recommendations of the Committee
· Filing of RHP & final prospectus with RoC indicating opening & closing dates of an issue along with other documents
· Pre-issue advertisement
· After a closure of IPO, submission of documents to exchange for finalization for a basis of allotment
· Exchange finalizes basis of allotment & issues notice regarding listing & trading
· Trading commences within 6 days of closure of the Public issue
· Government approvals are not in order
· Old secretarial records are improper
· Non-compliance with labour laws like gratuity, provident fund, ESIC
· Non-compliance of Companies Act provisions
· Statutory auditor of company does not have peer review certificate
· Company does not have a website/logo
· Composition of Board is not as per statutory requirements
· On-going litigations
· Consent & NOC of banker & lenders to issue
· Non-availability of loan sanction letters
· Capital build-up, promoters equity, etc
SME to Main Board Migration Criteria
Following are the criteria for migration for moving SME to Main Board:
· The company should be listed on SME Platform for at least 2 years
· Min paid up capital Rs.10 Cr
· More than 500 shareholders
· Approval from 2/3 of non-promoters shareholders
· Since 2012, 224 companies have gotten listed on BSE SME, of which 44 have migrated to the Main Board. The BSE SME Board has helped SME companies to raise nearly Rs 1,834 crore. In 2018, nearly 100 companies are expected to get listed on BSE SME.
· Currently, 153 companies are listed on NSE Emerge, NSE’s SME listing platform.
· SMEs raised a record Rs.1,785 crore through IPOs in 2017, which was more than three times the funds raised in 2016.
· Funds raised are used for business expansion plans, working capital requirements and other general corporate purposes.
· Geographically, Gujarat dominates the IPO space, followed by Maharashtra, Madhya Pradesh, Delhi, Rajasthan, Telangana,West Bengal, Andhra Pradesh and Punjab.
· These companies represent diverse industry base such as media and entertainment manufacturing, textiles, engineering, finance, chemicals, agriculture, food processing and construction.
· As SMEs are spread across various sectors, they are fast emerging as an alternate asset class for investors.
· SEBI has proposed certain relaxations for startups that want to get listed
· Google is listed on Nasdaq. Listing price: $85. Current price: $1,167.
· Apple is listed on Nasdaq. Listing price: $22. Current price: $184.
· Koovs is listed on AIM, a sub-market of the London Stock Exchange, the first Indian e-commerce company to list overseas.
· MakeMyTrip is listed on US Nasdaq.
· Flipkart is registered in Singapore and now a part of Walmart.
· JustDial is the only internet-based company listed in India.