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Know All About SME IPO Listing

SMEs (Small and Medium Enterprises) is an integral part of any economy and more so, of a developing nation like India. They are a major employment generator, growth propeller and GDP mover of a nation, yet till 2012, there was no dedicated platform available to SMEs to go public.

What is the SME exchange?

SME Exchange is a stock exchange that is exclusively dedicated to the listing of SMEs, giving them a platform to go public and trade their shares and securities.

How many SME Exchanges are there in India?

In India we have two dedicated SME Exchanges:

1. SME Platform of Bombay Stock Exchange
2. EMERGE Platform of National Stock Exchange

The BSE SME exchange is the pioneer as it was the first one to venture into this space, launched on March 13, 2012.

Not to be left behind, NSE also established its SME exchange called "EMERGE" in the same year.

What was the need to establish SME Exchange?

The bourses available to large companies like NSE and BSE were always there but SMEs found it difficult to list on them as they were not able to fulfil the compliance demands or compete with big companies.

The biggest problem for SMEs of not being listed was that their visibility and credibility remained low and thus, they were cash-starved. This created hurdles in the way to growth, expansion, diversification and acquisition.

"Small businesses have the potential to impact a country�s economy in a big way!" -Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.

How SME Exchange benefits Small Firms?

The biggest advantage for small firms that an SME exchange provides is that it makes SME IPO Listing easier and more streamlined.

Listing of companies on an SME exchange will help them to leave behind the traditional ways of funding available and it will open up a whole world of opportunities.

It will give such entities a chance to:

a) raise capital
b) get a better valuation of the company
c) improve the debts and equity ratio
d) have a healthier balance sheet

By achieving all this, the small companies will be able to execute their financial plans in a much more efficient way; be it acquisition, diversification or expansion.

"The IPO database of IPOs in the last 3 years is proof enough to show how beneficial SME Exchanges of BSE and NSE are for SMEs." -Isha Malik (Company Secretary, MUDS Management Pvt. Ltd.)

How is the SME Platform different from the mainboard?

These are the few main differences in the main and SME platforms:

SME

Main Board

Post-issue paid-up capital

Minimum capital should be Rs 1 crore & maximum 25 crores

Minimum capital should be Rs 10 crores

Minimum Allottees in IPO

Minimum 100

Minimum of 1000

IPO Underwriting

Mandatory 100% Underwritten

Non-mandatory

Track Record

Stringent Norms

Stringent Norms

Offer Document Vetting

Done by Stock Exchange

Done by SEBI

Minimum IPO Application Size

Rs 1,00,000

Rs 10,000 -15,000

IPO Timeframe

4-6 months (dynamic)

6 months onwards

Reporting Requirement

Half-yearly & Quarterly

Quarterly

Thus, it is evident that the norms and regulations are comparatively easy for SME IPO listing.

Is IPO Grading mandatory for SMEs?

No, as per Issue of Capital and Disclosure Requirements (ICDR) Regulation of SEBI, IPO grading is not a mandatory factor for SMEs looking to go for SME IPO listing.

What are the different eligibility criteria mandated for listing with an SME Exchange?

These are some of the main eligibility criteria that need to be fulfilled while opting for SME IPO new listing.

The issuer company should be incorporated under the Companies Act, 1956/2013 in India.
The issuer company should mandatorily have a corporate website.
At least Rs 3 crore, as per the latest audited financial results, should be the net tangible assets of the company.
The Company should not be referred to the Board for Industrial and Financial Reconstruction (BIFR).
There should be no winding up petition in any Court against the company.

What is the Procedure of SME IPO in India?

SME IPO in India can be summed up in these 11 Steps.

Step #1. Appointment of Merchant Banker
Step #2. Due Diligence
Step #3. Document Verification
Step #4. Submission of Draft Red Herring Prospectus
Step #5. Verification & Site Visit
Step #6. In-Principle Approval
Step #7. Filings of RHP/Prospectus
Step #8. Issue Pricing
Step #9. The Opening of Public Issue
Step #10. Closure of the Issue & Allocation of Shares
Step #11. Listing & Trading at the Exchange

"The entire process of SME IPO listing is cumbersome as lots of factors need to be taken care of, therefore, Issuer Company should avail the services of SME IPO listing Consultants". -Kritika Chabbra (Market Analyst, MUDS Management Pvt. Ltd.

Are the investors protected under the Investors Protection Fund (IPF) on the SME Platform?

Yes, the investors of the SME platform are also protected by the same provisions of the IPF which applies to the mainboard.

Has Listing on SME IPO on SME Exchange benefitted SMEs?

The latest data of SME Exchanges is quite impressive.

Ashishkumar Chauhan, MD and CEO of BSE said this while disclosing the latest data, "So far, 312 companies have been listed on the BSE SME platform and have collectively raised around Rs 3,200 crore and as many as 60 companies are in the pipeline to be listed on the BSE's platform for small and medium-sized enterprises."

Equally positive is the data from NSE Emerge as it now has 200 companies listed on its SME platform, raising more than Rs. 3,100 crore.

"The NSE Emerge platform offers an alternative funding mechanism to small and medium enterprises where they can tap the capital markets instead of only relying on bank funding, venture capital or private equity," -Vikram Limaye, CEO, NSE told Economic Times.

Conclusion: SMEs contribute greatly towards the growth of the Country!

Nitin Gadkari, Minister of SMEs, while speaking on the occasion of the celebration of 200 companies listing on NSE Emerge, was all praise for the massive contribution of SMEs towards the economic growth of India.

He Said, "The MSME sector has huge potential for generating income and employment, boosting exports and contributing to economic growth in the country. MSMEs contribute 29% to the country�s GDP. We will take this to 50% in the next five years,"

By listing on SME Exchanges the SMEs have given wings to their dreams!
-Shweta Gupta, (Founder and CEO, MUDS)

 

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Shweta Gupta Online
on 24 January 2020
Published in Legal Documents
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