NEED FOR SME EXCHANGE
Provide SMEs with equity financing opportunities to grow their business – form expansion to acquisition
● Equity Financing will lower the Debt burden leading to lower financing cost and healthier balance sheet
● Expand investor’s base which in turn will help for getting secondary equity financing, including private placement
● Enhance Company’s visibility. Media coverage can provide SMEs with greater profile and credibility leading to increase in the value of the shares
● Incentive for greater venture capital participation by providing them an exist route
● Greater incentive for the employees as they can participate in the ownership of the company and benefit from being shareholders
● Encourage innovation and entrepreneurial spirit
●Capital Market will help distribute risk more efficiently by transfer of risk to those who are best able to bear it
● SME sector will grow better on two pillars of Financial system, i.e., Banking for debt capital and capital Market for equity capital
● Initiating a dedicated Stock Exchange for SMEs will lead to diversification of resources of finance and help build a bridge between the SMEs, private Equity and the Venture Capital by providing an exist route
UNDERSTANDING EQUITY CAPITAL
BSE SME Exchange is an integrated is an Platform with BSE Main Exchange on shared infrastructure basis and the listed SMEs will be traded through BSEs online trading(BOLT) system in secondary market.
BSE has simplified norms of listing and compliance in respect of SMEs desired to list on BSE SME Platform.
Generally, SMEs have been over leveraging the debts capital for their needs. The BSE SME Platform will provide an opportunity to raise the equity capital to fulfill their dreams of faster business growth and expansion.
The raising of Equity by SMEs id going to transfer the future of the SMEs and make them grow into corporates in coming decades. This will be a big “Game Changer” for the SMEs in future.
Listing will enhance the visibility, improve the corporate governance and bring transparency in the working of SMEs. Listing of SMEs will also provide an exit route to VCs/PEs and all other investors.
Understanding the importance of SMEs in the nation building, with an aim to provide a world class platform for SMEs and Investors to come together and raise equity capital.
SME exchange a reality, such as;
IssueofFrameworkfor Recognition and Supervision of Stock Exchanges
Amendment of SEBI ICDR (Issue ofCapitaland Disclosure Requirements) Regulationsby inserting a Chapter XA on "Issue of specified securities by SMEs ".
Amendments to other relevant regulations
Issue of Model Equity Listing Agreement
Approval to BSE & NSE to launch SME exchanges
MAIN FEATURES & BENEFIT
The new thing about the SME Exchange is that the issue will be 100% underwritten and therefore, the issue will be 100% subscribed. SMEs have several relaxations compared with norms for other listed companies. Following are them main features:
An Issuer with post-issue face value capital up to Rs.10 Crores will be invariably covered under the SME Exchange
An Issuer with post-issue face value capital between Rs.10 Crores to 25 Crores may get listed on either SME Exchange or Main Board.
Issue with post issue face value capital above Rs.25 Crores has to be necessarily listed on the Main Board of the BSE.
Suitable provisions for migration to/from Main Board from/to SME Exchange
Minimum 50 investors required while listing IPO. No post-listing continuous requirement of minimumnumberof shareholders
The minimum application amount as well as minimum trading lot shall not be less than Rs.1,00,000.
Unlike other companies, the IPO prospectuses of SMEs will be vetted by exchanges rather than SEBI.
Merchant bankers who manage an SME listing are mandated to underwrite the new share offering 100% and appoint brokers to act as market-makers for at least 3 years from the date of listing.
Financial results shall be submitted on half yearly basis instead of on quarterly basis.
SMEs need not publish their financial results, as required in respect of companies listed on the Main Board. The SMEs can make it available on their websites.
SMEs can send the abridged version of the annual report of few pages with the details of the profit & loss account and balance sheet to the shareholders instead of sending physical copies of full annual report.
SMEs have been exempted from the condition of having a track record of profit making for 3 years out of last 5 years as applicable for listing an IPO on the Main Board.
First major benefit from a dedicated Exchange to the SMEs is that it will help them in finding a solution to their financial requirements to execute their expansion plans. . Normally the SMEs go for debt capital which is costly and cumbersome to avail, due to requirement of co-lateral. Listing of a company on the exchange gives better valuation to the company. Improved debt equity ratio will present a strong balance sheet. Second advantage is from taxation angle. Unlisted shares attract short term capital gain tax of 30% and long term capital gains tax of 20%. Whereas in the case of listed securities, the short-term and long term capital gaintaxis 15% andnil respectively, provided Securities Transaction Tax (STT) is paid. Promoters holding substantial
CHECKLIST ON ‘PREPRATIONS FOR IPO AS STATED ON BSE WEBSITE IS AS FOLLOWS.
Keeping the Annual Reports on accounts ready
Peer Review by Reputed Chartered Accountant firms (since its inception or last 5 years, whichever is shorter)
Detailed Disclosures about the Past Performance of the company
Future Projections of the company (CMA Data) for at least next 3 years
Conversion of private limited company to public limited company
Full time company secretary (Compliance Officer) to be appointed
Infusing 50% independent directors into the Board
Due diligence on the applicability of various Regulations
Due diligence (Legal) by reputed Legal firms
Due Diligence on the various approvals required from Regulatory Bodies
Detailed disclosures about the Risk Factors associated with the company
Detailed disclosures about the External Environment effecting the company
Detailed disclosures about the the litigations, its magnitude and ramifications
Detailed disclosures about the Business activity
Documenting the Material Contracts and Agreements
Detailed disclosures about the Promoters & Management
Selection of Investment Banker
Selection of Registrar and Transfer Agent (RTA)
Selection of Syndicate Member /Sub- Syndicate Members
Selection of electronic media and advertising agency
Selection of Escrow Bankers
Website is mandatory for listing companies
SME EXCHANGE –SEBI GUIDELINES
An issuer with post issue face value capital up to Rs 10 crore will be invariably covered under the SME Exchange. An issuer with post –issue face value capital between Rs 10Crores to 25 Crores may get listed to either SME Exchange or Man Board ,and issue with Post Issue face value capital above Rs 25 Crores has to be necessarily on the main board of the BSE
No need to fulfill condition of track record of distributable profits in terms of section205 of the companies act,1956,for a least three out of proceeding five years for listed on SME exchange.
Suitable Position for migration to/from main Board from/to SME Exchange.
The minimum application amount as well as minimum trading lost shall not be less than Rs1,00,000. The trading lot shall be subject to periodically review by the exchange.
All Existing trading members would be eligible to participate on SME Exchange without any further registration.
100% under written issues. Merchant/Banker’s shall underwrite 15 % in their own account.
The Merchant Banker to the issue will undertake market making through a stock broker who is registered as market maker with SME Exchange. The Merchant banker shall be responsible for market making for a minimum period of 3 years.
BENEFITS OF EQUITY CAPITAL
Going for a public issue of capital would provide the SMEs with quirt financing opportunities to grow their business – from expansion of operations to acquisitions. In addition, equity financing lowers the debt burden leading to lower financing costs and healthier balance sheets for the firms. The continuing requirement for adhering to the stock market rules for the issuers lower the on-going information and monitoring costs for the banks.
KEY PLAYERS INVOLVED
Venture Capital Funds
Private /Equity Funds
High Network Individuals
Qualified Institutional Byers (QIBs)
Foreign Institutional Investors (Flls)
Non Banking Finance Companies (NBFCs)
Registrars to the Issue
Member Brokers and sub-brokers
Professionals, like Chartered Accountants, Company Secretaries, Chief Financial Officers, etc.