Introduction
We all have often heard the term IPO also called Initial Public Offering. IPO is the opening of a company’s shares for the common public. This allows a company to expand and raise capital to uplift its operations. IPO is considered in multiple situations by a company as it is often viewed as a great strategy to market out globally and also at an industry evolution level.
IPO of an SME
There are multiple businesses which are yet to establish and are at an establishing stage seeking capital through selling their shares/stocks to the general public. SMEs – small and medium sized enterprise are required to raise funds to up their game. SME IPOs and regular IPOs are slightly different in terms of the size they offer. Therefore, SME IPOs raise lesser money compared to regular IPOs.
Let’s Understand the Conditions to List SMEs in the SME Exchange
All the SMEs are liable to get registered under the Companies Act 2013 and should have a net worth in positives. They are also liable to own assets of at least INR 1.25 crore and should present a track record of at least last three years.
SMEs are supposed to exhibit the cash accruals in positives in any out of the last three years.
They are also supposed to have a website that functions well.
Most importantly, they must be into trading of dematerialized securities and should not have different promoters over the years. The promoters should be same in all the preceding years. These are some real fundamental standards for SMEs wishing to join the list of the SME Exchange.
Benefits of Listing under SME Board
- One of the prime benefits to list under SME Board is to be able to access capital market for money via equity offers and better future financing.
- Another one is freedom to engage in share trading and added valuation.
- Better focus and good brand awareness within prestigious clients and suppliers.
- Attaining capability to benchmark the functioning against competition.
- Potential to diversify wealth on the shareholder side.
- Enhanced ability to attract, retain and reward valued employees as a listed company.
SME Exchange
An SME Exchange is known as the Chapter XB of the Securities & Exchange Board of India Regulations as a platform for trade of a renowned stock exchange permitted by SEBI for listing down the securities like Chapter XA of SEBI Regulations. This does not include the Main Board.
An SME Exchange is a stock exchange dedicated to trading the shares and securities of SMEs that would otherwise be difficult to list on the Main Board. At present India has two SME Exchanges: the BSE SME Platform and the EMERGE Platform (NSE)
Procedure
1. Listing Requirements
Let’s understand the requirements that entities require to get listed on the SME Exchange as below:
- The SME is supposed to be a ‘limited’ company and not anything below that.
- They should have a capital between 1cr to 25cr depending on the amount sought.
- They should also possess net assets of at least 1.25 cr in line with the recent audited financial statement.
- On excluding the revaluation reserve, their net worth should come around 1 Cr.
- The entity is also liable to have a track record of shared profits for at least two on three preceding years as per the Companies Act 2013.
- Or it should have a net worth of 3cr if distributable profits are not in place.
- The company must have a website.
- Entity should allow DEMAT securities trading.
- The entity should not have any reference before the Board for Industrial and Financial Reconstruction (BIFR). The entity is not supposed to have any reference prior the Board for Industrial & Financial Reconstruction (BIFR)
- All issues must be 100% underwritten. Merchant bankers must underwrite 15% of their accounts.
- When listing through IPO, the entity should have at least 50 investors in line.
2. Due Diligence
A strict due diligence regarding the company is necessary. It is important to review everything from the financial documents, government approvals to material contracts. Post this, a proper documentation is needed for IPO to trace all this down.
3. Appointment of the Merchant Banker
The company is required to appoint a Merchant banker to be involved in the underwriting of the shares to the exchange.
4. Prospectus and Agreements
The company is supposed to draft a prospectus and DRHP to be submitted to SEBI.This application must be submitted with the plan of investment, project, agreements like merchant banker, shareholders, investments etc.
5. Application to BSE SME Exchange or NSE Emerge
The company must submit the DRHP and draft prospectus to SEBI for exchanged approval. Post the authorities give a go ahead, they grant approval to list in the specified approval.
6. Launch of IPO
The IPO starts and shuts as per the planned schedule. As the IPO shuts, the company should submit the documents to the NSE Emerge or BSE SME Exchange to close the allotment basis.
Post Listing Requirements
1. Shareholding Pattern
Entities that have listed their securities on the SME Exchange must submit a statement to the stock exchange detailing their holdings and shareholding patterns for each class of security.
2. Financial Results
Unlike the quarterly submission requirement for companies on the Main Board of Exchanges, entities listed on the SME Exchange are expected to submit financial results to the stock exchange within 45 days of each half-year.
3. Newspaper Advertisements
Companies that have listed their specified securities on SME Exchange shall not have to comply with the requirements of this regulation.
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