An SME Exchange is a stock exchange dedicated for trading shares/securities of small and medium enterprises (SMEs). The concept of ‘SME Listing’ originated when SMEs faced difficultires in gaining visibility and attracting sufficient trading volumes when listed along with other stocks on the stock exchanges. The world over, dedicated SME trading platforms or exchanges are prevalent, which are known by different names such as 'Alternate Investment markets' or 'growth enterprises market', 'SME Board' etc.
To be listed on the SME Exchange, the post-issue paid-up capital of the company should not exceed Rs 25 crore. This means that the SME Exchange is not limited to the Small and Medium Scale enterprises which are defined under the Micro, Small and Medium Enterprises Development Act, 2006 as enterprises where the investment in plant and machinery does not exceed Rs 10 crore.
”SME platform provides a great opportunity to the entrepreneurs to raise the equity capital for the growth and expansion of SMEs,” says Swati Yash Bhatt, practicing secretary member of WIRC.
The main reasons for the SMEs to go for the listing are:
* To raise equity resources
* To valuate company’s shares
* To ensure easy entry and exit mechanisms for investors
Swati says the SME platform provides the equity financing opportunities to grow business- from expansion to acquisition. "Equity finance will lower the debt burden leading to lower financing cost and healthier balance sheet," she says.
That apart, Swati has the following points to support the need for the SME listing.
- Expand the investors base which will help in getting secondary equity financing, including private placement.
- Enhance company’s visibility. Media coverage can provide SMEs with greater profile and credibility leading to increasing value of its shares
- Incentives for greater venture capital participation by providing an exit option thus reducing their lock-in period.
She signs off saying: "The listing in SME Exchange will offer SMEs the transparency and corporate governance, and also tax benefits."