Small and medium businesses are quite skeptical or rather largely ignorant about the benefits of getting listed on the platform. In our efforts to simplify the concept of SME listing and its benefits, we spoke to Ajay Thakur, Head of BSE SME Exchange who answers the most commonly asked queries about SME listing on the BSE platform. Here's all you need to know about SME listing.
What do you think are the major factors that stop SMEs from listing on a platform like SME exchange?
The major issues here is that promoters are not aware about the benefits of listing on the platform of the stock exchange. Most of the promoters think that they can get listed only when they become a large size company. Also there is apprehension that listing requires a lot of compliance. With the launching of SME Platform, now any company having post issue face value capital between one crore to 25 crores, with a net-worth of three crores and net-tangible assets of one crore can get listed on this platform.
What are the major benefits of listing on SME exchange?
As I look at it, the key benefits are:
- It provides the SMEs with equity financing opportunities to grow their business - from expansion to acquisition.
- Equity Financing lowers the debt burden leading to lower financing cost and healthier balance sheet.
- Listing expands the investors base, which in turn helps in getting secondary equity financing, including private placement.
- It enhances company’s visibility. Media coverage provides SMEs with greater profile and credibility leading to increase in the value of its shares.
- It will bring about greater incentive for employees as they can participate in the ownership of the company and benefit from being its shareholders.
- Overall, the SME sector will grow better on two pillars of financial system i.e. banking and capital market.
What are the key guidelines SMEs should follow to get itself listed?
SEBI as well as BSE has come out with eligibility criteria for companies desiring to get listed on SME Platform of BSE which are as follows:
- The SMEs with the paid up capital up to Rs 10 crores has to mandatorily get listed on SME platform, between 10 crores and Rs. 25 crores has the option to get listed either on main board or on the SME platform and beyond 25 cores has to compulsory get listed on the main board.
- Net tangible assets of at least Rs 1 crore as per the latest audited financial results
- Net worth (excluding revaluation reserves) of at least Rs. 1 crore as per the latest audited financial results.
- Track record of distributable profits in terms of sec. 205 of Companies Act, 1956 for at least two years out of immediately preceding three financial years and each financial year has to be a period of at least 12 months. Extraordinary income will not be considered for the purpose of calculating distributable profits. Otherwise, the net worth shall be at least Rs 3 crores.
- The post-issue paid up capital of the company shall be at least Rs 1 crores.
- The Company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR)
- There is no winding up petition against the company that has been accepted by a court.
“However post listing compliance has been also relaxed and accordingly the company has to do half yearly compliance instead of quarterly compliance. The company has only to send abridged version of Balance sheet and P/L account to the investors. The company can migrate to the main board after two years from the SME platform in case the post issue face value capital crosses ten crores by taking two-third non-promoters approval,” Ajay elaborates.
How helpful would be the latest SEBI ruling that allows SMEs to list without IPO?
Listing on Institutional Trading Platform (ITP) by start-ups and SMEs will provide them better visibility, wider investor base and greater fund raising capabilities. This will further offer their existing investors better chances to find alternate buyers than if they search using their own network in the investment community.
What is the process involved in getting listed?
The company has to approach the merchant banker who is authorized by SEBI to bring the IPO or they can approach the officials of BSE SME Platform who will assist them in getting the merchant banker. The merchant banker will prepare the Draft Red Hearing Prospectus (DRHP) which will in details talk about the company, its promoters and the object for bringing the issue. After that the DRHP will be submitted with BSE SME Platform. The compliance team of BSE will do the vetting of the document and once the compliance is done than the promoter is called for interview to BSE. If everything is satisfactory then the company is given the approval for coming out with IPO. After successful completion of the IPO, the company is allowed to get listed on BSE SME Platform.
How does your organization (BSE SME) plan to educate and attract more small businesses on the platform?
BSE has taken various steps for creating awareness among the entrepreneurs, intermediaries and investors about the SME Platform. We are doing seminars with FICCI, CII, IMC, D&B, ICAI and ICSI and many other industrial associations at state and central level. This has created a lot of interest among the entrepreneurs and they are coming forward to get listed on BSE SME Platform. The results of our activities are quite evident from the fact that we have managed to get 41 companies listed so far on the platform, who raised a total fund amount of around Rs 388 crores with a total market capitalization of around Rs 2726 crores. The number of market makers registered with BSE SME today is 66. It should also be noted that the SME IPO index was launched on December 14, 2012 with a base value of 100 has grown up to 429.51 on November 6, 2013.