In the past few years, SME IPO has turned out to be the most crucial and dazzling sector of the Indian economy. This is because the employment intensity of SMEs is four times greater than the large-scale enterprise which in turn makes SME the biggest contributor to the GDP of India.
Also, the government has recognized the role and importance of SMEs in their economy. The biggest challenge faced by these enterprises is access to capital. To overcome this, numerous capital markets have recognized the need for a separate exchange for the SME sector.
Keeping this in mind, the BSE and NSE have launched their own platform for small and medium enterprises to list on BSE and NSE. Thus, BSE SME and NSE Emerge are a new source for SME IPOs and provide a listing opportunity to the SMEs with minimum compliances and cost compared to the main board.
An SME exchange is a stock trading platform for small and medium enterprises. The SME trading platform was first set up by SEBI in 2008. However, the major step has been taken by the prime minister’s task force in January 2010 on Micro, Small and Medium Enterprises, which recommended setting up of SME exchange to promote inflow of equity capital in this sector.
Before we dig deep into this, let's understand the meaning of SME IPO, its procedures and its benefits.
SME BSE is a trading platform where only SMEs trade their shares in this exchange trading platform. So, if a company wants to get listed on the exchange, they have to come out with their IPO.
The eligibility criteria for SME IPO is somewhat different from the main board of NSE, BSE. Here are the requirements for the BSE SME IPO.
The listing requirements for BSE SME IPO
- It must be a public limited company. To successfully launch an IPO, proprietorship, partnership firms, private limited companies needs to convert it to a public limited company.
- The company’s net tangible asset in the latest audited financial statement should be at least 3 Crore.
- The company’s net worth in the latest audit should be at least 3 Crore.
- The company’s post paid-up capital should be at least 3 crores and not more than 25 crores. In case, if the paid-up capital of a company is more than 25 Crore, then it has to be listed on the main exchange board.
- Distributable profits for at least two years out of the immediately preceding three years.
- The company must have a financial statement of 3 years. Also, the company have its own website.
- It must come into the contact with both the depositories i.e. CDSL, NSDL and facilitate DEMAT trading of securities.
- There should be no winding-up petition by the applicant company which has been admitted by the court.
- The issue should be 100% underwritten and 15% of the issue must be undertaken by the merchant banker in his own account.
- The number of allottees needed by the company at the time of listing through IPO is 50.
- The minimum lot size for share market trading and application is Rs 1 Lakh. Also, the company has not been referred to (BIFR) Board for Industrial and Financial Reconstruction.
The listing criteria for EMERGE - NSE SME IPO
- The company must be registered under the Companies Act 1956 or Companies Act 2013.
- The companies post paid-up capital should not be more than 25 crores.
- It must have certified copies of the annual reports for 3 years.
- A business plan of at least 5 years is required along with a balance sheet and P&L statement.
- The company must come into the contact with both the depositories and must facilitate DEMAT trading of securities.
- The promoters must have relevant experience of at least 3 years.
- An auditor’s certificate is required mentioning that there is no default in payment of interest by the promoters or by the promotor’s holding company.
- If there is any litigation case filed against the company, its promoters then it must be disclosed.
- A minimum of 50 allottees is required by the company at the time of listing through IPO.
How can the companies benefit from SME IPO listing?
SME listing not only provides benefits to the company but also benefits its investors, both existing and proposed such as providing an exit route to private equity investors as well as liquidity to the ESOP holding employees.
SME capital market allows many companies to scale up their business. As of now, the BSE SME platform of over 300 companies is listed on it and NSE Emerge has over 180 companies listed on it.
SME listing provides relaxed listing norms and minimal cost of listing as compared to the main exchange which in turn is ideal for the SMEs to raise capital and meet their growth requirement.
Difference Between Traditional Exchange and SME Exchange
BSE and NSE are the platforms where companies list their securities which are also known as the mainboard. SME IPO is the main platform IPOs have been taking place for years. This is because NSE and BSE follow strict eligibility criteria that must be adhered to list on their platform.
BSE SME and NSE Emerge on the other hand, have no so strict eligibility criteria. In addition to this, other requirements for IPO listing such as the requirement of track record, reporting requirements, time frame for listing are quite easy for SME, making a listing on an SME platform quite easier.
Reasons for the Current Spurt in SME IPOs
SEBI is all set to allow startups to list on the SME platform. Also, the companies seek an opportunity to raise capital as the SME platform gives special relaxations to startups in terms of net worth and profitability. The primary reason for giving special relaxation is to provide capital raising opportunities to SMEs who cannot list on the mainboard because of the huge compliance norms.
To successfully list on SME platform, one should have a demat account with the top stock broker like Swastika who offers promising IPO services to its clients.
There are numerous small firms that seek capital growth. Since they have limited options to raise capital, providing an SME platform for them would be a positive step for the investors who seek growth for their company. With proper relaxation, the SME platform would come out as a primary option for startups to raise capital.
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