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SME Exchange: Launching Pad To Unlock Wealth
SME Exchange: Launching Pad To Unlock Wealth
SME Exchange: Launching Pad To Unlock Wealth
November, 2011
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Introduction
&
background
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Introduction to MSME
The Micro, Small and Medium Enterprises (MSME) are defined as follows:
Small Enterprises above Rs. 25 Lakh & upto Rs. 5 Crore above $ 62,500 & upto $ 1.25 million
Medium Enterprises above Rs. 5 Crore & upto Rs. 10 Crore above $ 1.25 million & upto $ 2.5 million
Small Enterprises above Rs. 10 Lakhs & upto Rs. 2 Crores above $ 25,000 & upto $ 0.5 million
Medium Enterprises above Rs. 2 Crores & upto Rs. 5 Crores above $ 0.5 million & upto $ 1.5 million
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The rise and significance of MSMEs in India
Key statistics:
Contribution 8% of GDP
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Government initiatives
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Challenges faced by SMEs
Difficulty in raising resources – both debt and equity – for expansion and growth
Government / RBI efforts in this regard have proved to be inadequate
Currently, required resources are raised through bank loans, promoter funds and in a few cases from
friends and relatives, VC / PE funding
Considerable effort and time lag in raising resources
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Solution offered
Prime Minister’s Task Force (Jan 2010) recommended setting up of a dedicated stock exchange for SMEs
SEBI has laid down the framework for setting up of a new exchange, or separate platform of an existing
stock exchange having nationwide terminals, for SMEs
BSE & NSE have received permission of the regulator for setting up the SME platform
Liberalised regulations for going public
Liberalised norms for listing
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Benefits of listing
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Listing
Regulations and procedure
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Why not the conventional listing route?
Following norms (BSE) restrict SMEs from direct listing:
# Particulars Norms
1 Issued and Paid up capital Minimum paid up capital of Rs. 10 crores
OR
2 Networth
Minimum networth of Rs. 50 crores (excluding revaluation reserves) in 3 immediately preceding financial
years
3 Profit making track record Distributable profits in terms of sec. 205 of Companies Act, 1956 for atleast 3 out of 5 immediately preceding
financial years based on audited financial results with the last financial year reporting profit.
Provided that extraordinary income shall not be considered for calculating distributable profit.
Provided further that latest 3 Financial Years should comprise a period of atleast 12 months
4 Public Shareholding Meeting with the requirements of SCRA, SCRR and Listing Agreement.
5 No. of public shareholders Minimum 500
6 Trading in Compulsory Demat Minimum of 50% of the public shareholding should be held in demat form.
7 Listing track record with Recognized Stock Exchange Listed on any recognized Stock Exchange
8 Information Memorandum Information Memorandum as provided in Schedule II of Companies Act, 1956 to the extent applicable, as
certified by the Company Secretary/ MD of the Company
9 Withdrawal/ Rejection Companies can make a fresh application after a period of 3 months
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Special features - listing on SMEs
Special advantages of listing on the SME exchange, over the conventional exchanges:
Market makers
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Regulations
Chapter XA of the ICDR deals with issue of specified securities by small and medium enterprises
Key highlights:
General qualification for SMEs is upto Rs. 10 crore face value of post issue capital
However, enterprises with post issue capital of upto Rs. 25 crore, may issue shares under the provisions of this chapter
Offer document to be filed with SME exchange, RoC, and SEBI through a Merchant Banker
Due diligence certificate by Merchant Banker in the prescribed form (Form A and Form H of Schedule VI)
Offer document to be hosted on SEBI, Issuer, Merchant Banker(s) and SME exchange
Issue needs to be 100% underwritten, and not upto the minimum subscription level
Merchant Bankers need to underwrite minimum 15%, in their own account
Nominated investor / market maker
Minimum application and trading lot value – Rs. 1 lakh
Minimum allottees must be 50 in number
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Regulations
Listed companies issuing shares under chapter XA, shall compulsorily list on SME exchange
Market making compulsory for 3 years from the date of listing or date of migration and disclosure thereof
Inventory shall be at the least 5% of the listed specified securities as on the date of allotment
No deals with promoters / group – except those not under lock-in, with the prior permission of SME exchange
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Exemptions
Inapplicable regulations
Regulation 6 (1), (2) & (3) – filing of Draft offer document , observations thereon, complying therewith
Regulation 7 – obtention of in-principle approval
Regulation 8 – Documents to be submitted before opening of the issue
Regulation 9 – Making Draft offer public
Regulation 10 – Fast Track Issue
Regulation 25 – Eligibility requirements
Regulation 26 – Conditions for initial public offer
Regulation 27 - Condition for further public offer
Regulation 49 (1) - Minimum application size
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Market Makers’ Obligations
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The issue process
The Issuer who is planning an offer, nominates lead merchant banker(s) as 'book runners’
The Issuer specifies the number of securities to be issued and the price band for the bids
The Issuer also appoints syndicate members with whom orders are to be placed by the investors
The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to open
auction.
The book normally remains open for a period of 5 days
Bids have to be entered within the specified price band
Bids can be revised by the bidders before the book closes
On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price
levels
The book runners and the Issuer decide the final price at which the securities shall be issued
Generally, the number of shares is fixed, the issue size gets frozen based on the final price per share
Allocation of securities is made to the successful bidders. The rest get refund orders.
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Opportunities for you
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What it means to you?
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