I. Introduction of BSE SME Platform
Small and medium enterprises (SMEs) in developing countries like India are the backbone of the nation’s economy. They constitute the bulk of the industrial base and also contribute significantly to their exports as well as to their Gross Domestic Product (GDP) or Gross National Product (GNP). Micro, Small and Medium Enterprises (MSMEs) contributes 8% of the country’s GDP, 45% of the manufactured output and 40% of our exports. MSME sector forms the largest generator of employment to about 6 Crores people through 2.6 Crores enterprises. It forms a major portion of the Industrial Activity. BSE Ltd has set up the BSE SME Platform as per the rules and regulations laid down by SEBI. BSE SME Platform offers an entrepreneur and investor friendly environment, which enables the listing of SMEs from the unorganized sector scattered throughout India, into a regulated and organized sector.
II. WHY BSE SME?
The listed SMEs will step into the threshold of BSE SME Platform and foray in to the world of finance for further growth and development. BSE SME will assist these SMEs to raise equity capital for their growth and expansion and thus help them blossom into full fledged companies. In due time enable them to migrate into the main board of BSE as per the existing rules and regulations.
BSE SME will provide immense opportunities to the following market participants:
To raise equity capital for growth and expansion of SMEs in a cost effective manner.
Opportunities to identify and invest in good companies at an early stage, long term Capital Gain tax benefit and Exit Route.
III. Tax Benefits
|Tax Benefits||Shares listed on BSE SME||Unlisted Shares|
|Long Term Capital Gains Tax||0%||20% after indexation|
|Short Term Capital Gains Tax||15%||30%|
IV. Benefits of Listing
- Easy access to Capital
BSE SME provides an avenue to raise capital through equity infusion for growth oriented SME’s.
- Enhanced Visibility and Prestige
The SME’s benefit by greater credibility and enhanced financial status leading to demand in the company’s shares and higher valuation of the company.
- Encourages Growth of SMEs
Equity financing provides growth opportunities like expansion, mergers and acquisitions thus being a cost effective and tax efficient mode.
- Ensures Tax Benefits
In case of listed securities Short Term Gains Tax is 15% and there is absolutely no Long Term Capital Gains Tax.
- Enables Liquidity for Shareholders
Equity financing enables liquidity for shareholders, provides growth opportunities like expansion, mergers and acquisitions, thus being a cost effective and tax efficient mode.
- Equity financing through Venture Capital
Provides an incentive for Venture Capital Funds by creating an Exit Route and thus reducing their lock in period.
- Efficient Risk Distribution
Capital Markets ensure that the capital flows to its best uses and that riskier activities with higher payoffs are funded.
- Employee Incentives
Employee Stock Options ensures stronger employee commitment, participation and recruitment incentive.
V. Listing Procedure
The 5 P'S of Listing Process on BSE SME
The Issuer Company consults and appoints the Merchant Banker/s in an advisory capacity.
The Merchant Banker prepares the documentation for filing after:
- conducting due diligence regarding the Company i.e checking the documentation including all the financial documents, material contracts, Government Approvals, Promoter details etc.
- and planning the IPO structure, share issuances, and financial requirements
- ProcessApplication procedure:
- Submission of DRHP/Draft Prospectus - These documents are prepared by the Merchant Banker and filed with the Exchange as well as with SEBI as per requirements.
- Verification & Site Visit - BSE verifies the documents and processes the same. A visit to the company's site shall be undertaken by the Exchange official .The Promoters are called for an interview with the Listing Advisory Committee.
- Approval - BSE issues an In Principle approval on the recommendation of the Committee, provided all the requirements are compiled by the Issuer Company.
- Filing of RHP/Prospectus - Merchant Banker files these documents with the ROC indicating the opening and closing date of the issue.
- Once approval is received from the ROC, they intimate the Exchange regarding the opening dates of the issue along with the required documents.
- Public Offering
The Initial Public Offer opens and closes as per schedule. After the closure of IPO, the Company submits the documents as per the checklist to the Exchange for finalization of the basis of allotment.
- Post Listing
BSE finalizes the basis of allotment and issues the notice regarding listing and trading.
VI. Criteria of Listing on SME Platform of BSE
- The Company shall be incorporated under the Companies Act, 1956.
- Post-issue paid up capital of the company shall be at least Rs. 3 crore.
- Net Tangible assets of at least Rs. 3 crores as per the latest audited financial results
- Net worth (excluding revaluation reserves) of at least Rs. 3 crores as per the latest audited financial results
- Track record of
- Distributable profits in terms of Section 123 of the Companies Act 2013 for at least two years out of immediately preceding three financial years (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.
- The net worth shall be at least Rs.5 crores.
- Other Requirements
- It is mandatory for a company to have a website.
- It is mandatory for the company to facilitate trading in demat securities and enter into an agreement with both the depositories.
- There should not be any change in the promoters of the company in preceding one year from date of filing the application to BSE for listing under SME segment.
- Certificate from the applicant company / promoting companies stating the following:
- The Company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR).Note: Cases where company is out of BIFR are allowed.
- There is no winding up petition against the company that has been accepted by a court.
- Listing Process will also involve:
For listing on BSE SME platform promoters will mandatorily be required to attend an interview with the Listing Advisory Committee.
- Migration from BSE SME Exchange to the main Board of BSE:
The companies seeking migration to Main Board of BSE should satisfy the eligibility criteria. It is mandatory for the company to be listed and traded on the BSE SME Platform for a minimum period of two years and then they can migrate to the Main Board as per the guidelines specified by SEBI vide their circular dated 18th May, 2010 and as per the procedures laid down in the ICDR guidelines Chapter X B.
VII. Guidelines for Listing
SEBI has time to time issued the circulars and guidelines for setting up of the exchange for small and medium enterprises. These circulars have been revised after taking suggestions from market participants for the SME Platform. The final circular was issued on 18th May, 2010.The necessary provisions for the listing of specified securities under the SME Platform have been made in the Chapter XA of Issue of Capital and Disclosure Requirements (ICDR).
The guidelines emphasis on the following:
- The post issue face value capital should not exceed Rupees Twenty Five Crores.
- The minimum application and trading lot size shall not be less than Rs. 1, 00,000/-
- The minimum depth shall be Rs 1,00,000/- and at any point of time it shall not be less than Rs 1,00,000/-.
- The investors holding with less than Rs 1,00,000/- shall be allowed to offer their holding to the Market Maker in one lot.
- The existing members would be eligible to participate in SME Platform.
- The issues shall be 100% underwritten and merchant bankers shall underwrite 15% in their own account.
SEBI has compulsorily mandated market making for all scrips listed and traded on SME Platform.
The obligations for market makers are as follows:
- The merchant bankers to the issue will undertake market making through a stock broker who is registered as market maker with the SME Platform.
- The merchant bankers shall be responsible for market making for a minimum period of 3 years.
- The market makers are required to provide two-way quote for 75% of the time in a day. The same shall be monitored by the exchange.
- There will not be more than 5 market makers for a scrip.
- Market makers will compete with other market makers for better price discovery.
- The exchange shall prescribe the minimum spread between the bid and ask price.
- During the compulsory market making period, the promoter holding shall not be eligible for the offering to market makers.
- Market Maker shall be allowed to deregister by giving one month notice to the exchange.
- Trading system may be either order driven or quote driven.
The application and trading lot size is being kept at Rs. 1, 00,000/- so as to curtail the entry of retail investors. It has also been stated that the minimum depth shall be of one lakh rupees and at any point of time it cannot go below that amount. The investors holding with value less than Rs. 1, 00,000/- shall be allowed to offer their holding to the market maker in one lot. However, in functionality the market lot will be subject to revival after a stipulated time.