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Micro, Small and Medium Enterprises (MSMEs) contribute to-

  • the Country's GDP
  • the manufactured output
  • exports

The Micro Small and Medium Enterprise (MSME) sector is the largest generator of employment in the Indian economy

The MSME sector forms a major portion of the industrial activity and produces large number of different products

SME Platform as per the rules and regulations laid down by SEBI

a. SME Platform offers an entrepreneur and investor friendly environment, which enables the listing of SMEs on Stock Exchange from the unorganized sector scattered throughout India, into a regulated and organized sector

b. The listed SMEs will step into the threshold of SME Platform and foray in to the world of finance for further growth and development

c. Stock Exchange will assist these SMEs to raise equity capital for their growth and expansion and thus help them blossom into full fledged companies

d. In due time enable them to migrate into the Main Board of Stock Exchange as per the existing rules and regulations for Entrepreneurs to raise equity capital for growth and expansion of SMEs in a cost effective manner

SME BSE Exchange – SEBI Guidelines

  • Issuer with post issue face value capital up to Rs.10 crores shall be covered under the SME Platform
  • Issuer with post issue face value capital between Rs.10 – 25 crores may get listed at SME Platform
  • Issuer with post issue face value capital above Rs.25 crores has to necessarily get listed at main board of the Exchanges
  • The minimum application amount as well as minimum trading lot shall not be less than Rs.1,00,000/-
  • All existing Trading Members would be eligible to participate in SME exchange without any further registration
  • The Merchant Banker to the issue will undertake market making through a stock broker who is registered as market maker with SME Exchange.
  • The Merchant Banker shall be responsible for market making for a minimum period of 3 years

Suitable provisions for migration to/ from main board

Eligibility Criteria - BSE

  • 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 Sec. 123 [Declaration of Dividend] of 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. Otherwise, the networth shall be at least Rs 5 Crores

Other Requirements

  • The post-issue paid up capital of the company shall be at least Rs. 3 crores
  • The company shall mandatorily facilitate trading in Demat securities and enter into an agreement with both the depositories
  • Companies shall mandatorily have a website

Benefits of Listing at SME(Small and Medium Enterprise) Platform

Access to capital and future financing opportunities:

Going public would provide the MSME's with equity financing opportunities to grow their business-

  • from expansion of operations to acquisitions.
  • Companies in the growth phase tend to get over-leveraged at which point, banks are reluctant to provide further credit
  • Equity capital is then necessary to bring back strength to the balance sheet
  • The option of equity financing through the equity market allows the firm to not only raise long-term capital but also get further credit due through an additional equity infusion
  • The issuance of public shares expands the investor base, and this in turn will help set the stage for secondary equity financing's, including private placements

Increased visibility and prestige:

Going public is likely to enhance the company's visibility

Venture Capital (VC):

It has been seen that there is greater vitality of venture capital in stock market centered systems

Liquidity for shareholders:

Becoming a public company establishes a market for the company's shares, providing its investors with an efficient and regulated vehicle in which to trade their own shares

Create employee incentive mechanisms:

  • The employees of the SME enterprises can participate in the ownership of their own company and benefit from being a shareholder
  • This can serve to ensure stronger employee commitment to the company's performance and success

Facilitate growth through Mergers and Acquisitions:

  • As a public company, company's shares can be utilized as an acquisition currency to acquire target companies, instead of a direct cash offering
  • Using shares for an acquisition can be a tax efficient and cost effective vehicle to finance such a transaction

Encourages Innovation & Entrepreneurial Spirit:

The ability of companies in their early stages of development to raise funds in the capital markets allow these companies to grow very quickly

Efficient Risk Distribution:

  • The development of the capital markets has helped distribute risk more efficiently by transfer of risk to those best able to bear it
  • This ability to transfer risk facilitates greater risk- taking, but this increased risk-taking does not destabilize the economy
  • Thus the capital markets ensure that capital flows to its best uses and that riskier activity with higher payoffs are funded

Migration from SME Board to Main Board

How Different From Main Board?

  • The Compliance norms are simplified. Half yearly compliance is required instead of quarterly compliance
  • The abridged version of the annual reports need to be sent to the investors instead of the entire annual report and posting the soft copy of the report on the website is sufficient
  • The issue expenses will be minimal on the marketing and stationery
  • However, the issue will be charged for underwriting, sub-underwriting and responsibility of three years market making.
  • Market making is compulsory for 3 years, unlike on main platform
  • Listing fees on  SME platform are minimal compared to the main board
  • The SMEs with the paid up capital between Rs. 10 crores and Rs. 25 crores has the option to get listed either on main board or on the SME Exchange
  • Any SME on SME Platform having a paid up capital more than Rs. 10 crores can move to the main board provided that the special resolution is passed in the AGM in favour with at least two third of the number of votes cast by shareholders other than promoter shareholders and then apply to SME
  • 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

Other important aspects

Increase Visibility and Prestige:

  • Going for public issue for Capital is likely to enhance the company’s visibility
  • Greater public awareness gained through media coverage, publicly filed documents and coverage of stock by sector investment analyst can provide the SMEs with greater profile credibility
  • This can result in more diversified groups of investors, which may increase the demand for that company’s shares leading to an increase in the company’s value

Key Players Involved:

  • Venture Capital Funds
  • Private Equity Funds
  • High Networth Individuals
  • Retail Investors
  • Banks
  • Qualified Institutions Buyers (QIBs)
  • Foreign Institutions Investors (FIIs)
  • Registrar to the Issue
  • Merchant Bankers
  • Market Makers
  • Member Brokers and sub-brokers
  • Financial Advisors

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