SME Stock Exchange

Neethi V. Kannanth , Last updated: 28 February 2022
Share

Under the guidance and monitoring of Securities Exchange Board of India, BSE Ltd had launched its SME platform - BSE SME Platform and the National Stock Exchange of India Limited launched its platform "NSE Emerge" in 2012. These Platforms offer a unique opportunity to aspiring SMEs to raise capital, unlock its value and get listed on a nationwide stock exchange. They provide guidance to SMEs on the process required to list and introduction to intermediaries that can assist such companies to list.

WHY GET LISTED ON SME PLATFORM?

Small and Medium Size Enterprises have difficulty accessing Equity Capital from public sources. They are forced to access capital from family and friends. However, this source also has its own limitations. Hence many of them try to raise equity from non-private sources such as Alternate Investment Funds (AIF). The return expectation by the AIFs, governance issues, transaction size and cost make it less attractive for the SMEs.

The size of funds required by the SMEs make main board issues also an unattractive proposition. It is with this need in mind regulators have created the SME Exchanges. These SME Exchanges address the issue of size, cost, control etc. that are vital for functioning of the SMEs.

The benefits of listing on the SME Exchange to the various market participants are as follows:

Small and Medium Size Enterprises (SME)

It provides access to equity capital which is a direct growth driver
It enables the SME to unlock the enterprise value of the SME
It stipulates, regulates and ensures adherence to good governance practices.
Listing on an SME Exchange enhances the visibility of the companies
It increases the credibility of the Company for the various stakeholders like shareholders, clients, employees, government etc.
SMEs can access the market in the cost effective manner
SMEs need not dilute existing promoters below 75%
The time required to execute the issue is less compared to raising funds on the mainboard
Once the shares of SME Company are listed, it provides access to additional fund raising in future
Listed shares act as a currency for the SME, especially business acquisition transactions.
It provides the advantage of seamlessly migrating to the main board

Promoter / Investors / Employees

The SME Exchange provides an excellent opportunity to the prospective investors to invest in organized yet small and growing enterprises at early stage of their business lifecycle
The SME Exchange provides liquidity to existing equity investors and the Promoters
The shares of the company listed in the SME exchange are traded and hence the fair value or near-fair value is established
The employees of the company can participate in the growth and profit of the company by becoming a shareholder
Investing in a Listed Company is tax efficient as compared to the unlisted company. The sale of listed securities attracts short term capital gains tax of only 15% and a long term capital gains of only 10%, while sale of shares of an unlisted company attracts tax of 30% on short term capital gains and 20% on long term capital gains

SME Listing Statistics

As of 15th March 2021, there are 547 SME listed on SME Exchanges in India. The details statistics are as mentioned below:

Particulars	BSE SME	NSE Emerge	Total
No. of Companies Listed on SME	331	216	547
Total Amount of Money Raised till Date (Rs. Cr.)	3,381.40	3,298.55	6,679.95
No. of Companies Migrated to Main Board	96	68	164
No. of SME Companies Listed as of Date	235	148	383
Mkt Cap of BSE SME Listed Cos. (Rs.Cr.)	21,775.73	16,009.63	37,785.36

Companies across industries – manufacturing, consumer retail, information technology services, etc. participated and reaped the benefits of this platform

Requirements for Listing on BSE SME

Incorporation	Company must be incorporated under the Companies Act, 1956 or The Companies Act, 2013
Post Issue Paid up Capital	The post issue paid-up capital of the company (face value) shall not be more than Rs. 25 crores
Networth	Positive Net Worth
Tangible Asset	Net Tangible Assets should be Rs. 1.5 Crore. (Reduced from 3 Crore to 1.5 Crore due to Covid-19 Pandemic)
Track Record	The company or the partnership/proprietorship/LLP firm or the firm which have been converted into the company should have a combined track record of at least 3 years. Or In case it has not completed its operation for three years then the company/partnership/proprietorship/LLP should have been funded by Banks or financial institutions or Central or state government or the group company should be listed for at least two years either on the main board or SME board of the Exchange. The company or the firm or the firm which have been converted into the company should have combined positive cash accruals (earnings before depreciation and tax) in any of the year out of the last three years and its net worth should be positive.
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

Requirements for Listing on NSE Emerge

The Issuers on SME platform shall have adhered to conditions precedent to listing as emerging, inter-alia, from

Securities Contracts (Regulations) Act 1956,
Companies Act 1956,
Securities and Exchange Board of India Act 1992,
Any rules and/or regulations framed under foregoing statutes, as also any circular, clarifications, guidelines issued by the appropriate authority under foregoing statutes.

Incorporation	The Issuer should be a company incorporated under the Companies Act 1956 / 2013 in India.
Post Issue paid up Capital	The post issue paid up capital of the company (face value) shall not be more than Rs. 25 crore.
Track Record	Track record of at least three years of either 1. the applicant seeking listing; or 2. the promoters**/promoting company, incorporated in or outside India or 3. Proprietary / Partnership firm and subsequently converted into a Company (not in existence as a Company for three years) and approaches the Exchange for listing. **Promoters mean one or more persons with minimum 3 years of experience in the same line of business and shall be holding at least 20% of the post issue equity share capital individually or severally. The company/entity should have positive cash accruals (earnings before depreciation and tax) from operations for at least 2 financial years preceding the application and its net-worth should be positive.
Other Listing Conditions	The applicant Company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR). No petition for winding up is admitted by a Court of competent jurisdiction against the applicant Company. No material regulatory or disciplinary action by a stock exchange or regulatory authority in the past three years against the applicant company.
Disclosures	The following matters should be disclosed in the offer document: 1. Any material regulatory or disciplinary action by a stock exchange or regulatory authority in the past one year in respect of promoters/promoting company(ies), group companies, companies promoted by the promoters/promoting company(ies) of the applicant company. 2. Defaults in respect of payment of interest and/or principal to the debenture/bond/fixed deposit holders, banks, FIs by the applicant, promoters/promoting company(ies), group companies, companies promoted by the promoters/promoting company(ies) during the past three years. An auditor's certificate shall also be provided by the issuer to the exchange, in this regard. 3. The applicant, promoters/promoting company(ies), group companies, companies promoted by the promoters/promoting company(ies) litigation record, the nature of litigation, and status of litigation. In respect of the track record of the directors, the status of criminal cases filed or nature of the investigation being undertaken with regard to alleged commission of any offence by any of its directors and its effect on the business of the company, where all or any of the directors of issuer have or has been charge-sheeted with serious crimes like murder, rape, forgery, economic offences etc.

Migration from SME Platform to the Main Board

Following are the requirements to migrate to Main Board from BSE SME / NSE EMERGE

Requirements

BSE SME

NSE EMERGE

General requirements

1. Paid up capital of more than 10 Crore.

2. Market Capitalisation should be minimum Rs. 25 Crores (The Market Capitalization on Weighted Average Price (WAP) of preceding 20 traded days from the date of submission of application to the Exchange for migration from SME platform to the Main board should be equal to or in excess of Rs. 25 crores)

3. A Special resolution is passed in the AGM with at least two-thirds of the shareholders (apart from promoter shareholders) favoring the migration

4. On migration to the Main Board, the company will have to comply with the applicable regulations of SEBI LODR (Listing Obligations and Disclosure Requirements) Regulations 2015.

5. The company/its directors/promoters have not been debarred by SEBI

Additional requirement if Migration is within 2 years of listing

1. The increase in post issue face value capital beyond Rs 25 crore should arise only because of merger/acquisition or for expansion purposes.

2. The company should have a minimum turnover of Rs. 100 crore as per last audited financials and market capitalization of 100 crore.

3. The company should have a minimum profit before tax of Rs 10 crore for two years out of three preceding years.

4. There should not be any action against the company by any regulatory agency at the time of application for migration.

No such additional conditions mentioned by NSE for migration within 2 years of listing