Brief outline for promoters intending to list on the SME Exchange

1. SME Listing
CA Mehul Mukati
Axia Advisory Services Pvt Ltd

2. Disclaimer
2
• This presentation is intended only for
information and is not and cannot to
be construed as legal advice.
• Axia Advisory Services Pvt Ltd, the
author or any of its affiliates cannot
be held liable for any action take on
the basis of this presentation.
Axia Advisory Services Pvt Ltd

3. Background
3
• BSE and NSE two leading platforms
for stock exchanges
• Their present listing norms make it
difficult for MSMEs to raise growth
capital [equity] from public at large
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4. Post-Issue Paid-Up Equity
4
<₨10 cr
SME
Board
₨10-25 cr
>₨25 cr
Option
Main
Board
This is Post-Issue Paid-Up Equity Capital and
NOT
• the Net Worth
• the present Paid-Up or Authorised Equity
Capital
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5. Other Guidelines
5
• Underwriting
– Mandatory for full issue, i.e. 100%
– Merchant Bankers to underwrite 15% on
own account
• Market Making mandatory
– For a period of 3 years after listing
• Min 50 investors required
– Not a continuous requirement
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6. Other Post-Listing Points
6
• Application and trading lot size is ₨1
lakh
– to curtail entry of retail investors
• Minimum depth to be of ₨1 lakh
• Investors holding with value less
than ₨1 lakh allowed to offer their
holding to the market maker in one
lot
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7. IPO Mode
7
• IPO can be made through the
– fixed price method
– book building method or
– combination of both
• Fixed Price Method
– Issuer pre-decides issue price
• Book Building Method
– Issuer pre-decides issue price band
– Issue Price determined by investor
interest, i.e. open auction within price
band
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8. BSE – Key Listing Criteria
8
Net
Worth
• Min
Tangible
Net
Worth of
₨1
crore*
• Exclude
revaluati
on
reserves
Profits
• Distributable
profits
(s.205
CA’56) in at
least 2 of
past 3 FY
• Year = 12m
• EOI to be
ignored
*as per latest audited annual report
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Additional
Net Worth
• If profit
criteria
is not
met, NW
≥ ₨3
crore

9. BSE – Key Listing Criteria
9
• Post-Issue paid-up capital to be at
least ₨1 crore
– Max paid-up capital: ₨25 crore
• Other requirements
– Only demat shares
• Min 50% of public shareholding in demat
– Company website
• Promoters to be interviewed by BSE’s
Listing Advisory Committee
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10. BSE – Key Listing Criteria
10
• Certificate from applicant /
promoters that
– Company is not referred to BIFR
• Companies out of BIFR are not allowed
– No winding up petition accepted by a
court
• Promoters’ to be interviewed by the
Listing Advisory Committee
Axia Advisory Services Pvt Ltd

11. BSE – Fees
11
• One-Time Listing Fee:
₨50,000
• Annual Fee based on Market Cap
 <= Rs50 crores
 >Rs50 crores
₨25,000
₨50,000
• Use of Book Building Software
(based on Issue Size)
 <= Rs25 crores
 > Rs25 crores
₨2.5 lakhs
₨4.0 lakhs
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12. Preparatory
12
•
•
•
•
•
Financials
Secretarial
Corporate Governance
Disclosures
Others
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13. Preparatory – Financials
13
• Minimum past 3 years
– Detailed financials to be provided
• Comparable
– Restatement may be required
• Group brief financials
• Minimum equity capital / net-worth
requirement
Axia Advisory Services Pvt Ltd

14. Preparatory – Secretarial
14
•
•
•
•
Board Meeting
Authority and Delegation
AGM / SGM
Banking
– Accounts
– Loans
• Expansion
– Board discussions
– Financial viability / forecasts
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15. Preparatory - Corp Governance
15
• Independent Directors
• Committees of Board
– Audit
– Remuneration
– Shareholder Grievance
• CV of all promoters
– Including certificates, if applicable
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16. Preparatory – IPO Disclosures
16
• Financials of all group entities
– Companies
– Partnerships
– HUF
– Proprietary
• List of Family of Promoters
• Key Management Personnel
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17. Post IPO Disclosures
17
• Results Declaration
– SME Exchange
Half-Yearly
• Need not publish financial results
– can make it available on their website
• Announcements for all major events
• Purchase / Sale of company shares by
promoters / management
• May send to shareholders
– statement of salient features of all
documents [proviso to s.219(b)(iv) CA,
1956] instead of full Annual Report
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18. Others
18
• Shares to be mandatorily in
dematerialised form
– Registrar and Share Transfer Agent
– Depository
• Detailed listing of all ongoing
litigation
– Labour / suppliers / clients / etc
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19. Preparatory Checklist – 1 / 4
19
• Keeping Annual Reports on accounts
ready
• Detailed Disclosures about the past
financial performance
• Future Projections (CMA Data) for at
least next 3 years
• Conversion of private limited company
to public limited
• Appointing full time company secretary
(Compliance Officer)
• 50% independent directors
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20. Preparatory Checklist – 2 / 4
20
• Due diligence on the applicability of
various Regulations
• Due diligence (Legal) by Legal firms
• Due Diligence on the various approvals
required from Regulatory Bodies
• Detailed disclosures about the
Promoters & Management
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21. Preparatory Checklist – 3 / 4
21
• Detailed disclosures about the Risk
Factors
• Detailed disclosures about the External
Environment effecting the company
• Detailed disclosures about the
litigations, its magnitude and
ramifications
• Detailed disclosures about the Business
activity
• Documenting the Material Contracts
and Agreements
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22. Preparatory Checklist – 4 / 4
22
• Selection of
– Investment Banker
– Registrar and Transfer Agent (RTA)
– Syndicate Member
– Escrow Bankers
– electronic media and
– advertising agency
* Not full list, only indicative
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23. Listing Process
23
Convert to
Public
Limited (X)
Conversion
doc’s to ROC
- MoA / AoA,
etc (X+5)
ROC
Approval for
Conversion
(X+7)
Appointment
of RTA (X+7
/ X)
Appointment
of MD, WTD,
ID, CS
(X+12)
Appointment
of MB / MM
(X+18)
Peer review
auditors +
Restated
financials
(X+18)
Tri-Partite
Agreement:
NSDL &
CDSL
(X+18)
Preparation
of website
(X+18)
Constitution
of
Committees
(X+15)
Preparation
of Project
Report and
RHP (X+35)
RHP to
SE/SEBI
(X+35)
Clearance
from SE
(X+65)
Filing of RHP
with ROC +
ROC
clearance
(X+70)
Final
Prospectus
to SE / SEBI
(X+75)
Listing
approval
from SE
(X+95)
Listing
Application
with SE
(X+93)
Allotment of
Shares
(X+90)
Closing of
the Issue
(X+83)
Opening of
the Issue
(X+80)
Demat credit
of shares
(X+96)
Trading
Application
to SE
(X+98)
Trading
Approval
from SE
(X+100)
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24. Obligations of Market Makers
24
• Merchant Bankers
– to undertake market making through eligible stock
brokers
– responsible for market making for min 3 years
• MMs to provide 2-way quote for 75% of daily
time
• Market makers to compete with each other
• Exchange to prescribe min spread between bid
/ ask price
• Promoter holding not eligible market making
• Market Maker to hold min. 5% of issue size on
date of listing
• Max 5 market makers
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25. Thank You
CA Mehul Mukati
Director, Axia Advisory Services Pvt Ltd
contact@axiaindia.com
Axia Advisory Services Pvt Ltd