SME IPO : Benefits, Criteria and Procedure for SME Business

In developing nation like India, SMEs are considered as a backbone of the economy. They are a major contributor in the economy.

But now, in the event of increased globalization's, heavy competitions prevail in almost all the major industries. Here, so as to sustain the competition and simultaneously lead towards the growth, SMEs are required to adopt technological advancements & constant innovations. But the lack of adequate funds, high cost of credit, requirement of collateral and various other factors are hindering the growth of the SMEs in India and are getting them out of business.

Looking to this aperture of lack of fund, SEBI in 2008 has propagated a framework for setting SME exchanges exclusively for SMEs. Here BSE & NSE have come up with their separate platform as “BSE SME” & “NSE EMERGE” for the SMEs to raise funds through investors in equity markets. They provide a new source of funds through SME IPO and provide listing opportunities to the companies with comparatively less compliance's. 

SMEs are spread across diverse sectors and are fast emerging as an alternate asset class & optimal mode of investment for investors. Opting for SME IPO is a commemorative decision for any company. For being traded on exchange & get listed, a company has to come up with an Initial Public offer i.e. “IPO”. Here the companies have to dilute its owner’s equity via offer for sale to general public. Against this, the company will acquire capital to fund its business requisites. 

Benefits of being traded on SME exchange:

• It accords opportunities to the companies to raise capital, which can be utilized for the new projects, expansions, forward & backward integrations, diversification, innovations and R&D, technological advancements, paying off debts etc.
• It improvises the valuation & credit rating of the company.
• It lowers the debt burden & improvise the debt equity ratio of the company, leading to the healthy balance sheets.
• At apt times, they can easily migrate to the main board exchanges, without much intricate compliance's.
• Listing creates a good visibility of the company in the market & thereby improves the credibility & prestige.
• It increases a company’s ability to raise further capital through other routes such as preferential issue, right issue, and attracts a varied body of u=institutional & professional investors.
• Listing provides good liquidity to the ESOPs holding employees & shareholders.

Criteria for SME IPO:

• The Company shall be incorporated under the Companies Act, 1956 or 2013 & must have an operational website.
• The company has to be in operation for more than three years and a positive track record of distributable profit for at least 2 years.
• There should not be any change in the promoters of the company in preceding one year from date of filing application. 
• The net worth of the company should be atleast Rs. 5.00 cr or Net Tangible assets of at least Rs. 3.00 cr. 
• Post issue paid up capital of the company shall be at least Rs. 3.00 crores
• The company should not have been involved in any pending suit at the time of listing or being referred to the Board for Industrial and Financial Reconstruction (BIFR)

Procedure for SME IPO:

• Consulting & appointing the investment banker.
• The Investment Banker prepares the documentation for filing and conducts due diligence, capital structure, share issuances, and financial requirements
• Submission of draft prospectus and filling it with the exchanges and SEBI as per the requirements.
• Exchanges verify the documents & visits the company’s premise.
• After the fulfillment of various compliance's & recommendation by advisory committee, exchanges issue a principal approval.
• Filing of the documents with ROC. Once the approval is received from the ROC, the same is intimated to the exchanges regarding the opening & closing dates of issue.
• Then, IPO opens & closes as per schedule.
• Different exchanges finalize the basis of allotment and issues the Notice regarding Listing and Trading.

The role of merchant banker/investment banker is very rigorous in conducting the above procedure. They provide strategic, financial & valuation advisory services & leveraging all the debt solutions. They play an intermediary role between the companies & investors. They provide the underwriting services for the stock issues. Thus, it is mandatory for the traded companies to consult the merchant bankers/investment bankers while seeking equity funds through SME IPOs.

Financial Supermarket is pioneer in assisting SME IPO to Small and Medium enterprises. Feel free to reach out to us.

For More Details : www.financialsupermarket.in/sme-ipo.html