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The BSE SME Exchange has been setup by the Bombay Stock Exchange (BSE) to provide Small and Medium Sized Enterprises (SMEs) a platform for raising equity capital for their growth and expansion. SMEs are the backbone of a nation’s economy and Indian. In 2010, The Prime Minister’s Task Force recommended the setting up of a dedicated Stock Exchange for SMEs and SEBI also laid down the regulations for the governance of a SME Exchange. Based on the above, the BSE SME Exchange was established to provide opportunity to Entrepreneurs to raise equity capital for the growth and expansion of SMEs.

Pursuant to that, let us highlights some of the important aspects of the SME IPO

1. Benefits of SME IPO:

  • An opportunity to raise capital to fund new projects / expansions / diversifications / acquisitions.
  • Enhances visibility, prestige and credibility of a company public profile among people and market.
  • Increase in a net-worth and working capital.
  • Companies to raise borrowed funds at efficient rate.
  • Lowers the debt burdenleading to lower financing costs and healthier balance sheets for the firms.
  • Provides an exit route to private equity investors.
  • Helps to generate an independent valuation of the company by the market.
  • Continuing liquidity to the shareholders of the entity. This in turn helps broaden the shareholder base.
  • Company can come out with Employee Stock Options which ensures stronger employee commitment, participation and recruitment incentive.

2. Requirements For BSE SME IPO 

Particulars Requirements for BSE SME IPO
Ø  Company Ø  Limited Company.
Ø  Post issue Paid up capital Ø  Minimum Rs. 3 Crores to Rs. 25 Crores.(Entities having more then 25 cr post issue paid up capital has to mandatorily switch over to Main Board)
Ø  Net Worth Ø  Minimum Rs. 3 Crores as per the last audited balance sheet.
Ø  Net Tangible Assets Ø  Minimum Rs. 3 Crores as per the last audited balance sheet
Ø  Track Record Ø  Profits for atleast 2 years out of 3 preceeding financial years or Net worth of Rs. 5 Crores.
Ø  Website Ø  Mandatory
Ø  Investors Ø  Minimum 50
Ø  Underwritten issue Ø  100% underwritten issue
Ø  Market Making Ø  Mandatory for 3 years
Ø  Trading size Ø  Minimum Rs. 1 Crores.

3. Additional points to be considered for SME-IPO

  1. The company must mandatorily facilitate trading in DEMAT securities and enter into agreement with both Depositories, namely, Central Depository Services Limited and National Securities Depository Limited.
  2. The company should not have any reference before the Board for Industrial and Financial Reconstruction (BIFR).
  3. The company should not have any winding up petition that has been accepted by a Court
  4. 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.
  5. The Company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR).
  6. There is no winding up petition against the company that has been accepted by a court.

4. Procedure and Timeline for SME-IPO

Particulars Days
Ø  Starting of an Assignment X
Ø  Completion of Due Diligence including ROC Compliances, Restatement of Financials and creation of backup for prospectus. X+45
Ø  Filling of an offer document X+55
Ø  Approval of a Stock Exchanges X+70
Ø  ROC Filling X+75
Ø  Issue Opening X+80
Ø  Issue Closing X+85
Ø  Listing X+90

5. Cost Benefits of SME-IPO

No SEBI Approval and In-principal approval of Stock Exchanges is required, Hence, their fees are eliminated.

6. Compliance Norms for SME-IPO

Lesser compliances compare to main board listing so convenient for SMEs. Half yearly financial results, shareholding pattern is to be complied with exchanges on a half yearly basis. No publication of financial results in a newspaper, only hosting on a company’s website is enough.

Thanks reading our article; In case of any query ; Kindly ask and raise your query on  – CS Kinjal Sangani

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June 2024