Introduction: The Bombay Stock Exchange (BSE) has recently introduced revised eligibility criteria for the migration of Small and Medium Enterprises (SMEs) from the BSE SME platform to the BSE Main Board. The new guidelines, effective from January 1, 2024, aim to provide a balanced approach for identifying companies suitable for transition. This article discusses the key changes and their implications.
The Bombay Stock Exchange (‘BSE’) vide notice number 20231124-54 dated November 24, 2023, has issued notification related to revision in the eligibility criteria for listing on SME platform of BSE[1].
This Circular is in continuation with earlier BSE Circulars having vide numbers: –
- 20180711-23 dtd July 11,2018(‘Circular 1’);
- 20190109-10 dtd January 9, 2019 (‘Circular 2’),
- 20200522-21 dtd May 22, 2020 (‘Circular 3’) and
- 20200115-29 dtd January 15, 2020 (‘circular 4’)
BSE has now framed the revised eligibility criteria which is as under:
1. Criterions based on financial parameters: –
1. Post Issue Paid Up Capital: Post issue paid up capital of the company shall not be more than Rs.25 crores which remains unchanged in comparison to the circular 1.
2. Net Worth: The Net Worth criteria initially mentioned in Circular 1 stated that it should be positive. Taking a step further the stock exchange has made it more specific which is at least Rs. 1 crore for 2 preceding full financial years.
3. Net Tangible Asset: Further the Net tangible asset criteria was Rs 1.5 crore. The same is now revised to Rs 3 crores.
4. Track Record: The track record of applicant company seeking listing should be at least 3 years. Where the applicant company has taken over a proprietorship concern/ registered partnership firm/ LLP, then the track record together with such proprietorship concern/ registered firm/ LLP should be at least 3 years.
The above-mentioned condition in point 4 was already in existence.
Now BSE has stated the following: – Provided, the applicant company seeking listing should have a track record of operations for at least one full financial year and audited financial results for one full financial year. Or
Where the applicant company does not have a track record of 3 years, then the Project for which IPO is being proposed should be appraised and funded by NABARD, SIDBI, Banks (other than co-operative banks), Financial Institutions.
Provided, the applicant company seeking listing should have a track record of operations for at least one full financial year and audited financial results for one full financial year.
In this case also, BSE has stated that the applicant company seeking listing should have track record of operations for at least one full financial year and audited financial results for one full financial year.
Initially, the criteria mentioned stated the following: –
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.
However, now in furtherance to the above NABARD, SIDBI, Banks (other than co-operative banks) has been added for more clarity. The funding and appraisal for project for which IPO is being proposed by central or state government has now been removed.
1. BSE has included additional financial parameters vide circular dated November 24, 2023 are:
1. Earnings before Interest, Depreciation and Tax: The company/ proprietorship concern/ registered firm/ LLP should have operating profit (earnings before interest, depreciation, and tax) from operations for 2 out of 3 latest financial years preceding the application date. Provided the company should have operating profit (earnings before interest, depreciation, and tax) from operations for one full financial year preceding the application date. For companies seeking listing where the project has been appraised and funded by NABARD, SIDBI, Banks (other than co-operative banks), Financial Institutions, it shall have positive operating profit (earnings before interest, depreciation, and tax) from operations in one full preceding financial year.
2. Leverage Ratio: The criteria mentioned about Leverage Ratio is that it should not be more than 3:1.
2. Non-financial parameters for companies seeking listing included are as follows :
1. Disciplinary action:
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- No regulatory action of suspension of trading against the promoter(s) or companies promoted by the promoters by any stock Exchange having nationwide trading terminals.
- The Promoter(s) or directors shall not be promoter(s) or directors (other than independent directors) of compulsory delisted companies by the Exchange and the applicability of consequences of compulsory delisting is attracted or companies that are suspended from trading on account of non-compliance.
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2. No Disqualification / Debarment
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- Director should not be disqualified/ debarred by any of the Regulatory Authority.
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3. Default
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- No pending defaults in respect of payment of interest and/or principal to the debenture/bond/fixed deposit holders by the applicant company, promoters/ promoting company(ies), Subsidiary Companies.
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4. Name change:
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- In case of name change within the last one year, at least 50% of the revenue calculated on a restated and consolidated basis for the preceding 1 full financial year has been earned by it from the activity indicated by its new name.
- The activity suggesting name should have contributed to at least 50% of the revenue, calculated on a restated and consolidated basis, for the preceding one full financial year.
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All other rest listing criteria remain unchanged.
Note: Cooling off period: Gap of at least 6 months from date of withdrawal/ rejection of issue from SEBI/Exchanges.
Conclusion: BSE’s move to revise the eligibility criteria for SMEs transitioning to the Main Board reflects a balanced approach, considering factors beyond market capitalization. The changes aim to enhance retail shareholder participation and facilitate the migration of reasonably large companies to the Main Board. As these criteria come into effect in 2024, companies planning to transition should carefully assess their compliance and prepare for the revised requirements.
[1] https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20231124-54
This article is written by Ms. Ruchira Pawase – Research Associate.