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.
Additional criteria by BSE for identifying companies to be shifted to the main board are quite balanced. This move by BSE to not to keep market capitalization as one of the criteria for shifting to the main board is a considerate move. It is seen that companies in the SME segment have at times more market capitalization than their main board peers. Once a company shifts to the main board from the SME segment, the bid lot becomes one share thereby increasing retail shareholder participation. This move will eventually lead to smaller companies remaining in the SME segment and reasonably large companies shifting to the Main Board, which has been the intention of the regulator prima facie.
The revisional criteria includes: –
1. The Bombay Stock Exchange (‘BSE’) on November 24, 2023, has issued fresh guidelines for small and medium enterprises (‘SME’) wanting to migrate from the BSE’s SME platform to the BSE main board[1].
2. According to the new guidelines, post issue paid up capital of the applicant should be more than Rs 10 crore.
3. The applicant company should have a net worth of at least Rs. 15 crores for 2 preceding full financial years.
4. Listing on the mainboard exchange requires a minimum market capitalization of at least Rs 25 crores. In this case, the market capitalization will be calculated on the basis of the weighted average price of the preceding three months from the date of application for transfer to the Main Board.
5. The applicant company should also have positive operating profit (earnings before interest, depreciation, and tax) from operations for at least any 2 out of 3 financial years and has positive Profit after tax (PAT) in the immediately preceding Financial Year of making the migration application to Exchange.
6. Further as per new norms, Promoter(s) shall be holding at least 20% of equity share capital of the company at the time of making application.
7. Further the applicant shall have a minimum of 250 public shareholders as per latest shareholding pattern .
8. In the Annual General Meeting (AGM), at least two-thirds (2/3) of the shareholders, excluding the promoters of the company, must pass a special resolution for migration.
9. Further minimum listing period on BSE SME should be for at least three years as against earlier listing requirement of two years.
10. Other requirements under regulatory action includes:
1. No material regulatory action in the past 3 years like suspension of trading against the applicant company, promoters/promoter group by any stock Exchange having nationwide trading terminals.
2. No Debarment of company, promoters/promoter group, subsidiary company by SEBI.
3. No Disqualification/Debarment of directors of the company by any regulatory authority.
4. The applicant company has not received any winding up petition admitted by a NCLT.
11. Other parameters mentioned in the circular are as follows:
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- No proceedings have been admitted under the Insolvency and Bankruptcy Code against the applicant company and Promoting companies.
- No pending Defaults in respect of payment of interest and/or principal to the debenture/bond/fixed deposit holders by the applicant, promoters/promoter group /promoting company(ies), Subsidiary Companies.
- The applicant company shall obtain a certificate from a credit rating agency registered with SEBI with respect to utilization of funds as per the stated objective pursuant to IPO and/or further funds raised by the company, if any post listing on SME platform.
- The applicant company has no pending investor complaints.
The new guidelines will become effective from January 1, 2024.
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.
This article is written by Ms. Ruchira Pawase – Research Associate.
[1] https://www.bseindia.com/markets/MarketInfo/DispNewNoticesCirculars.aspx?page=20231124-55
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