SMEs, which depend on expensive loans and stocks and raise money from the public. As part of its efforts to encourage SMEs to go public, the Securities and Exchange Board of India (Sebi) on Monday exempted them from the usual eligibility norms applicable for initial public offerings (IPOs) and follow-on public offerings. These norms include a minimum pre-issue networth and profit-making track record.
The regulator has ruled out the need for a separate SME exchange and said stocks can be listed on a separate trading platform of an existing exchange. For companies seeking to list on the SME exchange, the cut-off limit in terms of paid-up capital has been fixed at Rs 25 crore. “Companies listed on the SME exchange/platform shall compulsorily migrate to an equity exchange/segment on exceeding the Rs 25 crore post issue paid-up capital limit. Further also, if follow-on offer/rights issue results in triggering of the above limit (of Rs 25 crore) then the company would have to migrate to the main board,” Sebi said.
Also, SMEs will have to disclose their financial results to the exchanges on a half-yearly basis, unlike the larger companies, which have to report their numbers on a quarterly basis. Sebi has proposed a minimum trading lot of Rs 1 lakh for shares in the SME segment, so as to restrict participation to “informed, financially sound and well-researched investors with a certain risk-taking ability.”
For the initial public offering, there will have to be a minimum number of investors. However, there shall be no continuing requirement of maintaining the minimum number of investors. Merchant bankers will be required to ensure that the issue is 100% underwritten. However only a minimum percentage (15%) of the issue size will be mandated to be compulsorily underwritten by the merchant banker itself.
The merchant banker to the issue will bear the responsibility for market-making for a minimum period of three years. It can do so, along with a disclosed nominated investor (either a private equity fund, high networth individual or qualified institutional buyer). During the compulsory market-making period, promoters/acquirers will be allowed to dilute their shareholding only through offer for sale or to an acquirer and not to a market maker.
In other key decisions, the regulator has capped the value of allotment that can be made to an employee under the employee reservation category, in public issues, at Rs 1 lakh. Currently, the ICDR regulations permit reservation up to 10% of the issue size for employees in public issues. Present regulations provide for discount up to 10% of issue price to retail individual investors and shareholders but not to employees. Sebi has now decided to allow the same discount to employees also under the reserved category only in public issues for application size up to Rs 1 lakh.