Summary: The Securities and Exchange Board of India (SEBI) introduced a dedicated listing and trading platform for Small and Medium Enterprises (SMEs) through its circular dated May 18, 2010, and amendments to the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009. SMEs with post-issue capital up to Rs. 25 crore must adhere to specific conditions, including maintaining net tangible assets and net worth of at least Rs. 3 crore, and ensuring a minimum application value of Rs. 1 lakh. Companies with capital exceeding Rs. 25 crore must migrate to the main board. The listing process involves several stages: pre-IPO preparations, due diligence, and filing of offer documents, followed by appointing intermediaries such as merchant bankers and registrars. During the IPO phase, companies must comply with various regulations and obtain necessary approvals. Post-listing, requirements include managing refunds, allotments, and trading commencement. Key strategies to mitigate listing risks include effective coordination with intermediaries, accurate share valuation, thorough disclosure, and a well-structured process roadmap. These measures ensure smooth compliance and successful SME listings on the stock exchanges.
The securities market regulator SEBI vide its circular dated May 18, 2010 have provided for setting up a listing and trading platform for the SMEs by the recognized stock exchanges having the nationwide trading terminals. The provisions covered under the chapter XB have been inserted under SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2009.
The first step of the SME listing is to checking the terms and conditions required to be satisfied and other compliance requirements required to be satisfied by the issuer. The required conditions are:
1. Applicability: A company can issue specified securities if having the post- issue capital upto Rs. 10 crore or 25 crore as specified.
2. Minimum application value: The minimum application value is Rs. 1 Lacs and multiplies thereof and minimum allottees are 50.
3. Migration: If the post issue capital of the company is more than Rs. 25 crore so the issuer required to pass the special resolution and migrate to main board with compliances applicable on the main board listing companies.
4. Financial aspects: The issuer have the net tangible assets at least Rs. 3crore, net worth Rs.3 crore and record of profit distributable of 2 out of 3 immediately preceding financial years.
5. Listing obligations: The issuer have to comply with the listing obligations like disclosure requirements under chapter V, compliance of Regulation 17 to 27, compliance with ICDR regulations, LODR regulations, SAST regulations etc.
6. Approvals required: There are requirements of comply with the approvals required from SEBI, Stock Exchange, shareholders, Board of Directors, banks, and other regulatory specified as per the requirements.
After considering the conditions and other terms defined under the governing rules and regulations, there are certain norms defined for the SMEs listed entities of proposed to be listed. These are:
i. Migration to main board after the period of 2 years,
ii. Doesn’t require to file offer document or seek any observation from the SEBI,
iii. The eligibility criteria are numerous in nature,
iv. The process of IPO grading is not mandatory,
v. Standardized lot size for market trading are specified,
vi. Minimum application size in the IPO is Rs. 1 Lacs,
vii. The financial are submitted on the basis of half yearly instead of Quarterly,
viii. The one time listing fees applicable on the issuer is Rs. 50000,
ix. No requirement of publishing the financial Results,
x. Any other as specified.
Now we have discuss the process of the SME listing IPO in the securities market on the basis of the stages and aspects for easily and effectively understanding and giving a quick reference on the topic.
The process of the SME listing defined as per the stages involved are here as follows:
1. Pre-IPO preparations: At the first stage of the IPO, the company are required to complying with the requirements of the pre IPO as increase the authorized capital, passing of resolution for further share capital, appointment of merchant banker and compliance related with regulation 17 to 27 of SEBI (LODR) Regulation, 2015 and other as required.
2. Due- Diligence: The next step is of preparing search report, due diligence, site visit by the regulators, understanding the objects, financials and future goals of the issuer for benefits the offer document draft and understanding the public before investing their money in it.
3. Filling of Offer Document: There is the requirement of preparing and filling the offer documents with the stock exchange and merchant banker that complies with the rules and regulations covered under Companies act, 2013, BSE SME listing norms, LODR regulations and SEBI ICDR Regulations.
4. Appointment of Intermediaries: For ensuring the smoothly and successfully listing a company is rely on the intermediaries appointed for the specified issue. These includes Depositories, Merchant banker, Book runner lead manager, Underwriters, Market makers, printers, advertising agency, Registrar to Issue etc.
5. IPO open for subscription: After appointing of Intermediaries, the issuer and merchant banker required to submitting the offer documents defining the compliances with the required rules and regulations, affidavit regarding the points defines in prospectus free from misstatements, pre issue advertisements, in principal approval from the Stock Exchange, application to the Depositories regarding the dematerialization of shares etc.
6. Listing and post listing requirements: There are post issue requirements regarding the refund of the oversubscribed amount and unblocking of UPI mandate requests, finalize the allotments, crediting of shares in demat accounts, trading commencements within the 6 days of listing on the stock exchanges etc.
There are some key strategic points that reduces the risk of failure of the listing process and non-compliances are:
1. Proper co-ordination between the company and the intermediaries,
2. Proper valuation of shares,
3. Fully disclosures of all the facts that affect the IPO process,
4. Proper roadmap of the full process,
5. Properly furnish of financial statements,
6. Any other as required.
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