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SME IPO Eligibility in India

 

    1. INTRODUCTION:

There are certain norms to be followed before listing an SME, such as track record, financial data, sponsor contribution, issue size, etc.

There are 2 SME IPO platforms in India: BSE SME and NSE Emerge. An SME company could choose one of these two platforms for its IPO:

      1. NSE SME IPO Eligibility
      2. BSE SME IPO Eligibility

The SME company has to meet the SME IPO eligibility criteria set by the stock exchanges and SEBI. The BSE and NSE exchanges have quite similar requirements for an SME IPO.

Note: Unlike mainboard IPOs, SME IPOs can only be listed on one exchange.

      2. NSE SME IPO ELIGIBILITY:

a) The company should be registered in India under the Companies Act 1956/2013.

b) Post-issue paid-up capital should not exceed Rs 25 crores.

c) Track record of at least 3 years.

d) Positive Net Worthin at least 2 out of 3 financial years

e) No Winding – up Petition Pending

f) Certificate from Industrial and Financial Reconstruction Board (BIFR)

g) No pending proceedings under IBC

h) issuer / promoter / directors / promoter group / selling shareholder should not be excluded from accessing the capital                 market by the Board.

i)  promoters / directors / founders / investors should not be classified as fugitives or delinquents under the Fugitive                   Business Offenders Act 2018.

j) Articles of incorporation should not contain restrictive clauses.

k) Directors should provide documentation if they are under investigation or criminal proceedings.

l) In addition, for an SME IPO:

      • Minimum application and trading lot size is Rs 1,00,000.
      • Minimum number of allottees in an SME IPO should be
      • IPO underwriting is mandatory, of which 15% should be underwritten by a merchant banker.
      • Market maker is mandatory.

m) NSE SME IPO Documents:

      • Checklist for In-principle approval
      • Check List- Final Listing
      • IPO Registration Form
      • Fixed Price Issue
      • Book Building Issue
      • Listing Agreement

3. BSE SME IPO ELIGIBILITY

a) The criteria below are a brief checklist for SMEs considering an IPO on the BSE SME platform.

b) The issuer should be registered under the Companies Act, 1956.

    • Post issue paid up capital should not exceed Rs. 25 crores.
    • Net worth should be at least Rs. 1 crore for 2 preceding full financial years. If the applicant company is the result of conversion of partnership firm, proprietorship or LLP, then the previous firm should have the required net worth of Rs 1 crore for 2 preceding financial years.
    • Net Tangible Assets should be Rs 3 crores in the preceding financial year.
    • A company should be in operation for at least three years. If the company has been in operation for less than three years, the project for which IPO is being proposed should be appraised and funded by NABARD, SIDBI, Banks (other than co-operative banks), Financial Institutions.
    • If a company is converted into a corporation, it must have a positive cash balance (profit before depreciation and taxes). This should be the case for at least one year (of the last three years).
    • The company must also have positive net assets.
    • The company should have a functioning website.
    • The company should support Demat securities trading. It must have an agreement with NSDL and CDSL custodians.
    • The company should ensure that the promoters have not changed in the last one year since the submission of the BSE application for listing in the SME sector.
    • The issuer should provide a certificate stating that the company has not been referred to the Industrial and Financial Reconstruction Board (BIFR).
    • There should not be a winding petition against the company.
    • The minimum size for the application and trading lot is Rs 1,00,000. The minimum number of shareholders should be 50.
    • Underwriting is mandatory. 15% of it should be underwritten by a merchant banker.
    • The company should have operating profit (i.e. Earnings before Interest, depreciation and tax) for 2 out of 3 latest financial years, of which the latest financial year should be mandatorily profitable. If the IPO project is funded by NABARD, SIDBI, Banks (other than cooperative banks), the company should have positive operating profit in the one last financial year.
    • The leverage ratio of the company should not be more than 3:1 except for finance companies which may have certain relaxation.
    • There should not be any regulatory action of suspension of trading against any promoters or companies promoted by promoters.
    • The company directors and promoters should not be the promoters or directors (other than independent directors) of the compulsory delisted companies or suspended from trading on account of non-compliance.
    • The company director should not be debarred or disqualified by any of the regulatory authorities.
    • There should be 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), or subsidiary companies.
    • In case of name change of the company in the last 1 year, 50% of the revenue for preceding full FY should be earned from the activity indicated by the new name. The revenue calculated should be based on a restated and consolidated basis.

c) A micro finance company should additionally have the below to be eligible to apply for SME IPO listing:

    • Minimum Rs 100 crores of Assets Under Management.
    • Client Base of 10,000.
    • No public deposits.

d) In case of broking companies, the applicant company should fulfil the below additional criteria in addition to the above       listed criteria for all SME companies.

    • Should have a minimum Net worth and Profit of Rs. 5 crores in any 2 years out of 3 financial years, or net worth of at least Rs. 25 crores in any 3 years out of 5 financial years.
    • Minimum post issue paid up capital should be 3 crores.
    • Should have net tangible assets of at least 3 Crores as per the latest audited financial results.

4. SME IPO vs. Mainline IPO

SMEs with a minimum post-issue capital of Rs 1 crore and a maximum capital of Rs 25 crore can apply for an IPO through the SME platform.

Mainboard companies are the large companies with paid-up capital of at least Rs 10 crore after the issue.

Although the shares of both, SMEs and mainboard companies, are listed on the proposed exchanges, the listing criteria and procedure for mainboard and SME IPOs are different.

The main differences between mainboard IPOs and SME IPOs are described below:

Listing parameters Mainboard IPO SME IPO
Post-issue paid-up capital A minimum of Rs 10 crore is required. Minimum of Rs 1 crore and a maximum of Rs 25 crore.
Minimum allottees in the IPO Minimum number: 1000 allottees Minimum number: 50 allottees
IPO underwriting Non-mandatory Mandatory: Merchant Banker underwrites 100% of the risk, with the company doing 15% of the underwriting.
Offer document vetting By SEBI By Exchange
IPO Timeframe 6 months onwards 3 to 4 months.
IPO application size INR 10,000 -15,000 Lakh Min: INR 1 Lakh
Participation of the QIB 50% compulsory subscription by QIBs Not Mandatory
Market making (acting as an agent for the purchase and sale of shares) Not mandatory Mandatory (for 3 years from the date of listing)
Track Record Stringent track record norms Relaxed track record norms
Listing Can list on both exchanges Can list on only one exchange.

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