Post on 13-Jan-2016
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November, 2011
SME exchange
Launching Pad to Unlock Wealth
Presented by: S. Ganapathy SubramanianVice President, Karvy Computershare P Ltd.
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Agenda
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Introduction&
background
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Introduction to MSME
Manufacturing Enterprises – Investment in Plant & Machinery
Description INR USD($)
Micro Enterprises upto Rs. 25 Lakh upto $ 62,500
Small Enterprises above Rs. 25 Lakh & upto Rs. 5 Crore above $ 62,500 & upto $ 1.25 million
Medium Enterprises above Rs. 5 Crore & upto Rs. 10 Croreabove $ 1.25 million & upto $ 2.5 million
The Micro, Small and Medium Enterprises (MSME) are defined as follows:
Service Enterprises – Investment in Equipments
Description INR USD($)
Micro Enterprises upto Rs. 10Lakhs upto $ 25,000
Small Enterprisesabove Rs. 10 Lakhs & upto Rs. 2 Crores
above $ 25,000 & upto $ 0.5 million
Medium Enterprisesabove Rs. 2 Crores & upto Rs. 5 Crores
above $ 0.5 million & upto $ 1.5 million
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The rise and significance of MSMEs in India
Key statistics:
Strength 2.6 crore enterprises
Contribution 8% of GDP
Output 45% of total manufactured output
Trade 40% of our exports
Employment 6 crore people
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Government initiatives
A Micro, Small and Medium Enterprises Act, 2006 was introduced
Its main objectives :
• Remove impediments due to multiple laws
• Introduce statutory consultative and recommendatory bodies on MSME policies
• Improve registration procedures of MSMEs
• Statutory basis for purchase preference and credit policies
• Improve realisation of payments of MSMEs
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Challenges faced by SMEs
Difficulty in raising resources – both debt and equity – for expansion and growth
Government / RBI efforts in this regard have proved to be inadequate
Currently, required resources are raised through bank loans, promoter funds and in a few cases from friends and relatives, VC / PE funding
Considerable effort and time lag in raising resources
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Solution offered
Prime Minister’s Task Force (Jan 2010) recommended setting up of a dedicated stock exchange for SMEs
SEBI has laid down the framework for setting up of a new exchange, or separate platform of an existing stock exchange having nationwide terminals, for SMEs
BSE & NSE have received permission of the regulator for setting up the SME platform
Liberalised regulations for going public
Liberalised norms for listing
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Benefits of listing
Access to capital and future financing opportunities
Increased visibility and prestige
Venture capital
Liquidity for shareholders
Creates of employee incentive mechanisms
Facilitates growth through mergers and acquisition
Encourages innovation and entrepreneurial spirit
Efficient risk distribution
Helps in corporate governance
Better valuation
Improvement in debt-equity ratio
Brings transparency
Greater financial inclusion
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ListingRegulations and procedure
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Why not the conventional listing route?
Following norms (BSE) restrict SMEs from direct listing:
# Particulars Norms
1 Issued and Paid up capital Minimum paid up capital of Rs. 10 crores ORMinimum networth of Rs. 50 crores (excluding revaluation reserves) in 3 immediately preceding financial years
2 Networth
3 Profit making track record Distributable profits in terms of sec. 205 of Companies Act, 1956 for atleast 3 out of 5 immediately preceding financial years based on audited financial results with the last financial year reporting profit.
Provided that extraordinary income shall not be considered for calculating distributable profit.
Provided further that latest 3 Financial Years should comprise a period of atleast 12 months
4 Public Shareholding Meeting with the requirements of SCRA, SCRR and Listing Agreement.
5 No. of public shareholders Minimum 500
6 Trading in Compulsory Demat Minimum of 50% of the public shareholding should be held in demat form.
7 Listing track record with Recognized Stock Exchange
Listed on any recognized Stock Exchange
8 Information Memorandum Information Memorandum as provided in Schedule II of Companies Act, 1956 to the extent applicable, as certified by the Company Secretary/ MD of the Company
9 Withdrawal/ Rejection Companies can make a fresh application after a period of 3 months
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Special features - listing on SMEs
Special advantages of listing on the SME exchange, over the conventional exchanges:
Lower listing fees
Market makers
Reduced filing requirements – half yearly financial results
Abridged annual reports
No need to publish financial results
No draft document to be filed with SEBI for their observations
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Regulations
Chapter XA of the ICDR deals with issue of specified securities by small and medium enterprises
Key highlights:
General qualification for SMEs is upto Rs. 10 crore face value of post issue capital
However, enterprises with post issue capital of upto Rs. 25 crore, may issue shares under the provisions of this chapter
Offer document to be filed with SME exchange, RoC, and SEBI through a Merchant Banker
Due diligence certificate by Merchant Banker in the prescribed form (Form A and Form H of Schedule VI)
Offer document to be hosted on SEBI, Issuer, Merchant Banker(s) and SME exchange
Issue needs to be 100% underwritten, and not upto the minimum subscription level
Merchant Bankers need to underwrite minimum 15%, in their own account
Nominated investor / market maker
Minimum application and trading lot value – Rs. 1 lakh
Minimum allottees must be 50 in number
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Regulations
Key highlights (Contd...) :
Listed companies issuing shares under chapter XA, shall compulsorily list on SME exchange
Shareholder approval for migration to main exchange and vice versa
Market making compulsory for 3 years from the date of listing or date of migration and disclosure thereof
Market makers shall be stock brokers registered on the SME exchange
Inventory shall be at the least 5% of the listed specified securities as on the date of allotment
Minimum contract size
No deals with promoters / group – except those not under lock-in, with the prior permission of SME exchange
Representative of the Merchant Banker can be on the board of the issuer
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Exemptions
Inapplicable regulations Regulation 6 (1), (2) & (3) – filing of Draft offer document , observations thereon, complying therewith
Regulation 7 – obtention of in-principle approval
Regulation 8 – Documents to be submitted before opening of the issue
Regulation 9 – Making Draft offer public
Regulation 10 – Fast Track Issue
Regulation 25 – Eligibility requirements
Regulation 26 – Conditions for initial public offer
Regulation 27 - Condition for further public offer
Regulation 49 (1) - Minimum application size
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Market Makers’ Obligations
Market makers’ obligationsTo be registered as such with SME exchanges, and act for a minimum period
Two-way quote for 75% of the time in a day
Black out period to be informed
Minimum depth Rs. 1 lakh
Not more than 5 market makers for a scrip
Different rates can be quoted by different market makers
Maximum spread / price bands to be stipulated by SME exchange, or in the offer document
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The issue process
The Issuer who is planning an offer, nominates lead merchant banker(s) as 'book runners’
The Issuer specifies the number of securities to be issued and the price band for the bids
The Issuer also appoints syndicate members with whom orders are to be placed by the investors
The syndicate members input the orders into an 'electronic book'. This process is called 'bidding' and is similar to open auction.
The book normally remains open for a period of 5 days
Bids have to be entered within the specified price band
Bids can be revised by the bidders before the book closes
On the close of the book building period, the book runners evaluate the bids on the basis of the demand at various price levels
The book runners and the Issuer decide the final price at which the securities shall be issued
Generally, the number of shares is fixed, the issue size gets frozen based on the final price per share
Allocation of securities is made to the successful bidders. The rest get refund orders.
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Opportunities for you
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What it means to you?
Opportunity for you
You will be the first point of contact
You can set up merchant banking outfits, subject to acquiring skills to market the issue
Play the role of the legal counsel also
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