BSE_&_NSE_SME_Eligibility
CS Neeraj Jain
Mr Neeraj Jain is the Partner of Expert Global Consultants Private Limited
A SEBI Registered Category -1 Merchant Banker
operating out of New Delhi and providing Pan India Services
Introduction
Small and Medium IPO or simply called SME IPO has become quite popular in the recent years. These IPO’s have been beneficial for both the company getting listed and the investors. Through this article we have tried to cover the basic process and applicability of getting listed in SME portal.
Incorporation Requirement:
The Company shall be incorporated under the Companies Act, 1956/2013.
Eligibility Criteria
a)Post Issue Paid up Capital
Not more than Rs. 25 crores
b)Networth
At Least Rs. 1 crore for 2 preceding complete financial years.
Note: Cases in which a company is formed pursuant to conversion of registered Proprietorship /partnership/LLP then partnership firm/LLP needs to have Net Worth of Rs. 1 crores for preceding 2 (complete) financial years.
c)Net Tangible Asset
Rs 3 crores in the last preceding complete financial year.
d)Track Record
The track record of the applicant company seeking listing should be at least 3 years. Where the applicant company has taken over a proprietorship concern/ registered partnership firm/ LLP, then the track record together with such proprietorship concern/ registered firm/ LLP should be atleast 3 years.
Provided, the applicant company seeking listing should have a track record of operations for atleast one full financial year and audited financial results for one full financial year.
Or
Where the applicant company does not have a track record of 3 years, then the Project for which IPO is being proposed should be appraised and funded by NABARD, SIDBI, Banks (other than co-operative banks), Financial Institutions.
Provided, the applicant company seeking listing should have a track record of operations for atleast one full financial year and audited financial results for one full financial year.
a)Earnings before Interest, Depreciation and tax
The company/ proprietorship concern/ registered firm/ LLP should have operating profit (earnings before interest, depreciation and tax) from operations for 2 out of 3 latest financial years preceding the application date.
Provided the company should have operating profit (earnings before interest, depreciation and tax) from operations for one full financial year preceding the application date.
For companies seeking listing where the project has been appraised and funded by NABARD, SIDBI, Banks (other than co-operative banks), Financial Institutions, it shall have positive operating profit (earnings before interest, depreciation and tax) from operations in one full preceding financial year.
b)Leverage Ratio
Leverage ratio of not more than 3:1. Relaxation may be granted to finance companies.
c)Disciplinary action
No regulatory action of suspension of trading against the promoter(s) or companies promoted by the promoters by any stock Exchange having nationwide trading terminals.
The Promoter(s) or directors shall not be promoter(s) or directors (other than independent directors) of compulsory delisted companies by the Exchange and the applicability of consequences of compulsory delisting is attracted or companies that are suspended from trading on account of non-compliance.
Director should not be disqualified/ debarred by any of the Regulatory Authority.
d)Default
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), Subsidiary Companies.
e)Name change
In case of name change within the last one year, at least 50% of the revenue calculated on a restated and consolidated basis for the preceding 1 full financial year has been earned by it from the activity indicated by its new name.
The activity suggesting name should have contributed to at least 50% of the revenue, calculated on a restated and consolidated basis, for the preceding one full financial year.
A. Additional Criteria for broking companies applying for SME IPO:
a)Networth and profit
Net worth of minimum Rs. 5 crores with profit before tax of atleast Rs. 5 crores in any 2 years out of 3 financial years.
Or
Net worth of atleast Rs. 25 crores in any 3 years out of 5 financial years.
The Financial year should be for a period of 12 months. Extraordinary income will not be considered for the purpose of profits.
a)Net Tangible Assets:
The Net Tangible assets of at least Rs. 3 Crores as per the latest audited financial results.
b)Post issued Paid up capital:
Post issue paid up capital of the Broking Member should be minimum Rs. 3 crores.
B. Additional Criteria for Micro Finance Companies:
Micro finance companies, in addition to the existing criteria for all SME companies, should have a Asset Under Management of at least Rs. 100 Crores, client base of 10000 & above and it should not have accepted / held public deposit.
Other Requirements (for all companies):
a)It is mandatory for a company to have a functional website.
b)100% of the Promoter’s shareholding in the Company should be in Dematerialised form.
c)It is mandatory for the company to facilitate trading in demat securities and enter into an agreement with both the depositories.
d)There should not be any change in the promoters of the company in preceding one year from date of filing the application to BSE for listing under SME segment.
e)The composition of the board should be in compliance with the requirements of Companies Act, 2013 at the time of in-principle approval.
f)The Net worth computation will be as per the definition given in SEBI (ICDR) Regulations
g)The Company has not been referred to NCLT under IBC.
h)There is no winding up petition against the company, which has been admitted by the court.
Note: Cooling off period: Gap of at least 6 months from date of withdrawal/ rejection of issue from SEBI/Exchanges
Eligibility criteria for listing on NSE Emerge Platform
Conditions Precedent to Listing
The Issuers on SME platform shall have adhered to conditions precedent to listing as emerging, inter-alia, from
- Securities Contracts (Regulations) Act 1956,
- Companies Act 1956/2013,
- Securities and Exchange Board of India Act 1992,
- Any rules and/or regulations framed under foregoing statutes, as also any circular, clarifications, guidelines issued by the appropriate authority under foregoing statutes.
Eligibility criteria for listing on NSE Emerge Platform
The following criteria should be complied with as on the date of filing the Public Offer Document with NSE as well as when the same is filed with RoC and SEBI.
PARAMETER | LISTING CRITERION |
INCORPORATION | The Issuer should be a company incorporated under the Companies Act 1956 / 2013 in India. |
POST ISSUE PAID UP CAPITAL | The post issue paid up capital of the company (face value) shall not be more than Rs. 25 crore. |
TRACK RECORD | ● Track record of at-least three years of either- i. the applicant seeking listing; or ii. the promoters****/promoting company, incorporated in or outside India or iii.Proprietary / Partnership firm and subsequently converted into a Company (not in existence as a Company for three years) and approaches the Exchange for listing. ****Promoters mean one or more persons with minimum 3 years of experience in the same line of business and shall be holding at least 20% of the post issue equity share capital individually or severally. |
FINANCIAL | ● An issuer shall have an operating profit (earnings before interest, depreciation and tax) of INR 1 crore from operations for any 2 out of 3 previous financial years. ● Net-worth should be positive. ● The company/entity should have positive Free cash flow to Equity (FCFE) for at least 2 out of 3 financial years preceding the application. |
OFFER FOR SALE | ● Offer for sale (OFS) by selling shareholders in SME IPO shall not exceed 20% of the total issue size and selling shareholders cannot sell more than 50% of their holding. |
OTHER LISTING CONDITIONS | ● The applicant company has not been referred to erstwhile Board for Industrial and Financial Reconstruction (BIFR) or No proceedings have been admitted under Insolvency and Bankruptcy Code against the issuer and Promoting companies. ● The company has not received any winding up petition admitted by a NCLT / Court. ● No material regulatory or disciplinary action by a stock exchange or regulatory authority in the past three years against the applicant company. ● Issuer seeking listing shall ensure that none of the merchant bankers involved in the IPO should have instances of any of their IPO draft offer document filed with the Exchange being returned in the past 6 months from the date of application. For this purpose, the left lead merchant banker and any other merchant banker if applicable who shall be responsible for due diligence activity and drafting of the draft offer document / offer document in terms of the Lead Managers’ Inter-se Allocation of Responsibilities shall be considered. ● SME issues shall not be permitted, where objects of the issue consist of Repayment of Loan from Promoter, Promoter Group or any related party, from the issue proceeds, whether directly or indirectly. |
DISCLOSURES | The following matters should be disclosed in the offer document:
|
Rejection cooling off period | The application of the applicant company should not have been rejected by the Exchange in last 6 complete months. |
Conclusion:
The rules are clear regarding the IPO for SME. They have been a key driver of India economic growth and shall continue to do in the near future also.
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