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SME exchange Launching Pad to Unlock Wealth

SME exchange Launching Pad to Unlock Wealth. Presented by: S. Ganapathy Subramanian Vice President, Karvy Computershare P Ltd. . Agenda. Introduction & background. Introduction to MSME. The Micro, Small and Medium Enterprises (MSME) are defined as follows:.

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SME exchange Launching Pad to Unlock Wealth

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  1. SME exchange Launching Pad to Unlock Wealth Presented by: S. Ganapathy Subramanian Vice President, Karvy Computershare P Ltd.

  2. Agenda

  3. Introduction & background

  4. Introduction to MSME • The Micro, Small and Medium Enterprises (MSME) are defined as follows:

  5. The rise and significance of MSMEs in India

  6. 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

  7. 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

  8. 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

  9. 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

  10. Listing Regulations and procedure

  11. Why not the conventional listing route? Following norms (BSE) restrict SMEs from direct listing:

  12. 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

  13. 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

  14. 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

  15. 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

  16. Market Makers’ Obligations • Market makers’ obligations • To 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

  17. 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.

  18. Opportunities for you

  19. 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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