SME Stock Exchange - NSE SME Emerge IPO

Untitled Document

Overview, Legal Requirements and Other Aspects

SME IPO : Meaning

A Public Limited Company (“Issuer”) can raise funds from public by issuing its fresh equity shares through an Initial Public Offer at the SME segment of the nationwide Stock Exchanges i.e. NSE Emerge or BSE SME, subject to the specified conditions.
Chapter IX of the SEBI (ICDR) Regulations, 2023 provides for the enabling provisions for SME IPO. BSE and NSE have further issued notices, circulars, guidelines etc to provide for the track record and eligibility conditions for companies proposed to be listed.

SME IPO : Benefits
Access to Equity capital and future financing opportunities
Generates liquidity for Investors and Promoters
Encourages growth of SME’s
Easier Listing Norms, Process and reduced Timelines
Only Stock Exchange approval required rather than SEBI approval
100% Underwriting of the Issue ensures success of IPO
Relaxed Post Listing Compliances
Unlocking of Shareholders Value
Reduced Tax Rate on Listed Shares
QIB Investors interest in SME IPO due to attractive Issue pricing
Fair Value automatically assessed by Market, post Listing
Enhanced Visibility and Credibility
Better Reputation and Brand recall in Industry
Better Corporate Governance
ESOP benefits for Employee Retention
Possible Transition to NSE / BSE Mainboard subject to specified conditions.

Eligibility Criteria of SME and Mainboard IPO

Factors	BSE SME	NSE SME	MAINBOARD
Paid-up Capital	Not More than INR 25 Cr.		Not Less than INR 10 Cr.
Issue Mcap	NA		Not Less than INR 25 Cr.
Net Worth	Atleast INR 1 Cr. for 2 Preceding (full) years	Should be Positive	Atleast INR 1 Cr. in each of preceding 3 (full) years**
Net tangible Assets	INR 3 Cr. in last preceding (full) year	NA	Atleast INR 3 Cr., in each of preceding 3 full years, of which not more than 50% are held in monetary assets*
EBITDA	INR 1 Cr. from operations for any 2 out of 3 previous FY		“Average” Operating profit of atleast INR 15 Cr., during the preceding 3 Years, with Operating profit in each of these preceding 3 years*
Leverage Ratio	Not more than 3:1		NA
Corporate Structure	Public Company
Track Record	3 Years
Prior Track Record	Prior track record of Partnership / LLP / Proprietorship considered if taken over/converted into company. However, such company must be in operations for atleast 1 full FY before DRHP.	Prior track record considered of a. Partnership / Proprietorship if taken over / converted into company. However, such company must be in operations for atleast 1 full FY before DRHP. OR b. Promoters/Promoting company, incorporated in or outside India Promoters mean 1 or more persons with minimum 3 years of experience in the same line of business & shall be holding at least 20% of post issue equity share capital individually or severally.	Prior track record considered of a. Partnership / Proprietorship if taken over / converted into company OR b. Promoters/Promoting company, incorporated in or outside India Promoters mean 1 or more persons with minimum 3 years of experience in the same line of business & shall be holding at least 20% of post issue equity share capital individually or severally.
Prior Track Record	The financials for last 3 years (& stub period) to be revised as per Accounting Standards, Formats & Disclosures prescribed under Sch III of the Companies Act, 2013 The Restated financial statements to be duly certified by Peer Reviewed Auditors
Name Change	Same as mainboard	NA	In case of name change within the last 1 year, atleast 50% of revenue calculated on restated and consol basis for the preceding 1 full FY has been earned by it from the activity indicated by its new name.
Minimum Promoter Contribution (MPC)	The promoters of the issuer shall hold at least 20% of the post-issue capital
Promoter Lock-in	MPC – 3 Years Lock in Release of Excess of MPC: Phase 1 – 50% release after 1 year of listing Phase 2 – remaining 50% release after 2 year of listing		MPC- 18 Months Lock-in Release of Excess of MPC- after 6 months of listing
Lock-in-Other than Promoter	1 year from the date of allotment in IPO		6 months from date of allotment in IPO
Change in Promoters before DHRP	In case of Change in Promoters (>50% Change in shareholding of issuer), DHRP filing take place only after 1 year from such final change		NA
Deployment of Funds	Amount for General Corporate Purpose (GCP) shall be capped to 15% of issue size OR INR 10 Cr, whichever is lower 35% of Gross Issue for GCP+Unidentified acquisitions of Gross Issue		(GCP + Unidentified Acquisitions) upto 35% & GCP upto 25% of the amount being raised by the issuer
Minimum Offer to Public	26.26% (25%+1.25%*)		Atleast 25% OR Atleast 10% if the post issue capital of the company calculated at offer price is more than Rs 4000 Cr.
Restriction on Repayment of Promoter / Promoter group / Related Party Loan	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.		NA
Offer For Sale (OFS)	OFS by selling shareholders shall not exceed 20% of total issue size Further, Selling Shareholders can’t sell more than 50% of their holding		For IPO under Reg 6(1)-Min. 35% Retail, Min. 15% HNI, Max. 50% QIB – No Condition For IPO under Reg 6(2) if the issuer undertakes to allot at least 75% of the net offer to QIB – OFS to public by shareholders holding, individually or with persons acting in concert having more than 20% of pre-issue shareholding of the issuer based on fully diluted basis, shall not exceed more than 50% of their pre-issue shareholding on fully diluted basis.
Minimum holding period of OFS	NA		1 year
Underwriting	100% (15% by MB)		Not Mandatory
Market Maker	shall be atleast 5% of specified securities proposed to be listed		NA
Monitoring Agency	If issue size > 50 Cr. (excluding OFS) the issuer shall make arrangements for the use of proceeds of the issue to be monitored by a credit rating agency registered with the Board		NA
Minimum application size/ Market lot	Atleast INR 2 Lacs/Minimum 2 Lots		In the range of INR 10,000 to 15,000
Minimum number of public shareholders	Not less than 200		1000
Post-listing exit opportunity for dissenting shareholders	Post-listing exit opportunity for dissenting shareholders shall be provided in case of change in object or variation in terms of contract related to object as per offer document		NA
NCLT/IBC	The Company has not been referred to NCLT under IBC. There is no winding up petition against the company, which has been admitted by the court.	The applicant company has not been referred to erstwhile BIFR or No proceedings have been admitted under IBC against the issuer & Promoting companies. The company has not received any winding up petition admitted by a NCLT / Court.	That the company has not referred to the BIFR &/OR No proceedings have been admitted under IBC against the issuer & Promoting companies. The company has not received any winding up petition admitted by a NCLT
Other Requirements	if the issuer, any of its promoters, promoter group or directors or selling shareholders are debarred from accessing the capital market by the Board if any of the promoters or directors of the issuer is a promoter or director of any other company which is debarred from accessing the capital market by the Board if the issuer or any of its promoters or directors is a wilful defaulter or a fraudulent borrower if any of its promoters or directors is a fugitive economic offender.
KMP/SMP Litigation Disclosure	Disclosure of litigation relating to KMPs and Senior Management personnel
Paid-up Capital increasing Beyond 25 Cr.	Where the paid up capital is likely to increase beyond INR 25 Cr, due to fresh issue of shares, the issuer may undertake such increase in capital subject to meeting Mainboard compliances including Corporate Governance & Quarterly Results		NA
Conversion of outstanding convertible securities before IPO	All Outstanding convertible securities shall be converted before filing of DRHP other than: i) outstanding options granted to employees, ii) fully paid-up outstanding convertible securities required to be converted on or before the date of filing of RHP.

**All three financial conditions (Average Operating Profits, Net Worth and Net Tangible Assets) are to be met for IPO brought under Reg 6(1) – Min. 35% Retail, Min. 15% HNI, Max. 50% QIB. If an issuer is not satisfying these financial conditions, then issuer can bring IPO under Reg 6(2) if the issuer undertakes to allot at least 75% of the net offer to QIB.

Key highlights of requirement in SEBI Listing regulation applicable to companies irrespective of listing apply for listing on NSE Emerge and BSE SME

Minimum Promoter Contribution: Minimum 20% of the post-issue capital

Lock-in of specified securities held by the promoters:
Minimum promoter contribution: 3 years from the date of commencement of commercial production or date of allotment in the initial public offer, whichever is later;

Excess of Minimum promoter contribution: 1 years from the date of allotment in the initial public offer

Lock-in of specified securities held by persons other than the promoters
The entire pre-issue capital held by persons other than the promoters shall remain Locked in for 1 year from the date of allotment in the initial public offer.

Minimum offer to public: Need to comply with the minimum offer to the public as per the provisions of clause (b) of sub-rule (2) of rule 19 of Securities Contracts (Regulations) Rules, 1957. i.e. minimum 25% of the issue to be brought in, on fully dilutive basis.

Allocation in the net offer
The allocation in the net offer category shall be as follows:

	Book building Issue	Fixed price issue
Retail Individual Investors	Min. 35%	Min. 50%
Non-Institutional Investors	Min. 15%	Remaining 50% to: individual applicants other than retail individual investors; and other investors including corporate bodies or institutions, irrespective of the number of specified securities applied for;
Qualified institutional buyers	Max. 50% (5% of which shall be allocated to mutual funds)

The minimum application size: One lakh rupees per application.
The Minimum number of allottees: 50

Underwriting: 100% underwriting (minimum 15% by the Merchant Banker itself)

Market making: Compulsory market making through the stock brokers, minimum period of three years from the date of listing of the specified securities. Minimum 1.25% shares.

Monitoring agency: If the issue size, excluding the size of offer for sale by selling shareholders, exceeds one hundred crore rupees

Exception: IPO of bank or public financial institution or an insurance company

Monitored by: Credit rating agency registered with the Board
Quarterly report: The monitoring agency shall submit its report to the issuer on a quarterly basis, till hundred per cent of the proceeds of the issue have been utilised.

Response by BOD: The board of directors and the management of the issuer shall provide their comments on the findings of the monitoring agency.
Report on website as well as submit to Exchange: Within forty five days from the end of each quarter, publicly disseminate the report of the monitoring agency by uploading the same on its website as well as submitting the same to the stock exchange(s) on which its equity shares are listed.

Provisions for Anchor Investors in case of book building issue

Application value min. Two crore rupees

Portion available for anchor investor out of the portion available for allocation to qualified institutional buyers: Max. 60%

Allocation

Portion for Anchor Investor	Number of Anchor Investor
Allocation up to two crore rupees	Max 2
Allocation above two crore rupees up to twenty five crore rupees, subject to minimum allotment of one crore rupees per such investor	Min. 2, Max. 15
Allocation above twenty five crore rupees	Min. 5, max 15 and an additional 10 such investors for every additional 25 Crore

Reservation for domestic mutual funds: One-third of the anchor investor portion shall be reserved for domestic mutual funds

The bidding for anchor investors shall open one day before the issue opening date.

Allocation to anchor investors: On the day of the bidding by the anchor investors.

If the price fixed as a result of book building is higher than the price at which the allocation is made to the anchor investors: The anchor investors shall pay the additional amount.

If the price fixed as a result of book building is lower than the price at which the allocation is made to the anchor investors: No refund

Lock-in: 90 days on fifty per cent of the shares allotted to the anchor investors from the date of allotment,

and
Lock-in of 30 days on the remaining fifty per cent of the shares allotted to the anchor investors from the date of allotment.

Standardized lot size for SME Exchanges:

The minimum application and trading lot size shall not be less than Rs. 1,00,000. Standardize lot size for Initial Public Offer proposing to list on SME exchange/platform, as given under:

Price Band (in Rs)	Lot Size (No of shares)
Upto 14	10000
more than 14 upto 18	8000
more than 18 upto 25	6000
more than 25 upto 35	4000
more than 35 upto 50	3000
more than 50 upto 70	2000
more than 70 upto 90	1600
more than 90 upto 120	1200
more than 120 upto 150	1000
more than 150 upto 180	800
more than 180 upto 250	600
more than 250 upto 350	400
more than 350 upto 500	300

Key Pre issue checkpoints:

Converting Proprietorship / Firm / Pvt. company to a Public Limited Company
Setting appropriate Capital Structure
Increase in Authorised Share Capital, as required based on post issue capital structure
Taking approval of Board of Directors and Shareholders of Company to approve issue of shares
Appointing 50% Independent Board (including 1 Woman Director)
Pre legal due diligence
Restructuring of financials to align with longer term vision.
Restating Financial statements for the last 3 years through Peer Reviewed Auditors (Financials shall not be older than 6 months at the time of submission of Offer Document with stock exchange)
Getting the website/logos of the Company ready if not already there

The above list is not exhaustive.

The Merchant Banker prepares the documentation for filing after:
conducting due diligence regarding the Company i.e checking the documentation including all the financial documents, material contracts, Government Approvals, Promoter details etc.
and planning the IPO structure, share issuances, and financial requirements

Application procedure:

Submission of DRHP/Draft Prospectus – These documents are prepared by the Merchant Banker and filed with the Exchange as well as with SEBI as per requirements.
Verification & Site Visit – Exchange verifies the documents and processes the same. A visit to the company’s site shall be undertaken by the Exchange official .The Promoters are called for an interview with the Listing Advisory Committee.
Approval – Exchange issues an In Principle approval on the recommendation of the Committee, provided all the requirements are compiled by the Issuer Company.
Filing of RHP/Prospectus – Merchant Banker files these documents with the ROC indicating the opening and closing date of the issue. Once approval is received from the ROC, they intimate the Exchange regarding the opening dates of the issue along with the required documents.

Migration to the main board: An issuer, whose post-issue face value capital is more than ten crore rupees and up to twenty five crore rupees, may migrate its specified securities to the main board of the stock exchanges subject to special resolution through postal ballot and fulfilment of the eligibility criteria for listing laid down by the Main Board.

Criteria	BSE	NSE
Listing period	The applicant company is listed on SME Exchange for min. atleast 3 years.	The applicant company is listed on SME Exchange for min. atleast 3 years.
Public Shareholders	The applicant company shall have a minimum of 250 public shareholders as per the latest shareholding pattern.	The total number of public shareholders should be at least 500 on the date of application
Net-worth	Min. Net worth of Rs. 15 crores for 2 preceding full financial years.	The net worth of the company should be at least 75 crores
Financial Parameters	The applicant company should have positive operating profit {earnings before interest, depreciation and tax (EBITDA)} from operations for at least any 2 out of 3 financial years and has positive Profit after tax (PAT) in the immediate preceding Financial Year of making the migration application to Exchange.	The revenue from operations should be greater than INR 100 Cr in the last financial year. and should have positive operating profit from operations for at least 2 out 3 financial years.
Promoters Holding	Promoter(s) shall be holding at least 20% of equity share capital of the company at the time of making application	Promoter and Promoter Group shall be holding at least 20% of the Company at the time of making application. Further, as on date of application for migration the holding of Promoter’s should not be less than 50% of shares held by them on the date of listing.
Paid up Capital & Market Capitalisation	Paid-up capital of more than 10 Crores and Market Capitalisation should be minimum Rs. 25 Crores	Paid-up equity capital is not less than INR 10 crores and Average capitalisation shall not be less than INR 100 crores.
Other Conditions	No proceedings have been admitted under the Insolvency and Bankruptcy Code against the applicant company and Promoting companies. No pending Defaults in respect of payment of interest and/or principal to the debenture/bond/fixed deposit holders by the applicant, promoters/promoter group /promoting company(ies), Subsidiary Companies. The applicant company shall obtain a certificate from a credit rating agency registered with SEBI with respect to utilization of funds as per the stated objective pursuant to IPO and/or further funds raised by the company, if any post listing on SME platform. The applicant company has no pending investor complaints. Cooling off period of 2 months from the date the security has come out of trade-to-trade category or any other surveillance action. No material regulatory action in the past 3 years like suspension of trading against the applicant company, promoters/promoter group by any stock Exchange having nationwide trading terminals. No Debarment of company, promoters/promoter group, subsidiary company by SEBI. No Disqualification/Debarment of directors of the company by any regulatory authority. The applicant company has not received any winding up petition admitted by a NCLT.	No proceedings have been admitted under Insolvency and Bankruptcy Code against Applicant company and promoting company. The company has not received any winding up petition admitted by NCLT/IBC. No Material regulatory action in the past 3 years like suspension of trading against the applicant Company and Promoter by any Exchange. No debarment of Company/Promoter, subsidiary Company by SEBI. No Disqualification/Debarment of director of the Company by any regulatory authority. The applicant company has no pending investor complaints in SCORES. Cooling period of two months from the date the security has come out of the trade-to-trade category or any other surveillance action, by other exchanges where the security has been actively listed. No Default in respect of payment of interest and /or principal to the debenture/bond/fixed deposit holders by the applicant, promoter/ Subsidiary Company.

Migration to main board due to Increase in capital by way of further issue: As per Regulation 280 of SEBI (ICDR) Regulations 2023

Where the post-issue face value capital of an issuer listed on a SME exchange is likely to increase beyond twenty five crore rupees by virtue of any further issue of capital by the issuer by way of rights issue, preferential issue, bonus issue, etc. the issuer shall migrate its specified securities listed on a SME exchange to the Main Board and subject to the fulfilment of the eligibility criteria for listing of specified securities laid down by the Main Board

Provided that no further issue of capital by the issuer shall be made unless

a) the shareholders of the issuer have approved the migration by passing a special resolution through postal ballot wherein the votes cast by shareholders other than promoters in favour of the proposal amount to at least two times the number of votes cast by shareholders other than promoter shareholders against the proposal;

b) the issuer has obtained an in-principle approval from the Main Board for listing of its entire specified securities on it.

https://www.bsesme.com/static/getlisted/criteriaisting.aspx?expandable=0

https://www.nseindia.com/companies-listing/raising-capital-public-issues-emerge-eligibility-criteria