SME Listing
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Outline
• SME Listing - Background
• SME Listing - An Overview of Key Requirements & Eligibility Norms
• Core advantages of SME Listing
• Pantomath – Companion in Process
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SMEs – The backbone of Indian economy
Contribution to GDP
8.7 %
Share of Industrial output
45 %
Share of Exports 40 %
Total Employment
69 million
Job creation every year
1.3 million
Source : Ministry of Micro, Small and Medium Enterprises, GOI
Nation’s 1.3 million SMEs account for 40% of India's total exports
At 48 million, India is second to China in number of SMEs
SMEs employ close to 40% of India's workforce & contributes 45% to India's manufacturing output
SMEs are expected to drive the next-level growth of Indian economy provided they have enabling platform and avenues
SMEs face major problem of capital inadequacy
This problem can be tackled through Capital Market
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Valley of Death
Pre seed Expansion Early growth Seed/Start up
Very risky
Less risky
Angel Investors
Govt. Grants
Bank Credits
Personal Finances
Angel Investors
Govt. Grants
Bank Credits
Venture Cap
Venture Cap
PE
IPO
IPO
Debt
PE
Partnership
Funding Options
Lifecycle of SME
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SME Listing Background…
BSE and NSE launched
their respective
platform for SMEs; MCX
too is gearing up
for SME Exchange
The move aims at
providing an opportunity
to SME entrepreneu
rs to raise growth
capital and reap
benefits of listed space
Both BSE & NSE
leverage their
existing ‘equity
platform’ for SME
exchange platform
As per estimate of
SME Chamber of India, over 5000 SMEs
have the potential for listing
A facilitative framework
for SME listing
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SME Listing – Evolution…
SEBI lays down broad
framework for SME listing
platform
5-Nov-08
PM Task Force
recomm-ends SME
listing exchange
Jan-10
SEBI circular on Guideline
s for market making
26-Apr-10
SEBI Circular
rolling out model listing
agreement for SMEs
17-May-10
Amend-ments in
SEBI Regulations
(ICDR, Merchant
Bankers etc.
18-May-10
SEBI Master
Circular on SME
exchange & Market Making
31-Dec-10
BSE
Eligibility Norms
for SME listing
19-Apr-12
BSE SME Exchange
launch
13-Mar-12
SEBI circular
standardizing lot size for SME
exchange
21-Feb-12
SEBI
approval to NSE SME
Exchange
14-Oct-11
Amend-
mends in Listing
Agreement
5-Oct-11
SEBI approval
to BSE SME
Exchange
27-Sep-11
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SME Listing - Key Requirements & Eligibility Norms
Capital threshold for Listing
SEBI
BSE
NSE SME Exchange
SME/Main Board
Main board
10 Crores
25 Crores
Po
st I
ssu
e F
ace
Val
ue
Cap
ital
Particulars Requirement
Minimum application amount / trading lot
INR 1 Lac
Underwriting 100% Mandatory (of which 15% to be done by MB in his own account)
Market making (to be undertaken by MB)
Through Exchange-registered market makers for min 3 years
Public Shareholding Min. 25% Min. 50 investors No post-listing continuous requirement
Provisions for migration to / from Main Board from / to SME Exchange
Offer doc not subject to SEBI
vetting
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• Mandatory facilitation of trading in Demat securities
• Certificate that no winding petition or reference to BIFR
• Mandatory corporate website • Promoters to attend to interview
with Listing Advisory Committee
• Net Tangible Assets : INR 1 crore (as per latest audited results)
• Net Worth (excl. Rev. Reserve) : INR 1 crore or 3 crore, if no track record
• Track record of distributable profits for at least 2 years out of preceding 3 completed FYs
Max : INR 25 crore Min : INR 1 crore
Post Issue Capital (FV)
Other Requirement
Track Record
SME Listing - Key Requirements & Eligibility Norms
SEBI
BSE
NSE
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Same as BSE plus additional certification / disclosures on litigation etc.
• Track record of at least 3 years • Positive cash accruals (EBDT) from
operations and positive net worth for at least 2 FYs preceding the application
• In case the above conditions are not fulfilled, Exchange Authority (MD & Joint MD) to decide
Same as BSE Post Issue Capital (FV)
Other Requirement
Track Record
SME Listing - Key Requirements & Eligibility Norms
SEBI
BSE
NSE
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BSE SME vs. Main Board
Parameters Main Board SME Exchange
Post – issue paid up capital
Min INR 10 crore Min INR 1 crore; Max INR 25 crore
Minimum Allotees in IPO 1000 50
IPO underwriting Non Mandatory (Under 50% compulsory subscription to QIB’s)
Mandatory (100% underwritten with MB underwriting 15%)
IPO Grading Mandatory Not mandatory
Track record Stringent track record norms Relaxed track record norms
Offer Document vetting By SEBI By Exchange
IPO Application Size INR 10000 – INR 15000 Min. INR 1 lac
IPO Time frame 6 months 2 – 3 Months
Reporting Requirements Quarterly Half yearly
“SME Exchange
has a winning
edge over Main
Board”
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Core Advantages of SME Listing (1 of 7)
Implications of Listing Resulting Benefits
Collateral Value Listed securities can serve as collateral for raising additional loans
Improved Credit Rating
Cost of finance (Rate of Interest) likely to come down
Increased Visibility • Brand building • Stock Exchange quotations • Analyst coverage
Lender’s / Supplier’s increased comfort
• Increased acceptability and prestige among suppliers
• Lesser negative covenants
Transferability of shares at market price
• ESOPs – Higher compensation for senior executives without cash outgo
• Overseas listing possible
Governance
Operational Wealth
Creation
Tax
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Operational Benefits of listing – Illustrative Case Study
Particulars Unlisted Listed Remarks
Sales 4000 4400 Branding & visibility will likely to result in increased sales / orders
Total Expenses
3000 3100
Expenses increase in a lower proportion due to economies of scale such as higher bargaining power, bulk discounts etc.
EBITDA 1000 1300 Increase in sales at reduced expenses results in increased EBIDTA & EBIDTA Margin
EBITDA % 25 29.55
Interest 84 66
Listing likely to result in cheaper cost of funding (assumed debt of INR 600 lakhs @ int rate of 14% pre-listing and 11% post-listing)
Dep. 10 10
PBT 906 1224
PAT 634 857 Increase in PAT and PAT margins due to increased EBITDA and reduced borrowing cost
PAT % 15.85 19.47
Amounts in INR Lakhs.
Governance
Operational Wealth
Creation
Tax
Core Advantages of SME Listing (2 of 7)
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Unlisted companies subject to 20% tax on buy back of shares
Tax on Buy Back of Shares
Unlisted Companies subject to 30% tax on issue of new shares at a premium exceeding fair value
Tax on Infusion
LTCG @20%
Capital Gains tax on transfer of shares
Purchase of distressed asset below NAV is subject to tax @ MMR
Purchase of Distressed Asset
Governance
Operational Wealth
Creation
Tax No Tax on
Entry and exit (through buy
back, transfer, fund infusion)
No Tax on
Purchase of distressed
assets
Lower Tax on
Share transfers (eg. Family Succession, Intra-Group
Transfers, Third-party Transfers
etc.)
Core Advantages of SME Listing (3 of 7)
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In Transfer: Shares are purchased for INR 400 Cr and sold at INR 1000 Cr and assumed shares are purchased in 2008-09 and sold in 2012-13. In Infusion: Fair Value of Shares is assumed at INR 600 Cr.
Tax Benefits of listing – Illustrative Case Study
Particulars Transfer Buyback + Infusion
SME Listing
Initial Investment 400.00 400.00 400.00
Sale Consideration 1,000.00 1,000.00 1,000.00
Indexed Cost of acquisition
585.56 NA NA
Tax on Sale/Buyback/Infusion (CG/STT)
82.89 240.00 2.00
Net Proceeds 917.11 760.00 998
ROI (Before Taxes) 250% 250% 250%
ROI (After Taxes) 222% 190% 249.50%
Governance
Operational Wealth
Creation
Tax INR Crore
Core Advantages of SME Listing (4 of 7)
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Valuation benchmarking
Wealth creation through
market cap of shares upon listing (Refer Next
Slide)
Promoter Profile Building
Adds to social
reputation and status
Listed shares as currency
Use of shares for takeovers / M&A
transactions, leading to inorganic growth
Governance
Operational Wealth
Creation
Tax
Core Advantages of SME Listing (5of 7)
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Governance
Operational Wealth
Creation
Tax
Core Advantages of SME Listing (6 of 7)
Wealth Creation – Select Examples
Sunstar Realty
GCM Securities
Looks Health
Care
Eco Friendly
A. Market Cap INR Crores
Pre Issue Net Worth
5.54 8.56 3.06 5.90
Issue Size 10.62 12.18 12.00 7.515
Market Capitalization*
271.25 626.67 110.41 466.50
B. Price Pattern INR Per Share
Issue Price 20.00 20.00 40.00 25.00
CMP (Face Value INR 10)*
136.1 330 184.02 471.78
*Data as on March 5, 2014
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Improved Systems
Better Information
Flow
Data manageme
nt
Internal Controls
Good corporate governance helps companies immensely and
also increases the confidence among its stakeholders
Governance
Operational Wealth
Creation
Tax
Core Advantages of SME Listing (7 of 7)
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Companion – Partner in Process
End-to-end assistance
and hand-holding
by expert &
dedicated Team
PANTOMATH
1.
2.
3.
4.
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Appointment of Merchant Banker
Due Diligence & Pre-IPO preparation
Preparation of Offer Document
Marketing Strategy
Appointment of other intermediaries
Filing of Offer Document with BSE & Others
Issue Pricing & Allocation
Listing & Market Making
1
3
5
7
9 8
6
4
Restructuring of capital 2
SME Listing – Way Forward…
Let’s Take It Forward….
PANTOMATH CAPITAL ADVISORS PRIVATE LIMITED Progress with Values
Disclaimer All data and information is provided for informational purposes only and is not intended for any factual use. It should not be considered as binding / statutory provisions. Neither Pantomath nor any of its group company, directors, or employees shall be liable for any of the data or content provided for any actions taken in reliance thereon.
Corporate Office 108, Madhava Premises Co-operative Society Limited, Bandra Kurla
Complex, Bandra (East), Mumbai - 400 051. Landline:(022) 26598690-91, Fax:(022)26598690
www.pantomathgroup.com
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Phase- I: Pre-IPO Capital Restructuring & Preparation
Under the phase, Merchant Banker shall assist you in preparing for IPO and listing on SME Exchange. The services under this phase shall include the following :
Assistance in devising appropriate capital restructuring plan;
Assistance in statutory compliance management and setting up minimum corporate governance practices expected by a listed company from the perspective of the following rules / regulations :
Companies Act, 1956
Listing Agreement applicable for SMEs
BSE listing norms
SEBI ICDR Regulations;
Assistance in appointment of market intermediaries and other parties including the following;
Underwriters
Market Makers
Registrars to Issue
Bankers to Issue
PR Agency, Printer etc.;
Assistance in devising a complete IPO plan and strategy including the likely post-issue shareholding distribution pattern.
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Phase- II: Documentation Preparation
Merchant Banker shall assist you in drafting of IPO Offer Document and other important agreements, documents and resolutions necessary for an SME IPO process. An indicative list of important documents is as under for easy understanding :
IPO Offer Document,
Tripartite Agreement with NSDL, CDSL and Registrar to Issue,
Underwriting Agreement,
Market Making Agreement,
Agreement with Bankers to Issue,
Agreement with Registrar to Issue,
Board / Shareholders’ Resolutions,
Certificates, Letters of Representations etc,
Draft of public advertisements, notices etc,
Forms / Applications to be filed with BSE, ROC and other regulatory office.
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Phase- III: Offer Management
Once all pre-IPO preparations would be over including meeting the eligibility criteria, appointment of other market intermediaries, and drafting of offer document, Merchant Banker initiates the actual process of IPO. The services under the phase shall include end-to-end IPO activities :
Filing of IPO Offer Document with BSE and other regulatory offices like SEBI and ROC;
Follow-up with BSE and ROC for their approvals;
Execution of agreements with other market intermediaries;
Assistance in launch of IPO and coordinate with other parties including PR Agency, Printers for adequate public advertisement, distribution of application forms as required statutorily;
Monitoring the flow of applications and keeping a real-time discussion with the management of the Company;
Coordinating with bankers and registrars for deposit of application moneys and finalization of allotment list in consultation with the stock exchange .
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Phase- IV: Listing Assistance
Finally, post IPO closure and finalization of allotment, Merchant Banker initiates the activities for listing of equity shares of the Company on SME Exchange. The scope of services under this phase shall include the following:
Assistance in completing allotment of shares to the successful allotees,
Preparing listing application ,
Filing of listing application with Stock Exchange(SE),
Coordinating and assistance in interview with SE Listing Advisory Committee,
Follow-up with SE and obtain listing approval,
Assist in trading formalities and obtain SE’s trading approval,
Assist in making required public disclosures as required statutorily,
Coordinating for continuous market making for 3 years.