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BSE SME Presents – SME and ITP

BSE SME Presents – SME and ITP. Table of Contents (1 of 2). A. About SME Industry . 4. B. SME Exchange-SEBI Guidelines. 6. C. Eligibility Criteria. 13. D. Difference- Main Board. 17. E. Migration from SME Board to Main Board. 19. F. Key Statistics. 26.

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BSE SME Presents – SME and ITP

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  1. BSE SME Presents – SME and ITP

  2. Table of Contents (1 of 2) A About SME Industry 4 B SME Exchange-SEBI Guidelines 6 C Eligibility Criteria 13 D Difference- Main Board 17 E Migration from SME Board to Main Board 19 F Key Statistics 26

  3. Table of Contents (2 of 2) G Institutional Trading Platform-Introduction 28 H Eligibility Criteria 31 I Listing of Specified Securities 34 J Benefits of Listing 38 K Thank you

  4. About SME Industry A.

  5. About SME Industry Micro, Small and Medium Enterprises (MSMEs) contribute - 17% of the country's GDP - 45% of the manufactured output - 40% of our exports Provide employment to about 7.5 cr. people through 4 cr. enterprises. The Micro Small and Medium Enterprise (MSME) sector forms the largest generator of employment in the Indian economy. The MSME sector forms a major portion of the industrial activity and produce 7000 different products. 5

  6. Forcing SMEs to rely on informal sources of capital Adequate access to finance is crucial for SMEs to survive and eventually grow beyond their SME Status “ In India, the reality is that SMEs have poor access to finance” “the average SME relies mostly on its own capital and/or informal borrowing from friends and family members for start-up funds and working capital”

  7. Formal SME financing in India presents hosts of challenges SME universe is diverse. No one size fits all solution Institutional funding sources typically target process driven scalable opportunities Poor information, fragile systems , weak control/corporate governance Difficult to assess and analyse via a template approach/standard format Apart from Capital , lack of management resources and bandwidth Institutional funding sources not equipped to address. Low return on effort for pure debt financing Consequently banking institutions gravitate towards collateral based financing

  8. Need for SME Exchange C.

  9. Need for SME Exchange Provide the SMEs with equity financing opportunities to grow their business – from expansion to acquisition Equity Financing will lower the Debt burden leading to lower financing cost and healthier balance sheet Expand the investors base, which in turn will help in getting secondary equity financing, including private placement Enhance company’s visibility. Media coverage can provide SME with greater profile and credibility leading to increase in the value of its shares Incentives for greater venture capital participation by providing an exit option thus reducing their lock-in period 9

  10. Need for SME Exchange Greater incentive for the employees as they can participate in the ownership of the company and benefit from being its shareholders Encourage innovation and entrepreneurial spirit Capital Market will help distribute risk more efficiently by transfer of risk to those, who are best able to bear it SME sector will grow better on two pillars of Financial system i.e. Banking and Capital Market Initiating a dedicated Stock Exchange for SMEs’ will lead to mobilisation of the diversified resources of finance and build a bridge between the SMEs, Private Equity and the Venture Capital by providing an exit route. 10

  11. SME Exchange-SEBI Guidelines B.

  12. SME Exchange – SEBI Guidelines Issuer with post issue face value capital up to Rs.10 crores shall be covered under the SME Platform, Issuer with post issue face value capital between Rs.10 – 25 crores may get listed at SME Platform and Issue with post issue face value capital above Rs.25 crores has to necessarily listed at main board of the Exchanges Suitable provisions for migration to/ from main board The minimum application amount as well as minimum trading lot shall not be less than Rs.1,00,000/- All existing Trading Members would be eligible to participate in SME exchange without any further registration 100% underwritten issues and Merchant Banker/s shall underwrite 15% in their own account The Merchant Banker to the issue will undertake market making through a stock broker who is registered as market maker with SME Exchange. The Merchant Banker shall be responsible for market making for a minimum period of 3 years 12

  13. Eligibility Criteria C.

  14. Eligibility Criteria Net Tangible assets of at least Rs. 1 crore as per the latest audited financial results 2. Net worth (excluding revaluation reserves) of at least Rs. 1 crore as per the latest audited financial results 3. Track record of distributable profits in terms of sec. 205 of Companies Act, 1956 for at least two years out of immediately preceding three financial years and each financial year has to be a period of at least 12 months. Extraordinary income will not be considered for the purpose of calculating distributable profits. Otherwise, the networth shall be at least Rs 3 Crores. 14

  15. Eligibility Criteria 4.Other RequirementsThe post-issue paid up capital of the company shall be at least Rs. 1 croresThe company shall mandatorily facilitate trading in demat securities and enter into an agreement with both the depositories.Companies shall mandatorily have a website. • Certificate from the applicant company / promoting companies stating the following: • a. The Company has not been referred to the Board for Industrial and Financial Reconstruction (BIFR). Note: Cases where company is out of BIFR are allowed. b. There is no winding up petition against the company that has been accepted by a court.

  16. Migration from SME Board to Main Board D.

  17. How different from Main Board ? The Compliance norms are simplified. Half yearly compliance is required instead of quarterly compliance. The abridged version of the annual reports need to be sent to the investors instead of the entire annual report and posting the soft copy of the report on the website is sufficient. The issue expenses will be minimal on the marketing and stationery. However, the issue will be charged for underwriting, sub-underwriting and responsibility of three years market making. Market making is compulsory for 3 years, unlike on main platform. Listing fees on BSE SME platform are minimal compared to the main board. The SMEs with the paid up capital between Rs. 10 crores and Rs. 25 crores has the option to get listed either on main board or on the SME Exchange. 17

  18. Migration from SME Platform to Main Board Any SME on BSE SME Platform having a paid up capital more than Rs. 10 crores can move to the main board provided that the special resolution is passed in the AGM in favor with at least two third of the number of votes cast by shareholders other than promoter shareholders and then apply to BSE SME. The SME migrating to the main board has to comply with all the main board norms like minimum 500 investors, pay main board listing fees and do the quarterly compliance etc. 18

  19. Key Statistics E.

  20. Statistics • Number of companies listed so far =61. • No. of companies where approval has been given – 7/ No. of companies where DRHPs have been filed and waiting for approval – 6 • Total funds raised by 57 companies – 532 Crores • Total Market Capitalisation-7500 Crores • Number of Market Makers registered with BSE SME – 932 • SME IPO index launched on 14th December 2012 with 100 as base (Value as on 27th June 2014 –932) • Institutional Trading Platform Launched on 11th February 2014, 27Applications received for listing, 7 Companies got listed. • Research reports are being published once the company gets listed

  21. Sectoral Distribution of the companies 21

  22. Institutional Trading Platform-Introduction F.

  23. Introduction SEBI has notified the guideline on ITP on 8th October,2013 and came out with the circular on 24th October, 2013 Applicability (106 W) • Apply to small and medium enterprises which do not have their securities listed on any recognised stock exchange and which seek listing of their specified securities exclusively on the ITP Definition(106 X) • Institutional Trading Platform means the trading platform in SME for Listing and trading of Specified Securities of Small and Medium Enterprises for Informed Investors • “Small and Medium enterprise" means a public company including start-up company, that complies with all the eligibility conditions specified in regulation 106Y.” BSE-SME Institutional Trading Platform

  24. Eligibility Criteria-Institutional Trading Platform G.

  25. Eligibility Criteria(106 Y) BSE-SME Institutional Trading Platform A Small and medium enterprise shall be eligible for listing of its securities on the institutional trading platform, if it satisfies the following: The company, its promoter, group company or director does not appear in the willful defaulters list of Reserve Bank of India as maintained by Credit Information Bureau (India) Limited(CIBIL). There is no winding up petition against the company that has been admitted by a competent court. The company, group companies or subsidiaries have not been referred to the Board for Industrial and Financial Reconstruction within a period of five years prior to the date of application for listing. No regulatory action has been taken against the company, its promoter or director, by the Board, Reserve Bank of India, Insurance Regulatory and Development Authority or Ministry of Corporate Affairs within a period of five years prior to the date of application for listing;

  26. Eligibility Criteria-Contd. BSE-SME Institutional Trading Platform the company has not completed a period of more than ten years after incorporation and its revenues have not exceeded one hundred crore rupees in any of the previous financial years; the paid up capital of the company has not exceeded twenty five crore rupees in any of the previous financial years; the company has atleast one full year’s audited financial statements, for the immediately preceding financial year at the time of making listing application; Any one of the following criteria: Atleast one alternative investment fund, venture capital fund or other category of investors/lenders approved by the Board has invested a minimum amount of fifty lakh rupees in equity shares of the company, or Atleast one angel investor who is a member of an association/group of angel investors which fulfils the criteria laid down by the recognised stock exchange, has invested a minimum amount of fifty lakh rupees in the equity shares of the company through such association/group.

  27. Eligibility Criteria-Contd. BSE-SME Institutional Trading Platform The company has received finance from a scheduled bank for its project financing or working capital requirements and a period of three years has elapsed from the date of such financing and the funds so received have been fully utilized. A registered merchant banker has exercised due diligence and has invested not less than fifty lakh rupees in equity shares of the company which shall be locked in for a period of three years from the date of listing. A qualified institutional buyer has invested not less than fifty lakh rupees in the equity shares of the company which shall be locked in for a period of three years from the date of listing, or A specialized international multilateral agency or domestic agency or a public financial institution as defined under section 4A of the Companies Act, 1956 has invested in the equity capital of the company.

  28. Listing of Specified Securities H.

  29. Listing of Specified Securities(106 Z) BSE-SME Institutional Trading Platform A company that fulfils the eligibility criteria specified in regulation 106Y may apply to a recognised stock exchange for listing of its specified securities on the institutional trading platform, enclosing therewith an information document containing disclosures. The information document shall be made public by hosting it on the website of recognised stock exchange for a period of atleast twenty one days from the date of such filing. The recognised stock exchange may grant in-principle approval to the company. The company which has received in-principle approval from the recognised stock exchange for listing of its specified securities on the institutional trading platform shall be deemed to have been waived by the Board under sub-rule (7) of rule 19 from clause (b) of sub-rule (2) of rule 19 of Securities Contracts (Regulation) Rules, 1957 for the limited purpose of listing on institutional trading platform. The recognised stock exchange on satisfying that the applicant is compliant with regulation 106Y and its bye-laws may list the securities of the company on the institutional trading platform.

  30. Conditions on issue of securities and raising of Capital (106 ZA) BSE-SME Institutional Trading Platform Listing of specified securities on institutional trading platform shall not be accompanied by any issue of securities to the public in any manner. (2) The company shall not make initial public offering while its specified securities are listed on institutional trading platform. (3) The company listed on institutional trading platform may raise capital through private placement or rights issue without an option for renunciation of rights. (4) The private placement of securities by a company whose securities are listed on institutional trading platform shall be subject to the following: a) the company shall obtain in-principle approval from the recognised stock exchange prior to private placement; b) the approval of shareholders through a special resolution under sub-section (1A) of section 81 of Companies Act, 1956 shall be obtained;

  31. Conditions on issue of securities and raising of Capital BSE-SME Institutional Trading Platform c) the company shall complete allotment of securities within two months of obtaining such approval. d) the explanatory statement to the notice to shareholders shall include the disclosures regarding: (i) the purpose for private placement. (ii) identity of allottees. (iii) whether allottee is a promoter or belongs to the promoter group and if not the relationship between promoter and allottee. (iv) nature of securities being issued. (v) price at which the security is being issued. e) the disclosures as referred to in clause (d) of sub-regulation (4) shall be made available to the recognised stock exchanges for dissemination, atleast fifteen days prior to the general body meeting where approval of shareholders is being sought for the proposed private placement;

  32. Conditions on issue of securities and raising of Capital BSE-SME Institutional Trading Platform f) the securities so issued through private placement shall be made at a price not less than higher of the following: (i) the book value of the equity shares as per its last audited financial statement not older than six months; (ii) value of shares as determined in an independent auditor’s or registered merchant banker's report. (5) A company listed on institutional trading platform making a rights issue shall comply with the following: a) there shall not be an option for renunciation of rights; b) the company shall obtain in-principle approval from the recognised stock exchange where its securities are listed prior to a rights issue. c) the company making a rights issue shall send a letter of offer to its shareholders through registered post or speed post or electronic mode and the same shall be made available on the website of the company and the recognised stock exchange.

  33. Other Guidelines Not less than twenty per cent. of the post listing capital shall be held by the promoters at the time of listing of specified securities of the small and medium enterprise which shall be locked-in for a period of three years from date of listing. All specified securities of the company shall be in dematerialized form upon listing on institutional trading platform. The company shall have connectivity with atleast one depository at all times. The minimum trading lot on institutional trading platform shall be ten lakh rupees. SEBI(Substantial Acquisition of shares and Takeover) regulations, 2011, will not apply to companies listed on ITP. SEBI(delisting of Equity Shares) regulations ,2009, will not apply to companies listed on ITP Admission process 33

  34. Exit Options I.

  35. Exit Options(106 ZD) a) its shareholders approve such exit by passing a special resolution through postal ballot where ninety per cent. of total votes and the majority of non-promoter votes have been cast in favor of such proposal. b) the recognised stock exchange where its shares are listed approve such exit. a) its specified securities have been listed on this platform for a period of ten years. b) the company has paid up capital of more than twenty five crore rupees. c) the company has revenue of more than three hundred crore rupees as per the last audited financial statement. d) the company has market capitalization of more than five hundred crore rupees. BSE-SME Institutional Trading Platform • Voluntary Exit • Growth Exit

  36. Compulsory Delisting • the company has failed to file its periodic filings with the recognised stock exchange for more than one year; or • the company has failed to comply with corporate governance norm(s) for more than one year; or • notwithstanding anything contained in clauses (a) and (b), the recognised stock exchange may delist the company on non-compliance of the condition of listing as may be specified by the recognised stock exchange

  37. Hastle Free System

  38. Welcome to BSE

  39. Contact: BSE LTD Ajay Thakur (Head, BSE SME) 27th Floor, P.J Towers Dalal Street Mumbai-400001 Tel: 022-22728291 Mobile: 9820359932Email – ajay.thakur@bseindia.com Parth Shah Tel: 022-22728893 Mobile:9819276244 Email:parth.shah@bseindia.com

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