Requirements for Listing on SME Exchange By FCS Shweta Gupta

Like big companies, Small and Medium-sized Enterprises (SME) owners want to get their companies listed on the stock exchanges. This can give them access to capital that could be invested in driving economic development. However, not all SMEs fulfil their dream of getting listed as they fail to meet the SME IPO Listing requirements for listing on the BSE and the NSE.

The significance and role of SMEs in driving the global economy has been acknowledged by the major capital markets world over. Even the governments have realized the need for a separate SME exchange.

Separate SME exchanges are operational in more than 20 countries. These bourses provide an SME-friendly trading environment supported by effective policies and institutions that encourage a range of investment opportunities.
"SMEs are the keystone of a country’s economy. Indian SMEs provide job to 70 million individuals through 30 million businesses."

The NSE Emerge and BSE SME offer an opportunity for SME IPO listing with minimum cost and compliances as compared to the Mainboard. Spread across various sectors, SMEs are rapidly emerging as an alternative asset class for day traders.

How to List on BSE SME Exchange

The BSE set up the BSE SME Exchange to provide an opportunity for SME owners to raise funds for their growth and expansion. Here’s SME IPO eligibility for listing on BSE SME Exchange: 

  1. The issuer/SME must be a Public Company.
  2. It must have a website.
  3. The post-issue paid-up capital of the company (face value) shall not be more than Rs. 25 crores.
  4. The SME must have Net Tangible Assets of at least Rs.3 crore and Net Worth (without revaluation reserve) must be positive.
  5. The company or the partnership/proprietorship / LLP firm or the firm which has been converted into the company should have a combined track record of at least 3 years.

In case it has not completed its operation for three years then the Company/Partnership/Proprietorship/LLP should have been funded by way of loan/equity by Banks or Financial Institutions or Central or State Government or its undertaking, or its Group Company should have been listed for at least two years either on the Main Board or SME Board of the Nationwide Exchange.

  1. The company must compulsorily promote trading in DEMAT securities and sign an agreement with both Depositories, that is to say, National Securities Depository Limited and Central Depository Services Limited and 
  2. The entity should not have any reference before the Board for Industrial and Financial Reconstruction (BIFR).
  3. There should not have any winding up petition against the entity that has been admitted by a Court.

After listing, the entities become eligible to participate and trade on the SME platform.

Four Steps for Listing on the BSE SME Exchange

Step #1: The issuer must appoint a Merchant Banker for the listing.

Step #2: The Merchant Banker checks all documents and performs their due diligence (financial documents, Government Approvals, material contracts, Promoter details, etc.) and prepares documents for the IPO.

Step #3: Draft Red Herring prospectus is submitted on Exchange. BSE scrutinizes the same and then conducts the official visit in the registered office of the issuer company before issuing In-Principle Approval.

Step #4: Once the In-principle approval is received, the final prospectus is being filed with ROC and exchange mentioning the Issue opening & Closing date.

Step #5: On the third working day of closure of issue shares will be allotted to the prospective allottees.

Once the allotment is completed, listing and trading approval is granted by the exchange.

How to List on NSE SME Exchange

NSE SME stock exchange, known as NSE EMERGE, connects budding businesses with sophisticated investors for raising equity funding. It allows SMEs and startups to list with or without an IPO.

Here are SME IPO new listing requirements for listing on the EMERGE Platform: 

  1. The issuer/SME must be a Limited Company.
  2. The post-issue paid-up capital of the company (face value) shall not be more than Rs. 25 crores.
  3. Track record of at least three years of either
  1. the applicant seeking listing; or
  2. 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.

  1. The company/entity should have positive cash accruals (earnings before depreciation and tax) from operations for at least 2 financial years preceding the application and its net-worth should be positive.
  2. The entity, its promoter, or director should not appear in the Reserve Bank of India’s willful defaulters list maintained by Credit Information Bureau (India) Limited.
  3. There should not be any winding up petition against the entity that has been accepted by a competent court.
  4. The entity, subsidiaries, or group companies should not have been referred to the Board for Industrial and Financial Reconstruction during a period of 5 years before the application date for listing.
  5. There should not be any regulatory action taken against the entity, its director or promoter by Reserve Bank of India, SEBI, Ministry of Corporate Affairs, or Insurance Regulatory and Development Authority during a period of 5 before the application date for listing.

4 Steps for Listing on the EMERGE Platform of NSE

Step #1: The issuer must appoint a Merchant Banker for the listing.

Step #2: Draft Prospectus will be filed with the stock exchange.

Step #3: After attaining approval from the exchange final prospectus is filed with ROC & exchange with the Listing schedule.

Step #4: After issue closure and allotment process, the company receives listing and trading approval.

Acknowledging the significant contribution of SMEs to the nation's industrial activity, the National Stock Exchange (NSE) and the Bombay Stock Exchange (BSE) launched a dedicated trading platform for SMEs to list on the exchanges and later move to the Main exchange board without making an initial public offering (IPO). Read these requirements carefully and speak with SME IPO consultants to list your entity on the exchanges.

"The withdrawal of Jaiprakash Power Ventures insolvency application is a positive outcome which should be applauded as standing up to the established purpose of IBC. Even more, it shall be beneficial for all stakeholders in the long run." -Shweta Gupta, Founder and CEO, MUDS

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