Market regulator SEBI has proposed a maximum post-issue capital of Rs 25 crore for companies to be eligible to participate in the proposed SME (Small and Medium Enterprises) exchange.It has recommended a minimum investment size of Rs 5 lakh in order to have only well informed and financially sound investors at the time of the IPO.
“To facilitate retail participation in SMEs for investors having high-risk appetite, specific allocation through mutual funds may be permitted,” said a SEBI discussion paper on developing a market for SMEs.For the secondary market too SEBI has prescribed a minimum trading lot worth Rs 5 lakh so that smaller retail investors are not drawn in.
The regulator has also proposed only approved merchant bankers for exclusively catering to the needs of the SME companies during the IPO.Merchant bankers/underwriters to the issue may also have to compulsorily act as market makers for the company. The existing DIP Guidelines….“may be completely relaxed for SMEs,” said SEBI.
According to the existing DIP guidelines, an issuer company is required to have net tangible assets of at least Rs 3 crore in each of the preceding three years and a track record of distributable profits for at least three out of the immediately preceding five years.“The trading system in the proposed exchange for SMEs can be order-driven or quote-driven while the settlement may either rolling settlement, trade-for-trade, or call auction basis,” said SEBI.
“The IPO process should be through electronic applications only, eliminating all cost associated with paper printing and processing.”The SEBI Board had, last year, given the go-ahead for setting up an SME exchange. The Chairman of the Board had at that time, said that several exchanges and financial institutions, including NSE and BSE, had shown interest in establishing such an entity.
An SME trading platform, however, would not be new in the country.
Over the Counter Exchange of India (OTCEI) set up in 1989, BSE’s Indo Next in 2005 and the regional stock exchanges which were created to facilitate SMEs to access the capital markets easily, and at a lower cost, did not live up to expectations.
SMEs should have flexible norms to raise capital at affordable cost, said an expert adding they cannot be burdened by huge listings costs and stringent listing requirements as evident from previous efforts at creating such platforms.
Exchanges for the growth/new economy/small and medium companies have been provided for by other nations too. Alternative Investment Market of London Stock Exchange, the Growth Enterprises Market of Hong Kong Stock Exchange and MOTHERS of Japan are examples of trading platforms set up to serve such companies.
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