role of cs in managing smes ipo through bse sme stock exchange
DESCRIPTION
On 27th April 2012, Ms Anjali Aggarwal, AVP, Corporate Professionals delivered a lecture on “Role of CS in SME Exchange”, at ICSI South Delhi Study Circle. In her presentation, she covered not just the procedural nitty gritties for SME listing, but also the intent of the law makers behind the same. She also laid emphasis on how the Company Secretaries can play a pivotal role in an SME listing.TRANSCRIPT
ROLE OF CS IN
MANAGING
SME IPO THROUGH
BSE SME STOCK
EXCHANGE
Classification of Micro, Small and Medium
Enterprises
SME and Indian Economy
• Backbone to the economy of developing
countries
• SME constitutes bulk of Industrial base, 40% of
exports and almost 8 % to the GDP
• 2.6 Crore in number, provide employment to
about 6 Crore people
The Micro, Small and Medium Enterprises Development Act, 2006
• An enactment of Government of India
• Provides for facilitation of promotion, development and
enhancing the competitiveness of MSMEs
• Introduction of statutory consultative and recommendatory
bodies on MSME polices
• Statutory basis for purchase preference and credit policies
• Improve realization of payments of MSMEs
SME Exchange……
• Jan 2010: The Prime Minister's Task Force recommended to set-up a dedicated
Stock Exchange/ Platform for SMEs.
• May, 2010: SEBI issued a final circular for setting up a stock exchange/ trading
platform by a recognized Stock Exchange having nationwide trading terminals for
SMEs.
• SEBI also laid down the Regulations for the governance of SME Exchange/Platform.
Chapter XB has been inserted in the ICDR Regulations.
• Model Equity Listing Agreement has been issued.
• May 2011: Bombay Stock Exchange Ltd received an ‘in-principle’ approval from
SEBI for launching the SME Exchange.
SME EXCHANGE-REGULATORY
ASPECTS
SEBI Guidelines:Chapter XB of the SEBI (ICDR) Regulations
Post Issue Face Value of
Capital
Coverage
Up to Rs. 10 Crores Covered under the SME Platform
Rs. 10 Crores to Rs. 25
Crores
May get Listed at SME Platform
Above Rs. 25 Crores Necessarily Listed at Main Board
of the Exchange
Exchange Coverage
Chapter XB of the SEBI (ICDR) RegulationsOther Provisions
• Provision for Migration to/ from Main Board
• Minimum Application Amount/ Trading Lot – Rs. 1,00,000
• Eligibility of Existing Members Without any further registration
• 100% underwritten issues
• 15% mandatory underwriting by Merchant Bankers
• Minimum market making for 3 years by Merchant Banker through
Registered Stock broker
• Exempt from Regulations 25, 26 and 27 of ICDR Regulations
Reg. 25 provides for the reference dates on which the
provisions of Chapter III of the ICDR Regulations must be
satisfied.
Reg. 26 provides for the conditions of the Initial Public Offer. A
brief is as under:
– Minimum Net tangible assets to be Rs. 3 Crores
– Track record of distributable profits for minimum 3 out of 5
years
– Net worth of at least Rs. 1 Crore
Reg. 27 provides for the conditions which shall be satisfied in
case of Further Public Offer
• Minimum 50 investors at the IPO Stage and no continuous
requirement of minimum shareholders.
BSE Eligibility NormsNet Tangible Assets At least Rs. 1 Crore as per latest
audited financial results
Net Worth (Excluding
Revaluation Reserve)
At least Rs. 1 Crore as per latest
audited financial results
Track Record of
Distributable Profits
in terms of Section
205 of Companies
Act, 1956
At least 2 years out of immediately
preceding 3 financial years (financial
year to be of 12 months) (Excluding
Extraordinary Income)
Other Requirements • Post Issue Paid up capital of at least
Rs. 1 Crores
• Mandatorily DEMAT trading facility
• Website
Chapter XB of the SEBI (ICDR) Regulations
……..contd.Filing of Offer Document
and Due Diligence
Certificate
No requirement of filing of draft Offer
document with SEBI, in case filing of offer
document through Merchant Banker.
Filing is to be done with SEBI only for record
purposes.
SEBI not to issue any Observations.
Filing of Due Diligence Certificate and
additional confirmations along with offer
document, by the Merchant Banker to SEBI
Chapter XB of the SEBI (ICDR) Regulations
Migration In case of issue by a listed issuer in accordance
with the provisions of this chapter, it shall migrate
the existing securities to the SME Exchange
Post – issue face value less than Rs. 25 Crores
then, may migrate to SME Exchange if:
Approved by Special Resolution through Postal
ballot
Votes cast by Shareholders other than promoters
in favour to at least two times the number of votes
cast by shareholders other than promoters against
the proposal
Fulfills the eligibility criteria as laid down by SME
Exchange
Chapter XB of the SEBI (ICDR) Regulations
Migration Post issue face value more than Rs. 10 Crores and upto Rs. 25
Crores may migrate to main boards if:
Approved by Special Resolution through Postal ballot
Votes cast by Shareholders other than promoters in favour to at least two
times the number of votes cast by shareholders other than promoters
against the proposal
Fulfills the eligibility criteria as laid down by main Board
In a case, where the Post issue face value is likely to increase
beyond Rs. 25 Crores by virtue of right issue, bonus issue,
preferential issue etc., then it shall migrate to Main Board subject to
fulfillment of eligibility criteria laid down by the Main Board
Provided no further issue of capital be made unless:
The shareholders approval by way of special resolution through postal
ballot
Votes cast by Shareholders other than promoters in favour to at least two
times the number of votes cast by shareholders other than promoters
against the proposal
The issuer has obtained in principle approval from the main board
Chapter XB of the SEBI (ICDR) Regulations
Obligations and
Functions of
Merchant Bankers
The issue shall be 100% underwritten.
Merchant Bankers shall underwrite atleast 15 %
of the issue size in their own account.
The issuer in consultation with the Merchant
Banker may appoint underwriters.
Merchant Banker may enter into an agreement
with the nominated investor(s) indicating the
number of securities which they agree to
subscribe at issue price.
Obligation of Merchant Banker to fulfill
underwriting obligations in case of failure of
other underwriters.
Chapter XB of the SEBI (ICDR) RegulationsObligations and
Functions of
Merchant Bankers
Merchant Banker to be responsible for minimum 3
years market making through a Stock Broker who is
registered as market maker with the SME Exchange
May enter into an agreement with nominated investors
for receiving or delivering securities subject to prior
approval of SME Exchange
Minimum inventory of Market maker to be 5 %
Merchant Banker/s with responsibility of market making
at their option, be represented on the Board of the
Issuer subject to the agreement.
Complete particulars of any transaction for
acquisition of securities made in pursuance of
underwriting or market making shall be submitted
to the Board on quarterly basis.
Chapter XB of the SEBI (ICDR) Regulations
Market maker Obligations
•Market makers are required to provide two way quotes for 75% of the time in a day•There can not be more than 5 market makers for a scrip• During the compulsory market making period the promoter holding shall not be eligible for offering to market makers•Market makers allowed to deregister on one month’s notice•Trading system may be either order-driven or quote driven
Mo
del E
qu
ity L
isti
ng
Ag
reem
en
t Applicability of sub-clause (iv) of clause (b)
of proviso to Sec. 219 of the Companies
Act, 1956 i.e. a statement containing the
salient feature of all the documents can be
sent to shareholders instead of a full Annual
Report
Submission of Half Yearly Results instead
of Quarterly Results
No requirement of Publishing of Financial
Results
Model Listing Agreement
Obligations and
Functions of
Merchant bankers
Fairness Opinion on valuation of
assets/ shares done by valuer of
the issuer, required from a
Merchant Banker in case proposed
resolution u/s 393 or u/s 100 of the
Companies Act, 1956
Benefit of listing at SME Exchange
Equity Financing Opportunities Growth of Business
Expanded Investors Base
Enhancement of Company’s Visibility
Market Coverage
Increased Value of the Shares
Venture Capital Participation
Exit Options
Distribution of Risk • Eligibility for Transfer of Risk
Increased Financing Funds from Banking as well as
Capital Markets
Diversification of Resources of
Finance
Liquidity for Shareholders
Becoming a listed public limited company establishes a market for a
company's shares, providing its investors with an efficient and regulated
vehicle in which to trade their shares. Greater liquidity in the stock market can
lead to better valuation of shares than would be seen through private
transactions.
Facilitate Growth Through Strategic Investments, Mergers And
Acquisitions
• Listed SMEs are more likely to get strategic investments from both, domestic
and international investors as well as companies
• As a listed public limited company, it’s shares can be utilized as an
acquisition currency to acquire target companies, instead of a direct cash
offering. Using shares for an acquisition can be a cost- effective vehicle to
finance such a transaction.
Other Aspects
Transparency, Efficiency and Liquidity
Involvement of Market Participants
Minimum Regulation and compliance requirements
Attraction to high Net Worth Investors
SME Exchange - Attributes
Membership to the Existing Members
Trading based on Quote/ Order/ Hybrid
Dealers Market
Based on Automatic Order Matching
T + 2 Rolling Settlement Period
DEMAT connectivity
Trading System based on BSE Online Trading System
(BOLT)
Quotes by market makers and orders by investors
SME Exchange: Key Players
Venture Capital Funds/ Banks/ Registrars/ Qualified
Sponsors/ Merchant bankers/ Market Makers
Cells for Technical & Non technical queries
Time to time mock trading
Advisory:
o Preparation of Balance Sheets
o Timely Filling of Listing Requirements
o Offering Process whether IPO or Private Placement
SME EXCHANGE & THE
COMPANY SECRETARY!!
COMPANY POLICIES
OPERATIONAL PLANNING AND EXECUTION
DIR A DIR B DIR C DIR D DIR E
BOARD OF
DIRECTORS
CORPORATEPLANNING
LEGALFINANCE ANDACCOUNTS
HUMAN RESOURCES
CORPORATE COMMUNICATION
PRODUCTION AND OPERATIONS
MARKETINGINFORMATION
TECHNOLOGY
DEPARTMENTS IN A COMPANY
EXTERNAL STAKEHOLDERSCOMPANY
SECRETARY
INVESTORS
GOVERNMENT AND
REGULATORS
SOCIETY
SUPPLIERS
CUSTOMERS
LENDERS
Knowledge
of Securities &
Other Laws
LeadershipCommunication
Skills
Entrepreneurship
SKILLS OF A COMPANY SECRETARY…….
Keypoint betweenCompany &
Stakeholders
Strategic Planner
Face of Management
COMPANY SECRETARY
navigates the
CORPORATE GROWTH
with
GOOD GOVERNANCE
ROLE IN A LISTED COMPANY
Event Manager
Vigilance Officer
Knowledge ofVarious Securities
Laws
Approvals Required
By Company
Due Diligence & Compliance
Appointment of
Intermediaries
By
Intermediaries
Eligibility Norms
Pricing of securities
Contents of Prospectus
COMPANY SECRETARY & SME
Post Issue obligations
Compliance of various Rules & Regulations
Promoters Disclosures
Migration
ROLE IN AN UNLISTED COMPANY
Unlisted Company
Object : SME IPO
SME Listed
Company
AS PRACTISING COMPANY SECRETARY
Appearance before : SEBI SAT CLB
Consent Orders
Brokers AuditSecurities
Audit Corporate
Restructuring Capital
Restructuring Unlocking
company’s real value
Certificationsas per Listing AgreementCertifications
required forCorporate Actions
As
PCS
As
Advisor
As
Represen
tator
Corporate Professionals Capital Pvt. Ltd
SEBI Registered Category I Merchant Banker
D-28, South Extension -I,
New Delhi-110 049
Ph: +91.11.40622200; FAX: +91.11.40622201
Contact: Anjali Aggarwal
Mobile: + 91 9971673336; Tel: +91.11.40622230
Email: [email protected]
Thank You…