fundraising through sme exchange platform

Fundraising through

SME Exchange Platform

January, 2016

SUMEDHA FISCAL SERVICES LTD.

Presentation Structure

Presentation Structure

SME Fund raising stages

SME Exchange .. the chronicle

The blocked mindset challenge

Benefits of listing

General tax benefits

Criteria for listing

Other criteria

Listing procedure

Getting prepared for listing

Role of merchant banker

Merchant Banker’s role in market making

SME exchange … benefits over main

board

Corporate Governance Issue

Hostile takeover

Companies in NSE Emerge platform

Stages of IPO

Listing Timelines

Institutional Trading Platform

SME Fund Raising StagesR

evenue

Development Stage

Pre Seed Phase > Seed Phase > Start-up Phase > Emerging Growth > Development

Promoters Funding

Venture Capital/Private

Equity

SME IPO

Migrate to main Board


January 2010 – The Prime Minister’s Task Force recommended to set-up dedicated

Stock Exchanges/Platform for SME .

To facilitate the same , the market regulator SEBI made significant amendments in the

SEBI (ICDR) regulations, 2009 . Subsequently SEBI also amended the following

Regulations in order to facilitate the SME IPO.

SEBI (Merchant Bankers) Regulations, 1992;

SEBI (Foreign Institutional Investors) Regulations, 1995;

SEBI (Venture Capital Funds) Regulations, 1996;

SEBI (Substantial Acquisition of Shares and Takeovers) Regulations; and

SEBI (Stock Brokers and Sub-Brokers) Regulations, 1992


Both BSE and NSE begun their SME exchange platform in 2012 (BSE SME –

March 2012 and NSE’s SME Exchange EMERGE – September 2012).

Till date (2nd September, 2015) 114 SMEs raised funds using SME exchange

platform, BSE SME: 107 and EMERGE: 7 (excluding ITP platform).

8 SMEs migrated to Main Board out of 114 SMEs raised funds, BSE : 7 and NSE: 1

Till date (2nd September, 2015) 42 companies listed on ITP, BSE SME: 21 and

EMERGE: 21

The blocked mindset challenge..

Mindset of ‘me rather we’

Small and medium companies still have the mindset of ‘me rather we or Company’. This

concept needs to change. It is recommended to think universal while going to public.

Equity dilution – fear on loss of control

Despite having solid growth potential, the managements of privately-held SMEs often

remain wedded to the status quo and are wary of new management perspectives and

fresh growth capital. Their fears on loss of control and equity continue to dominate

strategic decision-making.

Focus needs to be changed from..

Governing to governance

Ownership to sharing

Tax savings to tax paying

Owners to all stakeholders; ultimately stake holders are the most important par of any

organization and they are to be paid back positively.

Focus should be on wealth creation for all

It is transformation of promoters, preparedness for transparency, shared decision

making and compliance.

Benefits of Listing

Help to raise the required

funds for -

Business Expansion

Geographical

Expansion

Diversification

Acquisition

Infusion of equity will help

company to raise

borrowed debts at

efficient rate; which is also

required for the expansion

Fund raising through

exchange will balance

company’s leverage

structure leading to

healthier balance sheet

Listing will also help to

generate an independent

valuation of the company

by the market

Listing will raise

company’s public profile

with customers, suppliers,

investors, financial

institutions and the media

Once listed on SME

Exchange, a company

can anytime migrate to

the main Board of

BSE/NSE provided

shareholders approval is

accorded

General Tax Benefits

Zero long term capital gain tax / limited short term capital gain tax

In general, transfer of unlisted shares attracts long term capital gain at the rate of

20%. While a company is listed in SME exchange, the same rate is ‘Nil’. The same

unlisted transaction attracts a short term capital gain tax upto 30%. In case of SME

exchange, the same has been reduced to 15%. However STT is applicable on listed

securities.

Zero tax on distress business purchase

Acquisition of distress asset, where value is less than its book value, could attract

heavy tax. However such a tax liability does not attract if company’s shares are listed

on a recognized stock exchanges including SME Exchange.

Zero tax on fresh equity infusion

Compared to unlisted company, fresh issuance of equity shares in listed company

does not attract equity infusion tax even the issuance is made at a value more than

the fair value.

Criteria for Listing

Requirements

1. Post Issue paid up capital - has to be less than Rs 2500 Lakh

2. Track record has to be more than 3 years

3. EBDT - should be positive for at least 2 preceding years

4. Net worth -should be positive for at least 2 preceding years

5. BIFR Should not be reported

6 Winding up petition Should not have any such case

7. Regulatory / disciplinary action by any regulator - past 3 years Should not have any such case

Other Criteria

Minimum number of members for Issue – 50

Market making by merchant banker- mandatory for 3 years

Underwriting - 100% (Merchant bankers to underwrite 15% in own account)

The company shall mandatorily facilitate trading in demat securities and enter

into an agreement with both the depositories

Companies shall mandatorily have a website

No change in promoters in preceding one year from the date of filling the

application of listing

The minimum application size in IPO in terms of no. of specified securities and

trading lot size shall not be less than Rs. 1,00,000.

Listing Procedure

Selection of

Merchant Banker

Structuring of

Capital and

Valuations

Due Diligence &

Pre-IPO

preparation

Preparation of

Offer Document

Appointment of

other

intermediaries

Marketing Strategy

Filling of Offer

Document

with Stock

Exchange &

Others

Issue Launch/

Allocation

Listing/Post listing

activities/ Market

Making

Getting prepared for Listing

Important disclosures/documents requirements

Audited annual accounts

Peer review by a Chartered Accountant firm

Appointment of full time company secretary

Appointment of 50% independent directors into the board

Due diligence on the applicability of various Regulations

Disclosure about – risk factor/external environment/ litigation/ business activities/others

Objects of the issue and issue structure

Future plan and strategy

Management discussion and analysis of the financial results

Role of Merchant Banker

Assisting company regarding regulatory aspect of the issue

A merchant banker informs and shares company about capital market rules &

regulations, the IPO process and post listing requirements.

Due diligence & DRHP Preparation

Merchant banker would be closely associated in preparing the new applicant's

prospectus and other related listing documents. Merchant banker conducts a due

diligence on the applicant and provide due diligence certificate as per Form A of

Schedule VI of the ICDR including additional confirmations as provided in Form H of

Schedule VI along with the offer document to the exchange.

Display of offer document on website

Merchant bankers display the offer document on its website after the final approval is

obtained and the RHP is filed with RoC and SEBI

Role of Merchant Banker

Market making arrangement

Merchant bankers ensure compulsory market making through the stock brokers of SME

exchange in the manner specified by the Board in chapter XB, for a minimum period of

three years from the date of listing of specified securities on SME exchange.

Underwriting arrangement

Merchant bankers ensure that the issue is 100% underwritten and 15% of the

underwriting should be by the merchant banker in own books.

Arrangement with nominated investors

In terms of provisions of Chapter XB of the ICDR, Merchant Banker could enter into

arrangements with nominated investors (PE funds & QIBs as defined therein) for

facilitating market making and underwriting. Merchant bankers disclose its arrangements

with Nominated investors to the exchange in the Final Offer document.

Merchant bankers’ role in market making...Merchant bankers to the issue undertake market making through a stock broker who is

registered as market maker with the NSE Emerge Platform

Merchant bankers are responsible for market making for a minimum period of 3 years

Market Maker provide two way quotes for 75% of the time in a day. The same shall be

monitored by the exchange

Other information related to market making: Maximum number of market maker is limited to 5 and they can

compete with each other. The exchange shall prescribe the minimum spread between the bid and ask price.

Marker maker can de-register itself by giving one month’s notice.

Restriction/limitation:

Market maker shall not buy shares from promoters or persons belonging to the promoter group

for any person who has accepted shares from such promoter or promoter group during the

compulsory market making period.

Promoter cannot offer their holdings to the market maker during the compulsory market making

period, however promoters holding which is not locked-in can be traded with prior permission

of the SME exchange in manner specified by SEBI.

Takeover regulations are not applicable to the market maker for a period of three years from the

date of listing.

SME exchange...benefits over main board..Lower time frame for listing

In SME Exchange getting listed takes less time compare to listing on main board

Limited number of alloteesIn main board of BSE and NSE the minimum number of allotees is 1000 where as in the SME exchange the

same requirement is only 50.

Display of offer document on websiteA merchant banker displays the offer document on its website after the final approval is obtained and the RHP

is filed with RoC and SEBI

Relaxation on post issue capitalIn the SME exchange the post issue capital requirement is any amount less than Rs. 25 crore where as in the

main board the minimum post issue capital requirement is Rs. 10 crore.

Limited intervention by the market regulator SEBIIn SME platform, the exchange plays pivotal role under observation of SEBI, where as in the main board SEBI

plays much broader role. Reporting requirements are also limited in SME exchange compared to main board.

Migration to main boardOnce listed on SME platform, a company can migrate to the main board at any point of time after two years of

listing (after fulfilling certain conditions)

Which

exchange?SME Exchange Main BoardSME or Main Board

Rs. 1-10 crore Rs. 10-25 crore Above Rs. 25 crorePost issue paid-up capital

Corporate Governance

Companies Act, 2013

Listing Agreement applicable for SMEs

Exchange listing norms

SEBI ICDR Regulations

SEBI other regulations like SAST, Insider Trading

Statutory compliance management and minimum

Corporate Governance practices to be followed in

perspective of the following Rules/ Regulations


Board of Directors should be comprised of optimum

combination of executive and director with not less than 50%

of directors comprising of non-executive directors. If the

Chairman is an executive director or belongs to promoter

group, half of the Board should comprise of independent

directors.

Audit Committee shall have minimum three members, all

being non-executive directors, with the majority of them

being independent, and with at least one director having

financial and accounting knowledge.

The audit committee shall meet four times in a year. One

meeting shall be held before finalization of annual accounts.

Norms for listed companies


Related party transactions

Disclosure of accounting treatment

Risk management

Remuneration & shareholders related disclosures

Disclosures

Annual CEO/CFO certification to board

Review of financial statements

Accepts responsibility for internal controls

Intimation to auditor and audit committee regarding

significant changes, instance of fraud etc


Company shall submit Half Yearly Results (Audit/ Limited

Review) and Half Yearly Shareholding pattern

Annual report shall contain a separate section containing the

corporate governance report

Report on corporate governance

Compliance certificate

Company shall obtain a certificate from Auditors of the

Company or Practicing Company Secretary regarding

compliance of conditions of corporate governance

Post Listing Threats &

Takeovers

Compliance with Listing Agreement.

Compliance with SEBI Insider Trading Regulations.

Compliance with other SEBI Regulations and SCRA.

SEBI (Substantial Acquisition of Shares & Takeovers)

Regulations, 2011

Creeping acquisitions.

Compulsory and voluntary open offer.

Companies in NSE Emerge platform..

Source: www.nseindia.com, Capital Market Database* Bonus in the ratio1:1

** Migrated to Main Board

Unit Sanco Opal Veto** Thejo Mitcon MomaiSuprem

e

Issue size Rs

Lakhs432 1300 2500 1901 2501 3000 787.20

Dilution – post

issue capital% 28 29.77 30.01 27.54 33.88 25.15 25.37

Total applicants No. 223 129 1053 1,321 135 2643 374

Issue type Fixed

Price

Book

Building

Book

Buildin

g

Book

Building

Fixed

Price

Book

Building

Fixed

Price

Issue priceRs/shar

e18 130 50 402 61 78 60.00

P/E 3.70 5.73 8.06 5.28 4.89 3.15 4.30

LTP (02.09.2015)Rs/shar

e22.30 112.00 72.00 210.00* 74.85 90.00 68.30

Listing priceRs/shar

e19 130 58 403 60 78 62

Over-subscription Times 1.46 1 1.54 1.46 0.9371 1.62 1.66

Companies in NSE Emerge platform..

Company

Pre IPOPost IPO

As on 31.03.2014

Year

Sales

(Rs. In

Crs.)

PAT

(Rs. In

Crs.)

Sales

(Rs. In Crs.)

PAT

(Rs. In

Crs.)

Sanco Ind. Ltd.2013 58.53 3.00 66.23 1.40

Opal Luxury Time Products

Ltd.2012 17.21 2.83 24.99 0.48

Veto Switchgears & Cables

Ltd.2012 68.60 7.22 94.35 6.09

Thejo Engineering Ltd. 2012 115.36 9.02 148.86 8.96

MITCON Cons. & Eng. Serv.

Ltd.2013 46.67 9.97 40.49 7.09

Source: www.nseindia.com, Capital Market Database

Stage – I : Conception & Capital Structuring

Assist in preparing for IPO and listing on SME Exchange towards:

Advising appropriate capital structuring

Statutory compliance management & effective corporate governance

practices

Appointment of market intermediaries and other parties like

Underwriters

Market Makers

Registrar to the Issue

Bankers to Issue

PR Agency, Printer, etc.

Devising a complete IPO plan and strategy including the likely post-

issue shareholding pattern

Stage – II : Due Diligence & DRHP preparation

Drafting of Offer Document and other important agreements, documents and

resolutions necessary for an SME IPO. An indicative list is as follows:

IPO Offer Document

Tripartite Agreement with NSDL, CDSL and Registrar to the Issue

Underwriting Agreement

Market Making Agreement

Agreement with Bankers/ Registrar to the Issue

Board/ Shareholders Resolution

Certificates, Declaration, Letters of Representations etc.

Forms / Applications to be filed with SE, ROC and other Regulatory

Office

Due Diligence spans the entire IPO process. The broader steps involved in due

diligence exercise:

Decision on Public Issue

Business due diligence

Legal & Financial due diligence

Due diligence on the applicability of various Regulations

Disclosures in Prospectus

Stage – III : Offer Management

Under this stage following activity will be done considering drafting of Offer

Document and other important agreements, documents and resolutions etc.

Filing of IPO Offer Document with SE, SEBI & ROC

Follow-up with SE and ROC for their approvals

Assistance in launch of IPO and coordinate with other parties including PR

Agency, printers for adequate advertisement, application forms as required

statutorily

Discussion and meeting with the informed investors, Institutions, PEs, VCs, etc.

Monitoring the flow of applications and keeping a real-time discussion with the

management of the Issuer Company

Coordinating with bankers and registrars for deposit of application money and

finalisation of allotment list in consultation with stock exchange.

Stage – IV : Post IPO

Under this stage towards listing of equity shares, our role 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)

Follow-up with SE and obtain listing approval

Assist in trading formalities and obtain SE trading approval

Assist in making required public disclosures required statutorily

Coordinating for continuous market making for 3 years

Listing timeline..

Sr. No. Procedure Timeline

1 Conversion of Company into Public Limited Company, if applicable X

2 Preparation of Documents for conversion and submission to ROC for approval i.e. Alteration of

Memorandum, Articles & filing of necessary forms for appointment of aforesaid directors

X+5

3 ROC approval accorded for conversion X+7

4 Identification & appointment of Registrar & Transfer Agents & Submission of Master Creation

forms with NSDL, CDSL for establishing connectivity

X+7

5 Appointment of Managing Director, Whole Time Director, Independent Directors, Company

Secretary & deciding about their remuneration, sitting fees etc.

X+12

6 Constitution of committees - Audit, Shareholder Grievance, Remuneration etc. As per SME

Listing Agreement

X+15

7 Preparation of website of the Company & hosting code of conduct on the website X+18

8 Signing of Tri-Partite Agreement with NSDL & CDSL and receipt of ISIN X+18

9 Identification & appointment of peer review auditors & getting the financials of last 5 years

restated and for last 1 year re-audited from peer review auditors as per SEBI (ICDR)

Regulations, 2009

X+18

10 Appointment of Merchant Banker & Market Maker X+18

Cont..

Listing timeline..

Sr. No. Procedure Timeline

11 Preparation of Project Report and Red Herring Prospectus (RHP) X+35

12 Filing of Red Herring Prospectus (RHP) with stock exchange & SEBI (only for hosting) along

with application for in-principle approval with stock exchange

X+35

13 Clearance from stock exchange X+65

14 Filing of Red Herring Prospectus (RHP) with ROC & getting it cleared from ROC X+70

15 Filing of Final Prospectus with Stock exchange and SEBI X+75

16 Opening of the Issue X+80

17 Closing of the Issue X+83

18 Allotment of shares X+90

19 Filing of listing application with Stock exchange X+93

20 Receipt of listing approval from Stock exchange X+95

21 Filing of corporate action form with NSDL & CDSL and demat credit of shares X+96

22 Filing of trading application with Stock exchange X+98

23 Receipt of trading approval from Stock exchange X+100

Institutional Trading Platform (ITP)..

A trading platform for early stage venture to list with or without

IPO.

Limited lock in of promoter's capital (only 6 months vs 3 yrs in

IPO).

Limited disclosure requirement.

Can migrate to main board after 3 years.

Restricted for HNIs and Institutional Investors.

ITP-Eligibility

For Tech, IT, Bio-tech, Nano-Tech,

Analytic and Intellectual Property

– at least 25% of the pre issue

capital with Qualified

Institutional Investors.

Any other entity - 50% pre issue

capital with Qualified

Institutional Investors.

No person, individually or

collectively with PAC, shall hold

25% or more of the post issue

share capital

No profit/turnover requirement

Relaxation

No profit trach record required Flexible issue price justification

Offer proceeds can be used for

general purpose

Migration to Main Board after 3

years

ITP - Disclosure requirements

Only for Listing Filing of Draft Information Document with SEBI for approval along with

fees. In-principal approval from the recognised stock exchange. Disclosure related to issue pricing. To list within 30 days after SEBI approval.

For IPO DRHP filing to SEBI with specified fees. Minimum application – Rs. 10 Lacs Number of Allottees - to be more than 200 Allocation – 75% to Institutional Investors & 25% to Non-institutional. Allotment – Discretionary up to 10% of the Issue Size to one Institutional

Investor or proportionate to any level & proportionate to Non-institutional Investor

ITP – Lock in and exit optionsLock in

Entire pre-issue capital of the shareholders shall be locked-in for a periodof 6 months from the date of listing with following relaxation:• ESOP/ESOS• Shares purchase by VC, foreign VC, alternative investment fund – whose

investment is locked in for a period of at-least one year from the date ofpurchase.

• Equity shares held by persons other than promoters, continuously for aperiod of at least 1one year prior to the date of listing in case listing withpublic issue.

Exit Option• Special resolution by postal ballot where 90% of the total votes and the

majority of non-promoter votes have been cast in favour of suchproposal.

• Exchange permission.

Team Sumedha

Ms. Moumita Chowdhury is based out of Kolkata and takes care of execution of debt related

mandates such as techno economic feasibility studies, restructuring, due diligence and

valuation.

Ms. Sudeshna Agarwal is situated out of Kolkata and manages the Execution Desk for all debt

related proposals. Her domain area includes project appraisal, risk analysis, evaluation of

proposals, relationship management, compliance and due diligence for deal execution.

Reach Us

Contact us

AHMEDABAD

A/82 Pariseema Complex, Opp. IFCI Bhawan,

C.G. Road , Ahmedabad – 380 009

Telephone: +91 79 3002 3337 / 6605 2957

Fax: +91 79 2646 0394

Email: [email protected]

Contact : Mr. K. K. Kabra

BANGALORE

“Park Plaza”, 1st Floor, No. 1 Park

Road, (Off. Infantry Road), Tasker

Town,

Bangalore – 560 051

Telephone: +91 80 4124 2545 / 2546

Fax: + 91 80 4124 2547


Contact: Mr. Anil Birla

HYDERABAD

309/1, 3 rd Floor, Krishna Plaza,

Khairatabad, Hyderabad-500 004

Telephone: +91 40 4020 2826 / 4026

7272

Fax: +91 40 4020 2826


Contact : Mr. M .S. Prashant

NEW DELHI

B1/12 Safdarjung Enclave,2nd Floor,

New Delhi – 110 029

Telephone: +91 11 4165 4481 / 82

Fax: +91 11 4165 4483


Contact : Mr. Gaurav Gaggar

MUMBAI

C-703 "Marathon Innova",

Off Ganapatrao Kadam Marg,

Opp. Peninsula Corporate Park,

Lower Parel (W) , Mumbai - 400 013

Telephone: +91 22 4033 2400

Fax: +91 22 2498 2878


Contact: Mr. B.S. Rathi

Registered & Corporate Office

KOLKATA

8B Middleton Street, 6A Geetanjali,

Kolkata – 700 071

Telephone: +91 33 2229 8936 / 6758 / 3237 / 4473

Fax: +91 33 2226 4140 / 2265 5830


Contact : Mr. Vijay Maheshwari / Mr. Bijay Murmuria

CIN: L70101WB1989PLC047465

mailto:[email protected]






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fundraising through sme exchange platform

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