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 EXCHANGEREGULATORY ASPECTS

SEBI Guidelines: Chapter XB of the SEBI (ICDR) Regulations

Exchange Coverage
Post Issue Face Value of Capital Up to Rs. 10 Crores Coverage

Covered under the SME Platform

Rs. 10 Crores to Rs. 25 Crores Above Rs. 25 Crores

May get Listed at SME Platform

Necessarily Listed at Main Board of the Exchange

Chapter XB of the SEBI (ICDR) Regulations Other 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 Norms

Net Tangible Assets At least Rs. 1 Crore as per latest audited financial results At least Rs. 1 Crore as per latest audited financial results At least 2 years out of immediately preceding 3 financial years (financial year to be of 12 months) (Excluding Extraordinary Income) Post Issue Paid up capital of at least Rs. 1 Crores Mandatorily DEMAT trading facility Website Net Worth (Excluding Revaluation Reserve) Track Record of Distributable Profits in terms of Section 205 of Companies Act, 1956 Other Requirements

Chapter XB of the SEBI (ICDR) Regulations ..contd.

Filing of Offer Document No requirement of filing of draft Offer and Due Diligence document with SEBI, in case filing of offer Certificate 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 Post issue face value more than Rs. 10 Crores and upto Rs. 25 Migration 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) Regulations

Obligations 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 months notice Trading system may be either orderdriven or quote driven

Model Equity Listing Agreement

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 Fairness Opinion on valuation of Functions of assets/ shares done by valuer of Merchant bankers 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 Companys 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 Acquisitions Through Strategic Investments, Mergers And

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, its 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!!

BOARD OF DIRECTORS

DIR A DIR B

DIR C

DIR D

DIR E

COMPANY POLICIES

INVESTORS

CUSTOMERS

SUPPLIERS

COMPANY EXTERNAL STAKEHOLDERS SECRETARY

GOVERNMENT AND REGULATORS SOCIETY

LENDERS

DEPARTMENTS IN A COMPANY
CORPORATE PLANNING LEGAL FINANCE AND ACCOUNTS HUMAN CORPORATE PRODUCTION MARKETING AND OPERATIONS RESOURCES COMMUNICATION INFORMATION TECHNOLOGY

OPERATIONAL PLANNING AND EXECUTION

SKILLS OF A COMPANY SECRETARY.

Knowledge of Securities & Other Laws Communication Skills

Leadership

Entrepreneurship

ROLE IN A LISTED COMPANY

Vigilance Officer Event Manager Face of Management Strategic Planner Keypoint between Company & Stakeholders Knowledge of Various Securities Laws

COMPANY SECRETARY navigates the CORPORATE GROWTH with GOOD GOVERNANCE

COMPANY SECRETARY & SME

Approvals Required

Due Diligence & Compliance

Appointment of Intermediaries

By Company

By Intermediaries

Eligibility Norms

Contents of Prospectus

Pricing of securities

Promoters Disclosures

Compliance of various Rules & Regulations

Post Issue obligations

Migration

ROLE IN AN UNLISTED COMPANY

Unlisted Company

SME Listed Company

Object : SME IPO

AS PRACTISING COMPANY SECRETARY

As PCS

As Advisor

As Represen tator

Certifications as per Listing Agreement Certifications required for Corporate Actions

Brokers Audit Securities Audit Corporate Restructuring Capital Restructuring Unlocking companys real value

Appearance before : SEBI SAT CLB Consent Orders

Thank You

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: anjali@indiacp.com