Glossary:

S.No. Particulars

1 Applicable ICDR Regulations

2 SEBI Chapter XB regulations

3 Eligibility Norms (BSE & NSE)

4 Key features of Listing

5 Flow Chart

6 Roadmap at Macro Level

7 Practical difficulties

8 Key Strategic Points

 Definitions:
 Act: Companies Act, 1956/2013.

 SME: Small and Medium Enterprises

 SEBI: Securities and Exchange Board of India

 BSE: Bombay Stock Exchange

 NSE: National Stock Exchange

 ICDR: SEBI (Issue of Capital and Disclosure Requirements {ICDR})

Regulations, 2009
About SME
Platform:
The market regulator SEBI vide its circular dated May 18, 2010 have provided for
setting up of a stock exchange/ trading platform by a recognized Stock Exchange
having a nationwide trading terminal for SME’s.
In this context Chapter XB has been inserted in the SEBI (Issue of Capital and
Disclosure Requirements {ICDR}) Regulations, 2009 for the SME platform.
 CHAPTER XB
ISSUE OF SPECIFIED SECURITIES BY SMALL AND
MEDIUM ENTERPRISES

1 Applicabili A company can issue specified securities if:-

ty  The post-issue face value capital does not exceed Rs.10
Crore.
 The post-issue face value capital is more than Rs.10 crore
and up to Rs.25 Crore.

2 Filing of 1. No draft offer document need to be submitted to SEBI. But it

offer has to file offer document with SEBI through MB,
document simultaneously with the filing of the prospectus with the SME
exchange and the Registrar of Companies or letter of offer with
the SME exchange
2. SEBI should not issue any observations on the offer document
3. The offer document shall be displayed from the date of filing on
the websites of SEBI, the issuer, MB and SME exchange

3 Min. 1. The minimum application size shall not be less than Rs.
Application 1Lakh
Value & No. 2. The minimum number of prospective allottees should not be
Of Allottees less than “50”
4 Listing 1. Securities issued as per SEBI(ICDR) Reg. will be listed on SME
exchange
2. A Listed Co. can migrate its securities to the SME
Exchange
5 Migration  A listed Co. can migrate its securities by fulfilling the following
conditions:
 Post issue face value capital is less than Rs.25 Crore
 SR (Special Resolution) approving migration through postal
ballot
 Fulfilling eligibility criteria for listing laid down by SME
Exchange

 Migration to Main Board:

1. A SME Exchange listed Co. can migrate its securities to the Main
Board with meeting following Conditions
 SME listed Co. Post issue face value capital is more than Rs. 10
Crore and up to Rs.25 Crore
 Special Resolution (SR) approving migration through postal
ballot
 Eligibility criteria for listing laid down by Main Board
 2. If the post issue face value capital is likely to increase beyond
Rs.25 crore by virtue of further issue, the issuer shall
migrate to main Board
3. However, no further issue of capital by the issuer shall be
made unless-
 A SR shall be passed through postal ballot
 Must obtain In- principle approval from Main Board for
listing

6 Underwriting1. The issue shall be 100% underwritten.

Obligation 2. The MB shall underwrite at least 15% of issue size on
his own
3. The issuer in consultation with MB may appoint
underwriters and the MB may enter into an agreement
with underwriters at issue price in case of under-
subscription.
4. All the underwriting arrangements made by MB shall be
disclosed in the offer document
5. The MB shall file an underwriting to SEBI that the
issue has been 100% underwritten along with the list of
underwriters etc.
Eligibility Norms - BSE

# Particulars Norms

1 Net Tangible Assets At least 3 Crores

2 Net worth At least 3 Crores

Distributable profits for at least 2 out of 3 immediately

preceding financial years.
Profit making track
3
record (or)

Net worth shall be at least 5 Crore

Post issue paid up Min 3 Crores

4
share capital Max 25 Crores
7
Eligibility
Why Norms - NSE Emerge
not the conventional listing route?

# Particulars Norms
Post Issue paid up The post issue paid up capital of the company (face value) shall
1.
Capital not be more than Rs. 25 crore.
Track record of at least “3”years of either
i. the applicant seeking listing; or
ii. the promoters/promoting company, incorporated in or
outside India or
iii. Partnership firm and subsequently converted into a
Company (not in existence as a Company for three years) and
Profit making track approaches the Exchange for listing.
2
record ****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
positive cash accruals from operations for atleast 2
financial years preceding the application and its net-worth
should be positive.
1.The applicant Company has not been referred to Board for
Industrial and Financial Reconstruction (BIFR).
2.No petition for winding up is admitted by a Court of
8
competent jurisdiction against the applicant Company.
Key Features
 Relaxed Eligibility Criteria

 Need not file DRHP or DP with SEBI / need not seek any

observations from SEBI

 Listing and Trading continues on SME Platform of the Exchange

 Migration to Main Board after 2 years

 Issue to be 100% underwritten (Merchant Bankers need to

underwrite 15% from their own account)

 Appointment of Market Marker and Market Making mandatory

for a period of 3 years

Key Features
 IPO Grading – Not mandatory

 Standardized Lot size for market trading (odd lots to be sold to market

makers only)

 Minimum Application size in IPO – Rs. 1 lacs

 Minimum Statutory Advertisements

 Low one - time Listing fee of Rs. 50,000

 Half yearly submission of Results instead of Quarterly

 No requirement of Publishing of Financial Results

 Low Annual Fee of Rs.25,000 or 0.01 % of Market Cap

 FLOW CHART
Appointme Appointment Filing of Offer
nt of of other Document with
Merchant intermediar SE
Banker ies

Restructuring of Marketing Strategy Issue Pricing &

capital Allocation

Due Diligence & Preparation of

Listing & Market
Pre- IPO Offer
Making
preparation Document
 Flow Chart
Pre IPO  Due Diligence  Offer Document  Intermediaries  IPO Process  Listing

Phase- I: Pre-IPO Preparations

•Appointment of Merchant Bankers (Category I) registered with SEBI to act as Lead Manger to the
Issue and Underwriters.
•Appointment of Legal Advisors

•Increase authorised share capital (based on the desired IPO size), if required

•Passing of resolution for further issue of share capital under section 62(1)(c) of the Companies Act,
2013 (Fresh IPO)

•Audited restated financials for the last 5 years by a peer-reviewed auditor (Financials shall not be
older than 6 months at the time of submission of Offer Document with stock exchange/SEBI)

• Re-Structuring of Board if Required

•Reviewing corporate / group Companies

---Pre IPO----Due Diligence---Offer Document---Intermediaries---IPO Process-------Listing-------
----- --------- -------------------------- ------------------ ---------------- ------------ -------------
SME Listing                          

Understanding the business

As a part of Due Diligence model of the issuer
site visit is conducted. Companies, business profile,
and business activities
carried out by its group
companies etc.
Due
Diligence

ROC Search, Statutory

government licenses This exercise would also help
required by the issuer preparing Offer Document
company to carry out the appropriately.
existing business activities.
 Pre IPO  Due Diligence  Offer Document  Intermediaries  IPO Process  Listing

Phase III :Offer Document Preparation

 Drafting of IPO Offer Document for SME IPO in accordance with the
provisions of: -
 SEBI ICDR Regulations (Schedule VIII)
 Companies Act, 2013
 SEBI LODR Regulations as applicable for SMEs
 BSE SME listing norms
 Indicative heads of information for Offer Documents are
* Capital Structure * Business Overview * Objects of the Issue * Outstanding
Litigations * Our Management * Promoter & Promoter Group

Merchant Bankers would prepare and submit the

Offer Document to Stock Exchange along with their
Due Diligence Report.
 Pre IPO  Due Diligence  Offer Document  Intermediaries  IPO Process  Listing

Phase IV : Appointment of Other Intermediaries

 Depositories
 Registrar to Issue
Drafting and executing
 Market Makers agreements with all
 Bankers to Issue intermediaries
 Printers
 Advertising Agency
 Pre IPO  Due Diligence  Offer Document  Intermediaries  IPO Process  Listing

Phase V : Submission of Document & IPO Process

 Submission of Material Documents as per SEBI ICDR Regulations

 Dematerializing shares of the Promoters of the Company & Lock-in of Pre-
IPO shares
 Filing of draft Offer Document with Stock Exchange
 Obtaining In-Principle Approval from Stock Exchange
 Filing of Offer document with ROC for their approval
 Forms / Applications to be filed with Stock Exchanges
 Pre Issue Advertisement (Issue Opening and Closing dates)
 Monitoring the flow of applications and keeping a real-time discussion
with the management of the Company
 Coordinating with bankers and registrars for deposit of application moneys
and finalization of allotment list in consultation with the Stock Exchange
 Pre IPO  Due Diligence  Offer Document  Intermediaries  IPO Process  Listing

Phase VI : Listing Assistance

Getting Final Collection figures from the ASBA Bankers and Bankers to Company.

Finalizing Basis of Allotment of Shares in consultation with Merchant Bankers and

Registrar to issue & Stock Exchange
Crediting of Shares, instruction to Self Certified Syndicate Banks, Corporate Action, Un-
blocking of Funds, Advertisement for Basis of Allotment.
Coordinating and assistance in interview with Stock Exchange Listing Advisory
Committee
Filing of Listing Application with Stock Exchange.
Assist in Listing formalities and obtain BSE’s trading approval

Trading Commence within 6 working day from closure of the Public Issue.
 Roadmap at Macro Level

Assessment of Company ( as to eligibility on various parameters)

To identify Lead Merchant Banker and Signing of Engagement Letter.

PRE-IPO
Before filing Draft Prospectus

Due Diligence
Financials due diligence
Secretarial due diligence
Legal due diligence
Restatement of accounts
Compiling of documents for filing Draft Prospectus
Obtain Legal Due Diligence Report
File Draft Prospectus with the Stock Exchange
 Roadmap & Timelines at Macro Level

After filling Draft Prospectus

Stock Exchange Observations

 Site Visit by Stock Exchange Officer
 Promoter Interview by Stock Exchange
 Demat of Pre-IPO Shares

In principle Approval From Stock Exchange

Post Approval

Final Prospectus
File Prospectus with ROC
Registration of Prospectus by ROC
Issue Opens --- Closes
Basis of Allotment
Listing and Trading Approval
 Factors Determining Market Valuation

 Earning Per Share

 Turnover of the Company
 PAT
Practical Difficulties
Sr. Practical Issues Solution
No.
1 Government Approvals are not in order: This issue We generally look into the factual
generally arises when the details reflected in the government data to determine the reasons for
approvals do not match with the other details. such anomaly and accordingly
rectify the details.

2 Old Secretarial Records are Improper: This issue arises Any such RoC issues need to be
when the old RoC records of the company are not in order. corrected before filing of the offer
document. The secretarial records
which are not in place/misplaced
needs to be created again/ arranged.

3 Gratuity /PF/ESIC/Other Labour Laws: There may at times Any such labor law mismatch needs to
arise a situation where the company needs to comply with certain be corrected before filing of the offer
labour laws, but has not been complying with the same. document. If the company has for
example failed to provide for gratuity in
the previous financial years, an actuarial
valuation certificate of the amount of
gratuity to be provided for in the
financials is obtained and accordingly
 Pre- Requisites for IPO

Appointment of :
 Independent Directors
 Woman Director
 Company Secretary
 Chief Financial Officer
 Composition of Board of Directors

Suppose, director is disqualified u/s 164 then need to remove

from the Board if not able to remove disqualification
Practical Difficulties
Sr. Practical Issues Solution
No.
4 Non Compliance with the provisions of the Companies File compounding applications
Act, 2013: Generally the non compliance arises in areas such as
loans taken from/ given to the directors i.e. section 185 & 186 of
the Companies Act, 2013.
5 The Statutory Auditor of the Company is not Peer In such cases we recommend the
Review Certified: The financials statements of a listed entity company to change the statutory
can be audited and certified only by an Auditor/Audit firm which auditor and appoint a Peer Review
has been certified by the Peer Review Board of the ICAI. Certified Auditor, since the same
would become mandatory if the
company is listed.
6 Company does not have a website/logo: The company may In such cases we recommend the
not have a website/logo where it is an SME private limited company to create a website with all
company. the details required by the LODR
and also have its own logo which
should be registered.

7 Composition of the Board of Directors: The Board of the The composition of the board is
company may not be in accordance with the provision of the Act made proper to comply with the
etc. provision of the Act / LODR etc.
Practical Difficulties
Sr. Practical Issues Solution
No.
8 Litigations Against the Company: There may be certain All such documents needs to be
litigations against the company which are required to be arranged and given to the legal
disclosed in the offer document. The company may at times not advisor to the issue for the drafting
be having all supporting documents in relation to such pending of Legal Chapters.
litigations.

9 Non-Availability of Sanction Letters: A separate disclosure If the company is not in possession of

is made in the Offer Documents highlighting the financial certain old sanction letter, the loan of
indebtedness of the company as per the last reported financials in which is still outstanding in the
the offer document, which requires the details of the sanction financials the company is required to
letters.
obtain a copy of these sanctions from
the bankers.
10 Consent and NoC of the Banker to the Issue and the
Lenders to the Issue: The company going for an initial public
offer needs to obtain a consent and NoC of the Banker as well as
the Lender to the Company beforehand. This process may a times
be tedious and time consuming.

11 Capital Build up / Promoters Equity etc., To reconcile Register of Members /

Share Transfer Registers / Annual
Returns / Return of
Allotments / Financial
Statements etc.
Key Strategic points:
 Suitable Capital structure – to be altered by the way of further issue/

Bonus etc

 Appropriate – offer size & Structure

 Fresh issue or

 Fresh issue & offer for sale

 Dilution of shares to be done in phases

 Full disclosure of litigation matters

 Avoid Suppression of profits- fair disclosures fetch better valuations

 Competent intermediaries / Registrar etc

Key Strategic points:
 Proper co-ordination & synergy between company & auditors and

company secretary team

 Minimum control centers/ decisions making centers

 Valuation of shares to be realistic and not exorbitant

 NOC from Bankers

 Consolidation of group companies – merger etc

 Restatement of accounts

 Site visit by Exchange officer

Key Strategic points:
 To ensure data does not compete with each other

 Personal interview of promoter

 Have proper road maps/ trackers in advance

 Shares dematerialization updated

 Promoters identification- legal Background

 Appointment of directors- Proper selection

 Avoid decisions which are adverse in long term

 Objects of the issue

 Statutory Compliances Post- Issue IPO

 Half- Yearly Financials Results

 Shareholding Pattern (Half Yearly)
 Major corporate announcements ex. Change in
directors, expansion programme etc.
 Quarterly, half yearly and Annual Disclosure s
Thank You

P.S. Rao & Associates

Company Secretaries