SME Listing Listing Way Forward.pdfBSE and NSE launched their respective platform for SMEs; MCX too...

SME Listing

2 Pantomath Capital Advisors Pvt. Ltd.

Outline

• SME Listing - Background

• SME Listing - An Overview of Key Requirements & Eligibility Norms

• Core advantages of SME Listing

• Pantomath – Companion in Process

SME Listing – Background


SMEs – The backbone of Indian economy

Contribution to GDP

8.7 %

Share of Industrial output

45 %

Share of Exports 40 %

Total Employment

69 million

Job creation every year

1.3 million

Source : Ministry of Micro, Small and Medium Enterprises, GOI

Nation’s 1.3 million SMEs account for 40% of India's total exports

At 48 million, India is second to China in number of SMEs

SMEs employ close to 40% of India's workforce & contributes 45% to India's manufacturing output

SMEs are expected to drive the next-level growth of Indian economy provided they have enabling platform and avenues

SMEs face major problem of capital inadequacy

This problem can be tackled through Capital Market


Valley of Death

Pre seed Expansion Early growth Seed/Start up

Very risky

Less risky

Angel Investors

Govt. Grants

Bank Credits

Personal Finances

Angel Investors

Govt. Grants

Bank Credits

Venture Cap

Venture Cap

PE

IPO

IPO

Debt

PE

Partnership

Funding Options

Lifecycle of SME


SME Listing Background…

BSE and NSE launched

their respective

platform for SMEs; MCX

too is gearing up

for SME Exchange

The move aims at

providing an opportunity

to SME entrepreneu

rs to raise growth

capital and reap

benefits of listed space

Both BSE & NSE

leverage their

existing ‘equity

platform’ for SME

exchange platform

As per estimate of

SME Chamber of India, over 5000 SMEs

have the potential for listing

A facilitative framework

for SME listing


SME Listing – Evolution…

SEBI lays down broad

framework for SME listing

platform

5-Nov-08

PM Task Force

recomm-ends SME

listing exchange

Jan-10

SEBI circular on Guideline

s for market making

26-Apr-10

SEBI Circular

rolling out model listing

agreement for SMEs

17-May-10

Amend-ments in

SEBI Regulations

(ICDR, Merchant

Bankers etc.

18-May-10

SEBI Master

Circular on SME

exchange & Market Making

31-Dec-10

BSE

Eligibility Norms

for SME listing

19-Apr-12

BSE SME Exchange

launch

13-Mar-12

SEBI circular

standardizing lot size for SME

exchange

21-Feb-12

SEBI

approval to NSE SME

Exchange

14-Oct-11

Amend-

mends in Listing

Agreement

5-Oct-11

SEBI approval

to BSE SME

Exchange

27-Sep-11

SME Listing - An Overview of Key Requirements & Eligibility Norms


SME Listing - Key Requirements & Eligibility Norms

Capital threshold for Listing

SEBI

BSE

NSE SME Exchange

SME/Main Board

Main board

10 Crores

25 Crores

Po

st I

ssu

e F

ace

Val

ue

Cap

ital

Particulars Requirement

Minimum application amount / trading lot

INR 1 Lac

Underwriting 100% Mandatory (of which 15% to be done by MB in his own account)

Market making (to be undertaken by MB)

Through Exchange-registered market makers for min 3 years

Public Shareholding Min. 25% Min. 50 investors No post-listing continuous requirement

Provisions for migration to / from Main Board from / to SME Exchange

Offer doc not subject to SEBI

vetting


• Mandatory facilitation of trading in Demat securities

• Certificate that no winding petition or reference to BIFR

• Mandatory corporate website • Promoters to attend to interview

with Listing Advisory Committee

• Net Tangible Assets : INR 1 crore (as per latest audited results)

• Net Worth (excl. Rev. Reserve) : INR 1 crore or 3 crore, if no track record

• Track record of distributable profits for at least 2 years out of preceding 3 completed FYs

Max : INR 25 crore Min : INR 1 crore

Post Issue Capital (FV)

Other Requirement

Track Record


SEBI

BSE

NSE


Same as BSE plus additional certification / disclosures on litigation etc.

• Track record of at least 3 years • Positive cash accruals (EBDT) from

operations and positive net worth for at least 2 FYs preceding the application

• In case the above conditions are not fulfilled, Exchange Authority (MD & Joint MD) to decide

Same as BSE Post Issue Capital (FV)

Other Requirement

Track Record


SEBI

BSE

NSE


BSE SME vs. Main Board

Parameters Main Board SME Exchange

Post – issue paid up capital

Min INR 10 crore Min INR 1 crore; Max INR 25 crore

Minimum Allotees in IPO 1000 50

IPO underwriting Non Mandatory (Under 50% compulsory subscription to QIB’s)

Mandatory (100% underwritten with MB underwriting 15%)

IPO Grading Mandatory Not mandatory

Track record Stringent track record norms Relaxed track record norms

Offer Document vetting By SEBI By Exchange

IPO Application Size INR 10000 – INR 15000 Min. INR 1 lac

IPO Time frame 6 months 2 – 3 Months

Reporting Requirements Quarterly Half yearly

“SME Exchange

has a winning

edge over Main

Board”

Core Advantages of SME Listing


Core Advantages of SME Listing (1 of 7)

Implications of Listing Resulting Benefits

Collateral Value Listed securities can serve as collateral for raising additional loans

Improved Credit Rating

Cost of finance (Rate of Interest) likely to come down

Increased Visibility • Brand building • Stock Exchange quotations • Analyst coverage

Lender’s / Supplier’s increased comfort

• Increased acceptability and prestige among suppliers

• Lesser negative covenants

Transferability of shares at market price

• ESOPs – Higher compensation for senior executives without cash outgo

• Overseas listing possible

Governance

Operational Wealth

Creation

Tax


Operational Benefits of listing – Illustrative Case Study

Particulars Unlisted Listed Remarks

Sales 4000 4400 Branding & visibility will likely to result in increased sales / orders

Total Expenses

3000 3100

Expenses increase in a lower proportion due to economies of scale such as higher bargaining power, bulk discounts etc.

EBITDA 1000 1300 Increase in sales at reduced expenses results in increased EBIDTA & EBIDTA Margin

EBITDA % 25 29.55

Interest 84 66

Listing likely to result in cheaper cost of funding (assumed debt of INR 600 lakhs @ int rate of 14% pre-listing and 11% post-listing)

Dep. 10 10

PBT 906 1224

PAT 634 857 Increase in PAT and PAT margins due to increased EBITDA and reduced borrowing cost

PAT % 15.85 19.47

Amounts in INR Lakhs.

Governance

Operational Wealth

Creation

Tax



Unlisted companies subject to 20% tax on buy back of shares

Tax on Buy Back of Shares

Unlisted Companies subject to 30% tax on issue of new shares at a premium exceeding fair value

Tax on Infusion

LTCG @20%

Capital Gains tax on transfer of shares

Purchase of distressed asset below NAV is subject to tax @ MMR

Purchase of Distressed Asset

Governance

Operational Wealth

Creation

Tax No Tax on

Entry and exit (through buy

back, transfer, fund infusion)

No Tax on

Purchase of distressed

assets

Lower Tax on

Share transfers (eg. Family Succession, Intra-Group

Transfers, Third-party Transfers

etc.)



In Transfer: Shares are purchased for INR 400 Cr and sold at INR 1000 Cr and assumed shares are purchased in 2008-09 and sold in 2012-13. In Infusion: Fair Value of Shares is assumed at INR 600 Cr.

Tax Benefits of listing – Illustrative Case Study

Particulars Transfer Buyback + Infusion

SME Listing

Initial Investment 400.00 400.00 400.00

Sale Consideration 1,000.00 1,000.00 1,000.00

Indexed Cost of acquisition

585.56 NA NA

Tax on Sale/Buyback/Infusion (CG/STT)

82.89 240.00 2.00

Net Proceeds 917.11 760.00 998

ROI (Before Taxes) 250% 250% 250%

ROI (After Taxes) 222% 190% 249.50%

Governance

Operational Wealth

Creation

Tax INR Crore



Valuation benchmarking

Wealth creation through

market cap of shares upon listing (Refer Next

Slide)

Promoter Profile Building

Adds to social

reputation and status

Listed shares as currency

Use of shares for takeovers / M&A

transactions, leading to inorganic growth

Governance

Operational Wealth

Creation

Tax

Core Advantages of SME Listing (5of 7)


Governance

Operational Wealth

Creation

Tax


Wealth Creation – Select Examples

Sunstar Realty

GCM Securities

Looks Health

Care

Eco Friendly

A. Market Cap INR Crores

Pre Issue Net Worth

5.54 8.56 3.06 5.90

Issue Size 10.62 12.18 12.00 7.515

Market Capitalization*

271.25 626.67 110.41 466.50

B. Price Pattern INR Per Share

Issue Price 20.00 20.00 40.00 25.00

CMP (Face Value INR 10)*

136.1 330 184.02 471.78

*Data as on March 5, 2014


Improved Systems

Better Information

Flow

Data manageme

nt

Internal Controls

Good corporate governance helps companies immensely and

also increases the confidence among its stakeholders

Governance

Operational Wealth

Creation

Tax



Companion – Partner in Process

End-to-end assistance

and hand-holding

by expert &

dedicated Team

PANTOMATH

1.

2.

3.

4.


Appointment of Merchant Banker

Due Diligence & Pre-IPO preparation

Preparation of Offer Document

Marketing Strategy

Appointment of other intermediaries

Filing of Offer Document with BSE & Others

Issue Pricing & Allocation

Listing & Market Making

1

3

5

7

9 8

6

4

Restructuring of capital 2

SME Listing – Way Forward…

Let’s Take It Forward….

PANTOMATH CAPITAL ADVISORS PRIVATE LIMITED Progress with Values

Disclaimer All data and information is provided for informational purposes only and is not intended for any factual use. It should not be considered as binding / statutory provisions. Neither Pantomath nor any of its group company, directors, or employees shall be liable for any of the data or content provided for any actions taken in reliance thereon.

Corporate Office 108, Madhava Premises Co-operative Society Limited, Bandra Kurla

Complex, Bandra (East), Mumbai - 400 051. Landline:(022) 26598690-91, Fax:(022)26598690

www.pantomathgroup.com

Annexures Merchant Banker’s End-to-end Services


Phase- I: Pre-IPO Capital Restructuring & Preparation

Under the phase, Merchant Banker shall assist you in preparing for IPO and listing on SME Exchange. The services under this phase shall include the following :

Assistance in devising appropriate capital restructuring plan;

Assistance in statutory compliance management and setting up minimum corporate governance practices expected by a listed company from the perspective of the following rules / regulations :

Companies Act, 1956

Listing Agreement applicable for SMEs

BSE listing norms

SEBI ICDR Regulations;

Assistance in appointment of market intermediaries and other parties including the following;

Underwriters

Market Makers

Registrars to Issue

Bankers to Issue

PR Agency, Printer etc.;

Assistance in devising a complete IPO plan and strategy including the likely post-issue shareholding distribution pattern.


Phase- II: Documentation Preparation

Merchant Banker shall assist you in drafting of IPO Offer Document and other important agreements, documents and resolutions necessary for an SME IPO process. An indicative list of important documents is as under for easy understanding :

IPO Offer Document,

Tripartite Agreement with NSDL, CDSL and Registrar to Issue,

Underwriting Agreement,

Market Making Agreement,

Agreement with Bankers to Issue,

Agreement with Registrar to Issue,

Board / Shareholders’ Resolutions,

Certificates, Letters of Representations etc,

Draft of public advertisements, notices etc,

Forms / Applications to be filed with BSE, ROC and other regulatory office.


Phase- III: Offer Management

Once all pre-IPO preparations would be over including meeting the eligibility criteria, appointment of other market intermediaries, and drafting of offer document, Merchant Banker initiates the actual process of IPO. The services under the phase shall include end-to-end IPO activities :

Filing of IPO Offer Document with BSE and other regulatory offices like SEBI and ROC;

Follow-up with BSE and ROC for their approvals;

Execution of agreements with other market intermediaries;

Assistance in launch of IPO and coordinate with other parties including PR Agency, Printers for adequate public advertisement, distribution of application forms as required statutorily;

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 .


Phase- IV: Listing Assistance

Finally, post IPO closure and finalization of allotment, Merchant Banker initiates the activities for listing of equity shares of the Company on SME Exchange. The scope of services under this phase 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),

Coordinating and assistance in interview with SE Listing Advisory Committee,

Follow-up with SE and obtain listing approval,

Assist in trading formalities and obtain SE’s trading approval,

Assist in making required public disclosures as required statutorily,

Coordinating for continuous market making for 3 years.

SME Listing Listing Way Forward.pdfBSE and NSE launched their respective platform for SMEs; MCX too...

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