Small companies will find it difficult to list on the Bombay Stock Exchange (BSE). From July, companies seeking to migrate to the BSE from regional stock exchanges (RSEs) and also those which were suspended for non-compliance of the listing agreement for over a year will have to follow stringent norms to be a part of the BSE's trading platform.
The exchange has raised the requirement of minimum paid-up capital over threefold for such companies from Rs 3 crore to Rs 10 crore and also set a minimum net worth criterion of Rs 50 crore in three immediately preceding financial years.
Market analysts point out that these stringent norms will hurt a large number of retail investors in the country as a major proportion of shares in such companies were distributed among them.
| STRICTER CRITERIA (For companies suspended for over a year seeking to re-list) |
| Issued and paid-up capital: Minimum paid-up capital of Rs 10 cr Or, net worth: Minimum net worth of Rs 50 crore (excluding revaluation reserves) in 3 immediately preceding financial years. (Similar for companies seeking to migrate from RSEs. But will exclude revaluation reserves in 3 immediately preceding financial years) Profit making track record: Distributable profits in terms of Section 205 of Companies Act, 1956 for at least 3 out of 5 immediately preceding financial years based on audited financial results with the last financial year reporting profit (provided that extraordinary income shall not be considered for calculating distributable profit) Number of public shareholders: Minimum 500 |
There are 17 regional stock exchanges, which together have over 3,000 listed companies. Around 1,600 companies were suspended on the BSE for non-compliance in the past several years, of which over 90 per cent were suspended for over a year.
Sources point out the BSE was warming up for the launch of a small and medium enterprises (SMEs) platform by raising the standard of listing for companies on its main platform. This will force all the small companies suspended from trading to list on the SMEs platform, when they plan to list.
Currently, there are four applications for the launch of the SMEs platform pending with the Securities and Exchange Board of India (Sebi).
“Any exchange has the right to allow only quality companies to trade on its platform. Therefore, the BSE’s move may be right,” said Prithvi Heldia, director of Prime Database.
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As per a study by Mumbai-based research house CNI Global, the suspension and de-listing of over 1,000 companies by the BSE and the National Stock Exchange since 1996 has blocked over Rs 58,000 crore of individual equity investors’ money. The analysis has shown that almost 95 per cent of the total market capitalisation of 876 suspended companies for which data is available is public and belongs to individual investors as the promoters’ holding is as low as 5 per cent.
Promoters of most of the companies sold their shares in the open market before de-listing and consequently their holdings came down below 5 per cent. Also, in cases the promoter stake went down to sub 1 per cent level. The value of promoters’ holding was merely Rs 3,290 crore against the total market capitalisation of Rs 61,699 crore for those companies. The BSE has no data for another 536 companies whereas NSE doesn’t have any data for 38 companies, which were also suspended.
Promoters of debt-free small listed companies, which have no business model, are ready to sell their companies for Rs 5 crore, said stock brokers. “In such a scenario, which suspended company would want to follow the BSE’s norms to list?” ask brokers. Earlier, owing to the number of defaulting companies increasing every quarter, the BSE in November 2006 had issued a public notice proposing to delist over 650 companies from its official records as trading in securities of these companies had been under suspension for a period of three years or more. This move was stalled by rights activists. For now, promoters of several small companies are making a beeline to get re-listed before July.