Firms listed on the SME platform exempted from IPO & FPO eligibility norms.
Ruling out the need for a separate exchange for small and medium enterprises, the Securities and Exchange Board of India (Sebi) on Monday provided a special dispensation to help them list and announced steps to protect the interest of investors.
Following a board meeting here on Monday, Sebi said companies with a paid-up capital of up to Rs 25 crore would be able to list on the SME platform. A minimum paid-up capital of Rs 10 crore would be needed for listing on the main boards of the National Stock Exchange and the Bombay Stock Exchange, it said.
Further, it said companies listed on the SME platform would be exempted from the eligibility norms for initial and follow-on public offers. While norms related to Clause 49 of the listing agreement will have to be complied with, SMEs have been exempted from quarterly preparation and presentation of financial results to keep their compliance costs low. Instead, accounts will have to be prepared and presented on a half-yearly basis.
The Sebi board decided that the minimum initial public offer (IPO) application and the minimum trading lot be fixed at Rs 1 lakh. But, merchant bankers to these issues would have added responsibility. For a start, the whole issue would have to be underwritten. The rules provide for the offer document to be filed with Sebi and the exchange. However, Sebi would not make observations on the offer documents. The bankers would have to bear the responsibility for market making for at least three years.
“Merchant bankers will be allowed to do market making along with a disclosed nominated investor (like private equity, venture capital, high net worth individuals and qualified institutional buyers). Under this arrangement, all the stock being bought and sold as part of market making will ultimately get transferred to the disclosed nominated investor with whom the merchant banker has a contractual agreement. The merchant banker will have to disclose its intention for this arrangement and have it approved by stock exchanges where the issuer SME is listed,” it said.
Further, well-capitalised registered entities such as venture capital funds could be allowed to enter into contractual agreements with merchant bankers to share the burden of devolvement of underwriting obligation. Though the bankers would have to ensure that the entire issue was underwritten, only a minimum 15 per cent of the issue size would have to be compulsorily underwritten by the merchant banker itself, Sebi said.
To protect investor interest, those whose holdings are valued at under Rs 1 lakh can offload their shares to the market maker. The only rider is that the investor has to sell the entire holding in one lot.
During the compulsory market-making period, promoters or acquirers would be allowed to dilute their shareholding only through an offer for sale or to an acquirer and not to the market maker, Sebi said.
Sebi has also agreed to dispense with the Takeover Code regulations for acquisition of shares through merchant bankers or market makers if they do not intend to take over management control. Merchant bankers can also seek board representation.
