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SME Listing
Presented by :
NitiN SomaniCompany SecretarySPA Capital Advisors LimitedCategory - I Merchant Banker & Portfolio ManagerFebruary 20, 2016
WHAT IS AN SME
By: NitiN Somani, SPA Capital Advisors Limited
A definition is available under MSME Act
For manufacturing segment, limits w.r.t. investment in plant and machinery: MICRO enterprise with less than Rs. 25 lakhs; SMALL enterprise with more than Rs. 25 lakhs but less than Rs. 5 cr; and MEDIUM enterprise with more than Rs. 5 cr but less than Rs. 10 cr
For service segment, limits w.r.t. investment in equipments: MICRO enterprise with less than Rs. 25 lakhs; SMALL enterprise with more than Rs. 25 lakhs but less than Rs. 5 cr; and MEDIUM enterprise with more than Rs. 5 cr but less than Rs. 10 cr
The aforesaid definition does not applies to the definition of SME for listing requirements
@ NIRC ICSI
CLASSIFICATION OF AN SME
By: NitiN Somani, SPA Capital Advisors Limited
For the listing requirements, SME can be classified into following
categories:
Companies eligible for
Listing on SME platform
Companies eligible for
Listing on ITP platform
Listing criteria broadly based on financial parameters
Listing criteria broadly based on sector and / or holding of the shareholders in the Company
@ NIRC ICSI
PHASES FOR AN ORGANISATION
By: NitiN Somani, SPA Capital Advisors Limited
Seed funding:Promoters and close friends and relatives
Angel funding:Capital for kick off with mentoring
VC funding:Capital for growth (Series A)
PE funding:Capital for expansion(Series B / C)
@ NIRC ICSI
Listing on SME
(A Platform for Small and Medium Enterprises)
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
ELIGIBILITY NORMS AND KEY REQUIREMENTS FOR LISTING Post issue face value capital does not exceed 25 crore Minimum Application Size shall not be less than one lakh per application Number of prospective allottees should not be less than 50. 100% underwritten Market Making for minimum 3 years Mandatory facilitation of trading in Demat securities
By: NitiN Somani, SPA Capital Advisors Limited
PREPARATION FOR SME IPO
Appointment of intermediaries, viz. Merchant Banker, Registrar, Printer, Banker, Advertiser, Market maker
Due diligence to be completed. Due diligence to cover all aspects relating to the company, legal, financial, secretarial, operational, etc
Proposed project and the fund requirement for the same Marketing and creating awareness for the company & issue Interaction with various other intermediaries and stock brokers Effective communication Creating sustainable valuation and shareholder base
@ NIRC ICSI
PROCESS FOR SME LISTING
By: NitiN Somani, SPA Capital Advisors Limited
Company to file draft information document with stock exchange and SEBI
Obtain approval from Stock Exchanges
Issue opening and issue closing
Allotment / Listing
Due Diligence of Company and appointment of intermediaries
Total process may take around 2-3 months, if all information compiled by the Company immediately
@ NIRC ICSI
Company advantages
Regulatory Benefits Others
Fund availability from investors Visibility and creating track record Better liquidity - entry & exit platform
No tax on LTCG Lower tax rate for STCG No tax on share premium (Section
56) Simplified disclosure norms (half
yearly)
Enhancing shareholders value ESOPs - liquidity for employees
ADVANTAGES OF SME LISTING
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Post Issue Face Value Capital increases beyond Rs. 25 crores
Issuer shall obtain in-principle approval from the Main Board
At least Two times votes in favor than in against (pubic shareholders)
Shareholders to approve by way of special resolution through postal ballot
Optional Migration to Main Board
Compulsory Migration to Main Board
Post Issue Face Value Capital more than 10 crore rupees and upto Rs. 25 crores
Shareholders to approve by way of special resolution through postal ballot
At least Two times votes in favor than in against (public shareholders)
Fulfills the eligibility criteria for listing by Main Board
MIGRATION TO MAIN BOARD
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Listing on Institutional Trading Platform (“ITP”)(A Platform for Startups and Emerging Companies)
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
KEY FEATURES ON ITP
Definition of ITP: “institutional trading platform” means the trading platform for listing and trading of specified securities of entities that comply with the eligibility criteria specified in regulation 106Y.
The minimum application size shall be ten lakh rupees. The number of allottees shall be more than two hundred. The allocation in the net offer to public category shall be as follows:
75% to institutional investors, provided that there shall be no separate allocation for anchor investors.
25% to non-institutional investors.
Any under-subscription in the non-institutional investor category shall be available for subscription under the institutional investors category.
Allotment to institutional investors shall be on a discretionary basis and to non-institutional investors shall be on proportionate basis,
The offer document shall disclose the broad objects of the issue.
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
LISTING ELIGIBILITY FOR ENTITIES ON ITP1(a) An entity which is in the use of technology, IT, intellectual property, data
analytics, bio-technology or nano-technology to provide products, services or business platforms with substantial value addition and at least twenty five per cent of its pre-issue capital is held by QIB(s) as on the date of filing of draft information document with Board.
1(b) Any other entity which at least fifty per cent of the pre-issue capital is held by QIB(s) as on the date of filing of draft information document or draft offer document with the Board.
2 No person, individually or collectively with persons acting in concert, shall hold twenty five per cent or more of the post-issue share capital in an above mentioned entity
By: NitiN Somani, SPA Capital Advisors Limited
LISTING OF STARTUPS THROUGH ITP ITP is the most recently launched trading platform for listing and trading of
specified securities of start up ventures Listing can be done without public issue and also with public issue Lesser listing compliance requirements Trading platform for informed investors / institutions Minimum trading lot of Rs. 10 lakhs The entire pre - issue capital of the shareholders shall be locked-in
@ NIRC ICSI
Visibility on getting listed will improve credibility with all stakeholders
Will attract new profile of sophisticated investors in the company
Higher Visibility & credibility
Setting the stage
Gives flexibility to the Company to raise money for new ideas and technologies
Listing entails robust corporate governance and internal controls and systems
Prepares a company for a wider fund raising in future
Non applicability of Laws
Minimum public shareholding requirements
SEBI (Delisting of Shares) Regulations, 2009
Any share premium taken by the Company for allotment of securities over and above their fair value will not be taxable (section 56 of Income Tax Act 1961)
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
LISTING WITHOUT PUBLIC ISSUE
Company to file draft information document
Obtain In-principle approval from Stock Exchanges
Obtain 19(2)(b) exemption from SEBI for listing on ITP. SEBI observation deemed 19(2) (b) and 17(7) of SCRR
Company to apply for listing of securities on Stock Exchanges within 30 days.
By: NitiN Somani, SPA Capital Advisors Limited
Due Diligence of Company
@ NIRC ICSI
Voluntary Delisting from ITP
EXIT/ DELISTING FROM ITP
Shareholders to approve by way of special resolution through postal ballot
90% of the total votes should be casted in favor of delisting
Majority of non promoter votes should have been casted in favor
Approval of stock exchange for delisting
By: NitiN Somani, SPA Capital Advisors Limited
MIGRATION FROM MAIN BOARDAn entity that has listed its specified securities on a recognised stock exchange in accordance with the provisions of Chapter XC of SEBI ICRD Regulations 2015 may at its option migrate to the main board of that recognised stock exchange after expiry of three years from the date of listing subject to compliance with the eligibility requirements of the stock exchange.
@ NIRC ICSI
KEY HIGHLIGHTS OFSTARTUP INDIA PLAN
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
INTRODUCTION
What is a Startup?
Startup means an entity, incorporated or registered in India not prior to five years, with annual turnover not exceeding INR 25 crore in any preceding financial year, working towards innovation, development, deployment or commercialization of new products, processes or services driven by technology or intellectual property.
What is a Startup India Plan?
Startup India is a flagship initiative of the Government of India, intended to build a strong eco-system for nurturing innovation and Startups in the country that will drive sustainable economic growth and generate large scale employment opportunities.
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Must be a private Co./LLP/Partnership firm
Age should not be more than 5 years
Turnover should not exceed 25 crores
Should develop a innovative product which should add to the value of customers and should be commercial
Get a approval from DIPP that your company is innovative
Recommendation letter by incubator in post graduate Indian College.
Recommendation letter by incubator funded by GOI.
Recommendation letter by incubator recognised by GOI.
Is funded by an incubation fund/ Angel Fund/Private Equity Fund/ Angel Network
Has patent granted by Indian Patent and Trademark Office related to business
If you meet conditions A, B, C, D, E and any of F series then you are a Startup.
B C D
E
F F1 F2 F3 F4
What QUALIFIES A STARTUP?A
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Key highlights
Compliance regime based on self certification (app based and for certain labour & environment laws and no inspection for 3 years)
To set up Start up India Hub where it will collaborate with governments, VCs, angel investors, incubators, consultants, etc
Mobile app and portal for faster clearances and approvals Legal support and fast tracking patent applications at lower costs Relaxed norms for public procurement for startups Faster exit Providing funding support through fund of funds with corpus of 10,000 cr Credit guarantee fund for INR 500 cr for next 4 years Tax exemption on capital gains Tax exemption for 3 years to the start ups Tax exemption on investments above fair value Organising start up fest or showcasing innovation and providing a
collaboration platform Launch of Atal Innovation Mission (AIM) with Self Employment and Talent
Utilisation (SETU) program Harnessing private sector expertise for incubator setup Building innovation centre Setting up of 7 new Research Parks Promoting start ups in the Bio technology sector Launching of innovation focused programs for students Annual Incubator Grand Challenge
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Opportunities to companies from listing
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
OPPORTUNITIES
By: NitiN Somani, SPA Capital Advisors Limited
Creating new business opportunities Higher visibility Acquisition of talent pool Favorable tax treatment for investments in listed shares Indian demographic advantage attracting overseas investors New business Ideas defying existing rules of the game Regulated financial markets M&A opportunities
@ NIRC ICSI
Challenges for New generation
companies
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Finding the right co-founder
Raising of right capital at right
timeLegal and regulatory
compliances and issues
Management of Resources with
available constraints
Retention of talent
Rapid Growth and adding
Talent
Mentorship & right advisory
Favourable govt. policies
& minimal entry barriers
Challenges faced by
SMEs
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Marketing and creating visibility
Balance with personal life
and minimise stressUsing analytics
Change in technologies and adaptive
systems
Innovative idea and maintaining
focus with prioritisation Sustainable
and long term business model
Capital structuring
Minimising cash burn
Challenges faced by
SMEs
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
SUCCESS MANTRA FOR SMEs!
Dedicated &
experienced team
Mentorship and focused
approach
Regulatory complianc
es
Staying ahead in
competition
Innovations and
Creativity
Fund Raising
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Role of Professionals
Secretarial Matters:Helps in compliance of various companies act laws which changes drastically
Finance Professional:Acts a financial interface between promoters and venture capitalists for fund raising and managing capital
Tax Professional:Help smoothen the business operations as they are well equipped with taxation laws.
Merchant Banker:Liaison with SEBI and Stock Exchanges for fund raising through capital market
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
ROLE FOR COMPANY SECRETARIES
By: NitiN Somani, SPA Capital Advisors Limited
During business conceptualization Advise on the structure for the business, based on requirement Assist in getting the right legal vehicle formed / incorporated Initial capital structuring and setting up of processes
During the nascent phase of the business Hand holding for legal advisory services related to taxation matters, corporate
laws, labour laws, IPR protection, etc Accounting services & secretarial support services Liasioning with various regulatory authorities
Business growth phase Assisting in getting the corporate structure right Assist in designing of business plan Assist in fund raising at Angel, VC or PE stages Risk advisory Getting compliances done
Exit phase Identifying the exit (partial or full) opportunities Tax planning
“One stop shop for all Start up advisory”
@ NIRC ICSI@ NIRC ICSI
DELISTING OF SECURITIES
Pains and Gains
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
INTRODUCTION
What is Delisting?
Removal of a listed company from the exchange on which it is traded Publicly available trading platform is no longer available to the
shareholders Option of shareholders to exit or remain with the company Shares acquired by the promoter of the company with no change in
capital structure Company and Promoters to comply with the delisting requirements and
process Promoter to bear the cost of delisting (other than delisting fees) Company becomes closely held Restriction on again tapping the capital markets
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
DELISTING OPTIONS
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Voluntary Delisting Compulsory Delisting
Remain listed on some exchange and delist from some
Delist from all exchanges
As a result of action taken by Regulator
DELISTING OPTIONS
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Voluntary Delisting
Remain listed on some exchange and delist from some
Delist from all exchanges
If listing continued on exchange having nation wide trading platform, no exit to be provided
Small companies
Other companies
Simplified delisting process
Reverse book building process to be followed
DELISTING - SMALL COMPANIES
By: NitiN Somani, SPA Capital Advisors Limited
Covered under Chapter VII of the SEBI Delisting Regulations Defined as:
Paid up capitla not exceeding Rs. 10 cr. Net worth not eeeding Rs. 25 cr. Share not traded on any stock exchange in the past one year Company not suspended by any nation wide stock exchange for non-
compliance in the last one year Special resolution is passed if:
Requirement of special resolution are fulfilled i.e. ¾th majority Votes casted in favor by public shareholdes should be atleast two times the
votes casted against the delisting Delisting achieved if:
90% of the public shareholders either tender their shares under the offer; or 90% of the public shareholders give their positive consent in writing from
delisting and to continue as shareholder of delisted company
@ NIRC ICSI
PROCESS
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Promoter to decide proposal for
delisting and inform company
Promoter to appoint merchant banker and obtain
fair valuation
Board to seek approval of
shareholders through postal
ballot
Payments to be made within 15
working days
Process to be completed within
75 days of first communication to
shareholders
Individual offer letters are sent to shareholders for
providing exit opportunity
DELISTING - COMPANIES OTHER THAN SMALL COMPANIES
By: NitiN Somani, SPA Capital Advisors Limited
In principle listing approval required from the Stock Exchanges If company is suspended, revocation of suspension also to be applied for Special resolution is passed if:
Requirement of special resolution are fulfilled i.e. ¾th majority Votes casted in favor by public shareholders should be atleast two times the
votes casted against the delisting Shares tendered under delisting process through stock exchange platform and
chargeable to STT. Shareholders to have benefit of NIL tax rate on LTCG and concessional tax rate on STCG
Delisting achieved if, higher of following achieved: Promoter holding reached 90% or more of the total issued shares and Atleast 25% of the public shareholders (by number) holding shares in demat
form had participated in the reverse book building process Final delisting application to be filed with one year from the date of passing of
special resolution
@ NIRC ICSI
PROCESS
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Promoter to decide proposal for
delisting and inform company
Promoter to appoint merchant banker and obtain
fair valuation
Board to appoint merchant banker for due diligence
(shareholding change in 2 years)
Open demat and cash escrow
account
Make application to stock exchanges for
in-principle delisting approval
Post receipt of DD report, consent of shareholders to be obtained through
postal ballot
Give newspaper advertisement
(Hindi + English + Regional where SE
situated)
Dispatch offer letters to
shareholders
Offer to remain open for 5 working
days
PROCESS
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Tendering of shares through platform of the stock exchange
Finalisation of offer price: where 90%
achieved
Promoter has option to accept / reject the price so
arrived at
In case of success & price accepted:
Payment to shareholders within
10 working days
In case of failure: Return shares
within 10 working days
Public announcement of
failure or success of offer
Make final application for
delistingDelisting approval
Exit opportunity to remaining
shareholders for 1 year
DELISTING - CONTENTIOUS ISSUES
By: NitiN Somani, SPA Capital Advisors Limited
If shareholders are participating in the reverse book building process, why there is
a requirement of postal ballot approval. Removing postal ballot requirement may reduce the timelines by around 45 days and also cost. At the end of day, till company is listed, it is shareholders money
How to service the remaining public shareholders, post delisting and new companies act related issued e.g. related party transactions, etc.
Companies listed exclusively on regional stock exchanges which have either exited or de-recognised by SEBI
Such companies moved to dessimination board of NSE and / or BSE Either Company shall get itself listed on a stock exchange with nation wide
platform or Promoters to provide an exit opportunity to the public shareholders
Period of 18 months provided to company / promoter to take necessary action
Failure to take action by the company / promoter will impact any future association of such company / promoter with securities market
Major issue: The circular for providing exit opportunity came in April 2015. However SEBI is yet to notify a process for exit opportunity. Pending any such notification, corporate houses (especially who have other listed operational companies) are taking judicious call and prudent steps for giving exit opportunity to the public shareholders of such listed companies and comply with SEBI circular ASAP.
@ NIRC ICSI
Thank You !
By: NitiN Somani, SPA Capital Advisors Limited@ NIRC ICSI
Contact:
NitiN SomaniCompany SecretarySPA Capital Advisors LimitedCategory - I Merchant Banker & Portfolio Manager
Tel.: +91 98 1069 4501E-mail: nitin@spacapital.com