SME Listing Presented by : NitiN Somani Company Secretary SPA Capital Advisors Limited Category -...

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


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


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


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


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


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


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


Listing on Institutional Trading Platform (“ITP”)(A Platform for Startups and Emerging Companies)


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.


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


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)


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.


Due Diligence of Company

@ NIRC ICSI

Voluntary Delisting from ITP

EXIT/ DELISTING FROM ITP


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


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


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.


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


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


Opportunities to companies from listing


OPPORTUNITIES


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


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


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


SUCCESS MANTRA FOR SMEs!

Dedicated &

experienced team

Mentorship and focused

approach

Regulatory complianc

es

Staying ahead in

competition

Innovations and

Creativity

Fund Raising


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


ROLE FOR COMPANY SECRETARIES


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


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


DELISTING OPTIONS


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


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


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


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


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


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


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


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 !


Contact:

NitiN SomaniCompany SecretarySPA Capital Advisors LimitedCategory - I Merchant Banker & Portfolio Manager

Tel.: +91 98 1069 4501E-mail: [email protected]

mailto:[email protected]

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