Reduce minimum float for SME listing, say i-bankers

According to experts, the change in dilution norms will help encourage more companies to come on board the SME platform

Investment bankers for SMEs want to lower the minimum percentage of shares going public to 10 per cent of equity, from 25 per cent now. Going public is the act of listing certain number of shares on an exchange. SME stands for small and medium enterprise.

Experts believe that, at present, the funding need of an SME is much less than what is raised by the minimum number of shares going public, that is, 25 per cent of equity. "The company may require only Rs 5-10 crore, but the amount raised after the minimum number of shares go public could be Rs 30-40 crore," said Mahavir Lunawat, managing director of Pantomath Capital Advisors, which handles SME listings.

Experts say the change, if done by the market regulator, will encourage more companies to join SME platforms. At present, BSE has 119 firms listed on its SME platform; NSE (National Stock Exchange) has more than 36.

Before listing, most of these firms already have private investors such as angel or venture capital funds. So, the promoters would have already sold their stake by 10-15 per cent even before the listing. After the listing, the total dilution could be as high as 40 per cent, which is on the higher side, said experts.

"These companies are in their initial stage of business lifecycle and may require more capital, but this may become a challenge as the promoters might not be too keen on diluting their stake further," said Lunawat. SMEs are still grappling with issues such as lack of liquidity and lacklustre institutional participation.

Both NSE and BSE had launched their respective SME platforms in March 2012, after the market regulator came out with easier listing and disclosure guidelines to help small firms tap the capital market.

Investment bankers like Lunawat believe the minimum percentage of shares listed on an SME platform can be 10 per cent of equity; but if the SME moves to the main exchange itself, the minimum percentage of shares listed can be 25 per cent of equity.

Also, experts say there is a need to bring in priority investing from institutional (big money) players and change the lot size to improve liquidity. The minimum lot size (share worth) varies between Rs 1 lakh and Rs 2 lakh.  

"The segment needs a complete overhaul as there are hardly any qualified investors willing to put money into these companies," said G Ganesh, founder, Inga Capital. "The stocks are traded among a select group, mostly promoters. You can't get in and out at will."