BSE's SME exchange to witness first public issue

After much ado, the Bombay Stock Exchange (BSE) will kick-start its small and medium enterprises (SME) segment with the Rs 8.5-crore initial public offer (IPO) of a non-banking finance company (NBFC), BCB Finance. The IPO, which will open for subscription on February 23, will be the first issue to be traded on the segment in March.

According to an official from the Mumbai-based Aryaman Financial Services, lead manager to the IPO, the total cost of the issue, including the market-making fee, will be around 8-10 per cent of the money raised. Market-making, which is compulsory for SMEs for three years, had become a key issue for firms aspiring to list on the SME platform.

Ikab Securities will charge Rs 75,000 a month as market-making fee for three years, said a merchant banking official.

If the IPO is successful, it may pave the way for the listing of other companies on the platform. Both BSE and the National Stock Exchange (NSE) have been under tremendous pressure from the government to launch trading in SMEs.

“We have many more SMEs lined up for IPO. Liquidity may not be an issue for investors, as market-making will be adequate,” said Lakshman Gugulothu, chief executive officer of BSE’s SME platform.

BCB, promoted by Mumbai-based stock brokers Bharat and Uttam Bagri of BCB Broking, intends to use the money for investing in stock markets and lending purpose. BCB promoters will sell 3.4 million shares at Rs 25 a piece. The shares carry a face value of Rs 10 each. After the IPO, the company would be valued at over Rs 19 crore.

BCB, however, scores low on fundamentals, with too many risks involved. According to the prospectus, it will invest Rs 3.5 crore in stock market, debt market and mutual funds. Around Rs 2 crore will be lent to clients as margin financing and Rs 65 lakh will be utilised for general corporate purpose. The margin financing business has been in doldrums for the past couple of years, as the lending books of some of the large broking firms have halved. BCB operates from a 200 square feet office leased from BCB Brokerage, its parent company, near the BSE building.

According to the Securities and Exchange Board of India, SMEs are allowed to raise between Rs 5 lakh and Rs 5 crore. Any company whose post-issue capital has a face value of Rs 50 lakh-Rs 10 crore can list on the SME Exchange.

Those with a post-issue capital of Rs 10 crore-Rs 25 crore can choose to list on either the SME Exchange or the main exchange. Companies with a capital of over Rs 25 crore will have to list on the main board.

Both NSE and BSE are banking on the fact that many venture capitalists and foreign funds have shown interest in Indian SMEs and, hence, will be keen to invest in through the exchange. 

SME platform gets trading lot sizes 

The Securities and Exchange Board of India (Sebi) has said companies wanting to list on the soon-to-be launched SME platform will have standardised lot sizes during the IPO as well as in the secondary market trading. It has prescribed 17 lot sizes for trading in these companies, depending on the price band of the company. For instance, those having a price band of Rs 14-Rs 18 will have to trade in minimum lot size of 8,000 shares. If the band falls under two different categories of lot sizes, the upper end of the band will determine the lot size.

At the allotment stage, the registrar, in consultation with the merchant bankers, issuer and the stock exchange, will decide the basis of allotment in the multiple of these lot sizes.

“In secondary market trading, the trading lot size shall be the same, as shall be the IPO lot size at the application/allotment stage, facilitating secondary market trading,” said a Sebi circular. 

Even if the stock price falls below the issue price in the secondary market, exchanges will not be allowed to reduce it to below the initial lot size. However, they can review the lot size once in every six months, if needed, by giving an advance notice of at least a month to the market.