BSE SME tweaks eligibility norms

Move aimed at attracting better quality firms

The BSE exchange has tightened the eligibility criteria for listing of small and medium enterprises (SMEs), to enhance the quality of new issuers. BSE and the National Stock Exchange (NSE), the two major bourses, have separate trading platforms for listing of SMEs.

Under the new BSE guidelines, companies will be required to have a minimum net worth of Rs 3 crore, compared to an earlier one of Rs 1 crore. The post issue paid-up capital, as well as the net tangible assets of the company, should amount to Rs 3 crore. The new norms take effect from April; they will not apply to the existing listed companies.

“The eligibility criteria has been revised by the exchange as a routine process to make the platform more vibrant and entrepreneur-friendly, so that wealth can be created for all stakeholders in the long run and give visibility to the companies,” said a BSE spokesperson, in response to an email query.

“The net worth and paid-up capital threshold was kept low to popularise the segment. Now that a critical mass has been achieved, the exchange is looking to strengthen the qualitative aspects of SME listing. A higher limit will deter non-serious players from accessing the market and bring in better promoters,” said Alok Churiwala, vice-chairman, BSE Brokers Forum.

He said the concerns raised recently by the market regulator, Securities and Exchange Board of India, on listed companies evading taxes and laundering unaccounted money, might have also prompted the revision.

Companies unable to generate profits in two of the three financial years prior to the listing are required to ensure a net worth of Rs 5 crore, up from Rs 3 crore earlier.

The listing norms for Emerge, the SME trading platform of NSE, haven't been changed. “Regarding our norms, we framed them keeping in mind the exchange-level best practices. We are always open to guidance from the regulator and feedback from the market (but) as of now, we are not considering modifications,” said an NSE spokesperson via an email response.

Emerge prescribes that a company also have a record of three years and positive cash accrual from operations for at least two financial years prior to making a listing application.

At present, 83 companies are listed on the BSE SME platform. NSE Emerge has six companies listed.

Merchant bankers said the tightening of the norms could lead to fewer listings but better-quality names on the platform. “It is a matter of BSE realising that there should be some decent entry barriers for listing on this platform. There should be a certain reasonable size and quality of companies coming in for the listing,” said Dara J Kalyaniwala, vice-president, investment banking, Prabhudas Lilladher.