Sebi allows SME listing sans IPOs

Move to provide exit route to existing investors; platform open only to institutional investors, min trading lot Rs 10 lakh

The Securities and Exchange Board of India (Sebi) has allowed listing of small and medium enterprises (SMEs) without raising any money from the public, a move expected to help provide an exit avenue to existing investors.

The companies would be listed on a platform which is open only to institutional investors and which would have a minimum trading lot of Rs 10 lakh, according to a regulatory notification dated October 8.

Pavan Kumar Vijay, managing director at financial consultancy firm Corporate Professionals, said the move would aid price discovery and liquidity for the shares of such companies.

SMALL GOES BIG

Features of the new SME platform

• SME allowed to list without raising of funds
• Institutional platform to help price discovery, liquidity  
• Minimum trading lot of Rs 10 lakh
• Promoter lock-in for three years
• Sebi bars entities that are a part of wilful defaulters’ list or have faced regulatory scrutiny

“Listing will afford companies better valuations and also help make it easier for investors to sell their stake,” he said.

Sebi has said promoters need to have at least 20 per cent stake in the company.

“Not less than 20 per cent of the post listing capital shall be held by the promoters at the time of listing of specified securities of the small and medium enterprises, which shall be locked-in for a period of three years from the date of listing,” the notification said.

Sebit has also put in place conditions to keep away wilful defaulters and those who have had a run-in with regulators, according to the notification released on Wednesday. It bars listing by companies whose name appears in the wilful defaulters list of the Reserve Bank of India. Sebi is also looking to keep out companies whose promoter, group company or directors appear in the list.

Also, there should be no winding up petition against the company or regulatory action against it for five years, said the notification.

Other criteria include not completing more than 10 years after incorporation and revenues, which have not exceeded Rs 100 crore.

The companies that list on the platform would also require to have received funding or investment from at least one from a list of eligible entities, which include angel investors, alternative investment funds, scheduled banks or specialised international multilateral agencies.

The list also extends to merchant bankers and qualified institutional investors whose stake in the company would be locked in for at least three years from the time of listing.

The exit from such an institutional trading platform will be subject to a nod from a majority of non-promoter shareholders and the stock exchange where it is listed.

The exit would also happen if the company has been listed for 10 years or fulfils criteria such as revenues of more than Rs 300 crore or market capitalisation, which is greater than Rs 500 crore.

The exchange can de-list the company if it fails to file periodic filings or comply with corporate governance norms for more than a year.

The promoters and non-independent directors of a company, which is de-listed for non-compliance, will not be allowed to list another company on the platform for five years.

Companies cannot come out with an IPO while listed on the platform but can raise capital through private placement or rights issue.