Stock exchanges turn to Centre, state govts to fund SME share sales

The plea comes at a time when coronavirus pandemic has crippled business activity, with SMEs being the worst-hit

Stock exchanges have approached the Centre and state governments for part-funding share sales of small and medium enterprises (SMEs).

The NSE has asked several state governments to bear a portion of the issue expenses of SMEs, which want to list, subject to an upper ceiling, sources said. The exchange has also approached the Centre for setting up a fund that can invest in listed SMEs.  “The exchange is trying to educate SME promoters about the benefits of listing on the platform. Any investment from the Centre in a listed SME will add immensely to its credibility,” said a source familiar with the matter.

Ajay Thakur, head of the SME segment at the BSE, said: “The exchange has approached both central and state governments for creating funds for investing in the equities of SMEs coming for listing. We have also held a series of meetings with AIFs and fund houses for creating funds dedicated to investment in SMEs.” 

The plea comes at a time when Covid-19 pandemic has crippled business activity, with SMEs being the worst-hit. The BSE saw three SME listings recently despite the nationwide lockdown. A few state governments had taken similar initiatives in the past. In 2016, the Gujarat government had announced reimbursement of 10 per cent of the IPO expenses of SMEs in the state, subject to a maximum of Rs 5 lakh each. 

Rajasthan, too, had said that it would reimburse up to Rs 2.5 lakh towards the IPO expenses for SMEs. 

 

 

Small Industries Development Bank of India (Sidbi) had set up a venture capital fund, SME Growth Fund, to provide easier financing options to SMEs. The fund targeted a corpus of Rs 500 crore and is currently in its divestment stage.

The BSE and the NSE had launched separate SME platforms in March 2012, after the Securities and Exchange Board of India (Sebi) came out with easier listing and disclosure guidelines to help small companies tap into the capital market. This is the first time that the segment finds itself in the throes of a bear cycle.
 

More than a third of the SMEs listed on exchange platforms since 2012 are trading in the red. Among the 225 actively traded scrips, 85 have shed more than 25 per cent this calendar year. About 42 per cent have slid more than the Sensex, which is down 20.6 per cent year-to-date.

"The primary cause of the fall in share prices is lack of buyers. At a time when there are so many companies available cheap on the mainboard, investors are reluctant to put in money in SMEs. The current situation has prompted promoters of unlisted SMEs to look at alternative sources of funding and explore the possibility of listing," said Gaurav Jain, director, Hem Securities.

Analysing SMEs can be a challenge as they are not tracked by analysts and there is not much information in the public domain. This means investors are left to themselves when it comes to assessing the fundamentals and gauging the credibility of promoters.

The SME segment has been grappling with issues, such as lack of liquidity and lacklustre institutional participation. According to experts, the need is to bring in priority investing from big institutional players, and tweak the lot size to improve liquidity.

Besides improved transparency, an IPO route for SMEs reduces their dependence on debt financing and helps them maintain their debt-equity ratio efficiently, said experts. Listed SMEs with good ratings can get loans at lower interest rates than the market.