How to apply for SME IPO

Investing in a Small and Medium Enterprise (SME) IPO can be an exciting opportunity, but understanding the application process is crucial. How to apply for SME IPO Ensure you have a Demat account, which acts as your digital vault for holding shares. You can open one with a broker of your choice. Apply for SME IPO Keep an eye out for upcoming SME IPO announcements through financial news websites, broker portals, or the official platforms of BSE SME or NSE Emerge. These announcements will detail the application window, price band, and minimum lot size.

Remember, SME IPO apply can be more volatile than established companies. So thorough research and a well-defined investment strategy are crucial before diving in.

Who can apply for SME IPO?

• Minimum Issue Size: Rs. 10 crores and a maximum of Rs. 25 crores.
• Minimum number of members for Issue: 50.
• Minimum post-issue paid-up capital: Rs. 10 crores (higher than SEBI’s Rs. 3 crore requirement).
• Minimum number of trading members: 25.
• Minimum Application Value: Rs. 1 lakh for retail investors and Rs. 5 lakh for non-retail investors.
• Lock-in Period: Promoters’ shares are subject to a lock-in period of 3 years from the date of listing.
• Track record: at least 3 years of operations for the company or its promoter.
• The SME cannot reapply for an IPO for a minimum period of six months if we reject the SME IPO application form. Additionally, the minimum application and trading lot size must not fall below ₹1 lakh.

SME IPO Meaning:

An apply SME IPO is an initial (first-time) public offer made by SMEs to raise capital by selling specified securities (shares or convertible shares) to the public.

SME Exchange:

The SME exchange means a trading platform of a recognized stock exchange having nationwide trading terminals (BSE SME & NSE Emerge) to list the specified securities issued by SME but does not include the Main Board.

Classification as an SME by country:

Apply for SME IPO: Eligibility Criteria

(1) Post-issued paid-up capital is less than or equal to ten crore rupees.

(2) Post-issue face value capital is more than 10 crore rupees and up to 25 crore rupees.

(3) Other eligibility conditions of the SME Exchange(s) on which the specified securities are proposed to be listed.

General conditions:

1. The issuer has filed an application with one or more BSE SME & NSE Emerge for listing its specified securities and has chosen one of them as the designated stock exchange.
2. The issuer has entered into an agreement with a depository (NSDL and CDSL) for the dematerialization of its specified securities already issued and proposed to be issued.
3. All its existing partly paid-up equity shares have either been fully paid-up or forfeited.
4. All specified securities held by the promoters are in dematerialized form.
5. It has made firm (bank-sanctioned letter) arrangements of finance through Verifiable means (name of lender) towards 75% per cent. Of the total amount of the project, excluding the amount of the public offer or internal accruals (reserve & surplus), {75% x total amount of the project-public issue-reserve and surplus}.

Procedures for apply for SME IPO:

Appiontment of Intermediaries:

• Merchant banker.
• Self-certified syndicate banks (SCSB).
• Underwriter (mandatory in case of book building).
• Compliance officer.
• Syndicate member (in case of book building).
• Registrar to the issue and enter into an agreement with such an intermediary.

Preparation of Draft Offer Document:

Before a company goes public, potential investors seek comprehensive information about its operations and prospects. Therefore, the merchant banker creates a Draft Red Herring Prospectus (DRHP), allowing potential investors to analyze the company’s financial data and conduct market evaluations for informed investment decisions.

Filing of the Offer Document with Stock Exchange:

The lead manager shall first file the draft offer document with ROC, then immediately file the offer document (also in soft copy) along with a due diligence certificate with SEBI.

The offer document shall be displayed from the date of filing with Sebi on the websites of the issuer, Sebi, the lead manager and the SME exchanges.

Pricing:

The issuer may determine the price of the equity share in consultation with the lead manager or through the book-building process.

Price or a Price Band:

• The issuer may mention in the offer document:

1. Fixed price issue—price or price band.
2. Book-built issue: floor price or a price band.
3. A prospectus was filed with ROC for only one price.

• Cap on the price band- Shall Not More Than 120% Of Floor Price.
• The floor price, or final price, shall not be less than the floor price of the share.
• If the issuer opts not to make the disclosure of the floor price or price band (book building issue) in the red herring prospectus,
• The issuer shall announce the floor price or the price band at least two working days before the opening of the issue in the newspapers in which the pre-issue advertisement was released.

Differential Pricing:

The issuer may offer its share at different prices after satisfying the following conditions:

Retail Individual Investors: At a price not less than or more than ten percent of the price at which a net offer is made to other categories of applicants, excluding anchor investors.

Anchor Investor: In the case of a book-built issue, the price of the share offered to the anchor investors shall not be less than the price offered to other applicants.

Minimum Offer to the Public: Rule 19(2)(b) Securities Contracts (Regulations) Rules, 1957.

In the case of the book-building issue:

Net offer meaning, issue size, promoter contribution, and reservation.

In case of fixed price issue:

Abridged Prospectus:

Abridged prospectus is a summary of the prospectus containing such details as may be prescribed by the SEBI.

ASBA: Application Supported by Blocked Amount:

Application containing an authorization to block the application money in the bank account for subscribing to an IPO issue.

Prohibition on Payment of Incentives:

Any person connected with the issue shall not offer any incentive, whether in cash, kind, or otherwise, for making an application for the IPO.

Except for fees or commissions for services rendered by intermediaries in relation to the issue,

Security Deposit:

The issuer shall deposit with the designated stock exchange before the opening of the subscription list an amount equal to 1% of the issue size.

Underwriting:

• The initial public offer shall be underwritten for 100% of the offer and shall not be restricted up to the minimum subscription level.
• The lead manager(s) shall underwrite at least 15% of the issue size on their own account.

• The issuer shall appoint merchant bankers or stock brokers to act as underwriters.
• The lead manager(s) may enter into an agreement with the nominated investors, indicating therein the number of specified securities to which they agree to subscribe at the issue price in case of under-subscription.

• The lead manager(s) shall file an undertaking with SEBI that the issue has been 100% underwritten.
• along with the list of underwriters, nominated investors, and sub-underwriters, indicating the extent of underwriting or subscription commitments made by each of them one day before the opening of the issue.

• If any of the underwriters fail to fulfill their underwriting obligations or the nominated investors fail to subscribe to the unsubscribed portion, the lead manager(s) shall fulfill the underwriting obligations.
• The underwriters and the nominated investors, who have entered into an agreement for subscribing to the issue in case of under-subscription, shall not subscribe to the issue.

• All underwriting and subscription arrangements made by the lead manager(s) shall be disclosed in the offer document. 

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