How to apply for SME IPO

Classification as an SME by country.

WHAT IS SME IPO MEANING.

SME IPO means an initial (first time) public offer made by SMEs to raise capital by selling specified securities (share or convertible into share) to the public.

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 and but does not include the Main Board.

SME IPO: ELIGIBILITY CRITERIA

(1)  post-issue 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. Issuer has filed an application to one or more BSE SME & NSE EMERGE for listing of its specified securities and has chosen one of them as the designated stock exchange
2. Issuer has entered into an agreement with a depository (NSDL&CDSL) for 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 the dematerialized form
5. it has made firm (Bank sanctioned letter) arrangements of finance through VERIFIABLE MEANS (name of lender) towards 75% per cent. Of total amount of Project excluding the amount of public offer or internal accruals (Reserve & surplus) {75% X total amount of project-public issue -reserve &surplus}

PROCEDURE FOR SME IPO

APPOINTMENT- 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 agreement with such 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 Offer Document with Stock Exchange

LEAD MANAGER shall First file Draft offer document with ROC, then immediately file the offer document (also in soft copy) along with 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

Issuer may determine the price of equity share in consultation with lead manager or through book building process

PRICE OR A PRICE BAND

• The issuer may mention in offer document-

1. fixed price issue-price or price band
2. book-built issue- floor price or a price band
3. prospectus filed with ROC- only one price

• cap on the price band- Shall Not More Than 120% Of Floor Price
• floor price or the final price- shall not be less than floor price of share
• if issuer opts not to make the disclosure of the floor price or price band (book building issue) in the red herring prospectus
• 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 satisfy the following condition

RETAIL INDIVIDUAL INVESTORS – at a price not less than by more than ten per cent. of the price at which net offer is made to other categories of applicants, excluding anchor investors.

 ANCHOR INVESTOR– in 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 PUBLIC- Rule 19(2)(b) Securities Contracts (Regulations) Rules, 1957

In case of book building issue

Net offer meaning- issue size-promoter contribution-reservation 

In case of fixed price issue

ABRIDGED PROSPECTUS

abridged prospectus is a summary of the prospectus containing such details as 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 weather in cash or kind or otherwise to any for making application in the IPO

except for fees or commission 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 at 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 which they agree to subscribe at the issue price in case of under-subscription.

• The lead manager(s) shall file an undertaking to the 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 commitment made by each of them, one day before the opening of 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. 

REQUIREMENTS FOR SME IPOS TO GO PUBLIC

• Minimum Issue Size: Rs. 10 crores and a maximum of Rs. 25 crores.
• Min No. 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 application. Additionally, the minimum application and trading lot size must not fall below ₹1 lakh.

External Government Website Link

MCA | INCOME TAX| SEBI 

Tags: IPO SME IPO SME IPO BSE SME IPO NSE