SME IPO Eligibility

There are two SME IPO platforms in India: BSE SME and NSE Emerge. An SME company could choose one of these two platforms for its IPO.

The SME company has to meet the SME IPO eligibility criteria set by the stock exchanges and SEBI. The BSE and NSE exchanges have quite similar requirements for an SME IPO.

Note: Unlike mainboard IPOs, SME IPOs can only be listed on one exchange.

1. NSE SME IPO Eligibility

Below is the list of eligibility criteria for SMEs wishing to conduct their IPOs on the NSE Emerge platform.

• The company should be registered in India under the Companies Act 1956/2013.
• The post-issue paid-up capital should not exceed Rs 25 crores.
• The company should have a track record of at least three years.
• The company should have positive net worth in at least two out of three financial years.
• The National Company Law Tribunal (NCLT) or a court should not have filed a winding up petition in respect of the company.
• The issuer should provide a certificate stating that the company has not been referred to the Industrial and Financial Reconstruction Board (BIFR).
• The issuer and the promoting companies have not been subject to any proceedings under the Insolvency and Bankruptcy Code.
• The issuer / promoter / directors / promoter group / selling shareholder should not be excluded from accessing the capital market by the Board.
• The promoters / directors / founders / investors should not be classified as fugitives or delinquents under the Fugitive Business Offenders Act 2018.
• Directors should provide documentation if they are under investigation or criminal proceedings.
• Articles of incorporation should not contain restrictive clauses.

The issuing company promoters / promoter company(ies), group companies or companies promoted by promoters / promoter company(ies) should not have any

• Disciplinary proceedings in the past three years.
• Have failed to pay interest or principal on bonds / fixed deposits and banks.
• Litigation. In which case they must provide documentation of litigation, the nature of the litigation, and the status of the litigation.

In addition, for an SME IPO:

• The minimum application and trading lot size is Rs 1,00,000.
• Minimum number of allottees in an SME IPO should be 50.
• IPO underwriting is mandatory, of which 15% should be underwritten by a merchant banker.
• Market maker is mandatory.

NSE SME IPO Documents

Detailed documents list can be found on the NSE SME IPO website.

• Checklist for In-principle approval
• Check List- Final Listing
• IPO Registration Form
• Fixed Price Issue
• Book Building Issue
• Listing Agreement

BSE SME IPO Eligibility

The criteria below are a brief checklist for SMEs considering an IPO on the BSE SME platform.

• The issuer should be registered under the Companies Act, 1956.
• Post issue paid up capital should not exceed Rs. 25 crores.
• Net worth should be at least Rs. 1 crore for 2 preceding full financial years. If the applicant company is the result of conversion of partnership firm, proprietorship or LLP, then the previous firm should have the required net worth of Rs 1 crore for 2 preceding financial years.
• Net Tangible Assets should be Rs 3 crores in the preceding financial year.
• A company should be in operation for at least three years. If the company has been in operation for less than three years, the project for which IPO is being proposed should be appraised and funded by NABARD, SIDBI, Banks (other than co-operative banks), Financial Institutions.
• If a company is converted into a corporation, it must have a positive cash balance (profit before depreciation and taxes). This should be the case for at least one year (of the last three years).
• The company must also have positive net assets.
• The company should have a functioning website.
• The company should support Demat securities trading. It must have an agreement with NSDL and CDSL custodians.
• The company should ensure that the promoters have not changed in the last one year since the submission of the BSE application for listing in the SME sector.
• The issuer should provide a certificate stating that the company has not been referred to the Industrial and Financial Reconstruction Board (BIFR).
• There should not be a winding petition against the company.
• The minimum size for the application and trading lot is Rs 1,00,000. The minimum number of shareholders should be 50.
• Underwriting is mandatory. 15% of it should be underwritten by a merchant banker.
• The company should have operating profit (i.e. Earnings before Interest, depreciation and tax) for 2 out of 3 latest financial years, of which the latest financial year should be mandatorily profitable. If the IPO project is funded by NABARD, SIDBI, Banks (other than cooperative banks), the company should have positive operating profit in the one last financial year.
• The leverage ratio of the company should not be more than 3:1 except for finance companies which may have certain relaxation.
• There should not be any regulatory action of suspension of trading against any promoters or companies promoted by promoters.
• The company directors and promoters should not be the promoters or directors (other than independent directors) of the compulsory delisted companies or suspended from trading on account of non-compliance.
• The company director should not be debarred or disqualified by any of the regulatory authorities.
• There should be no pending defaults in respect of payment of interest and/or principal to the debenture/bond/fixed deposit holders by the applicant company, promoters/ promoting company(ies), or subsidiary companies.
• In case of name change of the company in the last 1 year, 50% of the revenue for preceding full FY should be earned from the activity indicated by the new name. The revenue calculated should be based on a restated and consolidated basis.

A micro finance company should additionally have the below to be eligible to apply for SME IPO listing.

• Minimum Rs 100 crores of Assets Under Management.
• Client Base of 10,000.
• No public deposits.

In case of broking companies, the applicant company should fulfil the below additional criteria in addition to the above listed criteria for all SME companies.

• Should have a minimum Net worth and Profit of Rs. 5 crores in any 2 years out of 3 financial years, or net worth of at least Rs. 25 crores in any 3 years out of 5 financial years.
• Minimum post issue paid up capital should be Rs. 3 crores.
• Should have net tangible assets of at least Rs. 3 Crores as per the latest audited financial results.

BSE SME IPO Documents

A merchant banker assists the company in compiling the necessary documents and information for filing an IPO application with the stock exchanges. The BSE has published a detailed checklist for listing on SME IPO. The following documents can be found at the BSE SME IPO checklist:

• Listing Application Form
• Listing and trading approval documents
• Issue open fixed Issue documents
• Issue open book-building Issue format
• Company information in case of refund
• The basis of the allotment documents

Key Takeaways

• An SME company can choose between the NSE Emerge or BSE SME platform to go public. The Merchant Banker helps the companies to choose one of the two platforms.
• The Merchant Banker assists the issuer in compiling the required documents and information for filing an IPO application with the stock exchanges.
• The Merchant Banker contacts the exchange if there is a need for clarification on the admission criteria.