Bombay Stock Exchange Ltd. BSE SME Exchange - Presentation Bombay Stock Exchange Limited 22nd November 2011 Ajay Thakur BSE SME Exchange

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<ul><li><p> Introduction</p></li><li><p>VISION and MISSION</p><p>VISIONWealth creation by the SMEs through inclusive economic growth.</p><p>MISSIONProvide the world class platform for the SMEs and Investors to come together and raise the equity capital.</p></li><li><p>MESSAGE TO THE ENTERPRENEURS AND INVESTORS</p><p>BSE SME Platform provides a great opportunity to the entrepreneurs to raise the equity capital for the growth and expansion of SMEs. It also provides the immense opportunity to the investors to identify and invest in the good companies at early stage. It will help unleash the valuation of the company and in the process create wealth for all the stakeholders including investors, besides considerable long term capital gains tax benefits and facility to exit at any point of time </p></li><li><p>SEBI has issued a final circular on May 18, 2010 for setting up a stock exchange/trading platform by a recognized Stock Exchange having nationwide trading terminals for SMEsThe necessary amendments have been made in the various SEBI RegulationsModel equity listing agreement has been notifiedBSE is eligible for setting up SME exchange and already got the Final approval from the capital market regulator SEBI for launch of SME Exchange</p><p>Introduction*</p></li><li><p>Continue..BSE is leveraging the existing Equity platform i.e. BOLT Systemfor launching the BSE SME Exchange. Negligible cost in launching the platform.</p><p>All Merchant Bankers empanelled with SEBI are by default MBs for this segment.Additional responsibility of secondary market for market making.</p><p>All Members registered with BSE are by default Members for this segment.No additional infrastructure required by Members for secondary market trading.</p></li><li><p> About SME Industry</p></li><li><p>About SME Industry*Classification of Micro, Small and Medium Enterprises</p></li><li><p>Micro, Small and Medium Enterprises (MSMEs) contribute - 8% of the country's GDP - 45% of the manufactured output- 40% of our exports</p><p>Provide employment to about 6 cr. people through 2.6 cr. enterprises. </p><p>The Micro Small and Medium Enterprise (MSME) sector forms the largest generator of employment in the Indian economy. </p><p>The MSME sector forms a major portion of the industrial activity.About SME Industry*</p></li><li><p> Need for SME Exchange</p></li><li><p>Provide the SMEs with equity financing opportunities to grow their business from expansion to acquisitionEquity Financing will lower the Debt burden leading to lower financing cost and healthier balance sheetExpand the investors base, which in turn will help in getting secondary equity financing, including private placementEnhance companys visibility. Media coverage can provide SME with greater profile and credibility leading to increase in the value of its shares Incentives for greater venture capital participation by providing an exit option thus reducing their lock-in periodNeed for SME Exchange*</p></li><li><p>Greater incentive for the employees as they can participate in the ownership of the company and benefit from being its shareholdersEncourage innovation and entrepreneurial spiritCapital Market will help distribute risk more efficiently by transfer of risk to those, who are best able to bear itSME sector will grow better on two pillars of Financial system i.e. Banking and Capital MarketInitiating a dedicated Stock Exchange for SMEs will lead to mobilization of the diversified resources of finance and build a bridge between the SMEs, Private Equity and the Venture Capital by providing an exit route. Need for SME Exchange*</p></li><li><p>Life Cycle of a CompanyPE Firms hold the hands of SMEsSupported by Venture Capital FirmsIPODecline due to lack of fundsNascent StageGrowth StageDeveloping StageExpansion StageUnlocking the Capital Market Opportunities ProfitabilityHigh Risk &amp; Lower Profit Margins Increase in Sales &amp; Rise in ProfitStable Profit MarginsProfit Margin tends to rise as the business expands</p></li><li><p> SME Exchange - Overview</p></li><li><p>Issuer with post issue face value capital up to Rs.10 crores shall be covered under the SME Platform, Issuer with post issue face value capital between Rs.10 25 crores may get listed at SME Platform and Issue with post issue face value capital above Rs.25 crores has to necessarily listed at main board of the ExchangesSuitable provisions for migration to/ from main boardThe minimum application amount as well as minimum trading lot shall not be less than Rs.1,00,000/-All existing Trading Members would be eligible to participate in SME exchange without any further registration100% underwritten issues and Merchant Banker/s shall underwrite 15% in their own accountThe Merchant Banker to the issue will undertake market making through a stock broker who is registered as market maker with SME Exchange. The Merchant Banker shall be responsible for market making for a minimum period of 3 yearsSME Exchange SEBI Guidelines*</p></li><li><p>Shall be required to provide two way quote for 75% of time in a day, to be monitored by the Stock exchangeThe minimum depth of the quote shall be Rs.1 lakhExecution of orders at the quoted price and quantity to be guaranteed by MMsNot more than 5 market makers for a scripMarket Makers may compete with the other Market MakersMarket Maker allowed to deregister by giving one month notice to the exchangeThe exchange shall prescribe the minimum spread between Bid and Ask priceDuring the compulsory market making period, the promoter holding shall not be eligible for the offering to market makersTrading system may be either quote driven or hybrid drivenSME Exchange SEBI Guidelines Market Maker obligation of Merchant Bankers*</p></li><li><p> As per ICDR Regulations, the company with the IPO has to offer a minimum of 25% to the investors and some exemptions have been given for the finance companies. </p><p>There is only restriction on the limit of the post issue paid up capital and it is Rs. 25 crores.</p><p>There is no limit on the size of the IPO. It will depend on the premium of the share and how much dilution is proposed.Minimum Public Offer*</p></li><li><p> The SMEs have been exempted from the criteria of three years profit making track record (profit making in 3 out of 5 years) for listing onto the BSE SME Exchange. </p><p>Any company with one or two years of good track record can consider listing on SME Exchange.Profit Making Track Record*</p></li><li><p> About BSE SME Exchange</p></li><li><p>The BSE is leveraging the existing equity platform for the BSE SME. The BSE SME Segment will be part of the BSE BOLT System. </p><p>The SME Exchange will be included as a group in the BSEs BOLT system M and MT Groups.</p><p>The systems necessary for monitoring the market making and providing the quotes are made ready to comply with SEBI Regulations. </p><p>The trading time of this platform is from 09:00 am to 03:30 noon.</p><p>As of now, BSE is fully equipped to launch the BSE SME platform.Trading System of SME Exchange *</p></li><li><p>Trading of Odd LotsOdd lots may get created because of the corporate action taken by the company from time to time, like issuing bonus shares, warrants and rights issues. </p><p>The Regulations warrants that the odd lots can be sold only to market makers and the investor has to give the declaration that he is selling all the odd lot shares of the particular scrip. </p><p>This is to minimize the odd lots in the system.</p></li><li><p> All the market makers for scrip put together shall do market making for more than 75% of the market timing. </p><p>In case the market makers for scrip fail to comply with these provisions up to 15 days, BSE has prescribed the monetary penalties. </p><p>Beyond 15 days, the scrip will be temporarily suspended. Penalties for market making violations *</p></li><li><p> Any SME on BSE SME Platform having a paid up capital more than Rs. 10 crores can move to the main board provided that the special resolution is passed in the AGM in favor with at least two third of the number of votes cast by shareholders other than promoter shareholders and then apply to BSE SME. </p><p>Migration from SME Platform to Main Board*</p></li><li><p> Key Players</p></li><li><p>Venture Capital FundsP/E fundsAngel InvestorsHNIsBanks, Financial Institutions, NBFCsQIBsRegistrarsMerchant BankersMembers and Market MakersFinancial Advisors CAs,CS, CFOs etcSME CompaniesKey Players*</p></li><li><p> Preparations for the IPO</p></li><li><p>Preparations for the IPO Contents of Offer document*</p></li><li><p>Due Diligence on the various approvals required from regulatory bodiesDue diligence on the applicability of various regulationsRisk factors associated with the companyExternal environment effecting the companyMagnitude and listing out of litigationsBusiness activityPast performance and financial resultsMaterial contracts and agreementsDetailed report on promoters &amp; managementPreparations for the IPO Relevance of Due Diligence*</p></li><li><p>Selection of investment bankerSelection of registrar and transfer agent (RTA)Selection of syndicate member /sub- syndicate membersSelection of electronic media and advertising agencySelection of Escrow BankersUnderstanding of regulations pertaining to Stock Exchange, SEBI and the other regulatory bodies</p><p>Preparations for the IPO Role of Merchant Banker*</p></li><li><p>Positioning of company through sustained media efforts including visual mediaRegular interaction with brokers, FII &amp; FIs and HNIsCreating awareness about the issue to the investorsSelection of potential bidding centersEffective equity story supplemented by proper researchPresentation to the investors and the analystsCreating sustainable valuation and shareholder baseEffective communication for better results</p><p>Preparations for the IPO Marketing Strategy*</p></li><li><p> Beneficial Aspects</p></li><li><p>A dedicated exchange for these SMEs will help them in finding a solution to their financial requirements and crunching expansion plans. </p><p>Listing of a company gives better valuation to the company. The debt and equity ratios will improve and balance sheet will look much healthier. </p><p>The listed SMEs will unlock their wealth in the medium to long term and will do the wealth creation for the promoters and the investors.</p><p>The listed SMEs will get better visibility among the investors. The investor base of the company improves for the listed companies in medium term. How does the SME exchange help SMEs? *</p></li><li><p>The repose of faith by the investors domestic and foreigners in the listed SMEs is high. Transparency and corporate governance will improve manifold by listing on SME Platform.</p><p>Listed company will have easy accessibility to alternate funding options. The banks, P/E funds and other financial institutions provide them the loans very easily. The fund raising through ADRs and GDRs become easier. Also, the company can raise more funds through follow on public offering.</p><p> The tax benefits are also immense. The long term capital gain tax on listed company is zero.How does the SME exchange help SMEs? *</p></li><li><p>A large number of merchant bankers are optimistic about the SME Exchange/ Platform. </p><p>Investors outlook is not yet clear. But the investors with medium to long term perspective are optimistic on wealth creation opportunity in this segment. </p><p>Regarding the SMEs, the response has been extra ordinarily exciting. The SMEs are enthusiastic about the opportunity to raise the equity capital on BSE SME.Look out on the SME Exchange *</p></li><li><p>The professionals like Chartered Accountants and Company Secretaries have an important role to play in educating the promoters of the SMEs and guiding them in raising equity capital on SME Platform. </p><p>The member brokers and the sub brokers having branches and franchises spread across the country can play important role in mobilising and educating the SMEs with their market knowledge and experience.Look out on the SME Exchange *</p></li><li><p> Promoting the BSE SME Exchange</p></li><li><p>Approaching SMEs with high growth potential Illustrating Advantages of ListingCo-coordinating with Banks and Angel Investors for bringing the companies on this platformTarget industries at different locations and SME clustersAttract promising SMEs and the start- ups by professionalsAttracting the SMEs throughChamber of commerceIndustry department under state governmentIndustry AssociationsAttracting Promising SMEs*</p></li><li><p>Road ShowsJointly organizing seminars with the Chamber of Commerce' of different states for illustrating advantages of listingTraining ProgramsBusiness DevelopmentAdvisory CommitteeSegment Awareness ProgramsReaching the potential SME companies through web portals and mailsMarketing Activities*</p></li><li><p>**************************</p></li></ul>