Bombay Stock Exchange Ltd.

BSE SME Exchange - PresentationBSE SME Exchange - Presentation

1st September,, 2011

Lakshman Gugulothu

CEO, BSE SME Exchange

Section Contents Page

Table of Contents (1 of 2)

A Introduction 4

B About SME Industry 7

C Governmental Efforts 10

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C Governmental Efforts 10

D MSME Development Act, 2006 13

E Need for SME Exchange 17

F SME Exchange - An Overview 21

Section Contents Page

Table of Contents (2 of 2)

G Attributes of SME Exchange 25

H Key Players 29

I Promoting the BSE SME Exchange 31

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I Promoting the BSE SME Exchange 31

J Preparations for the IPO 38

K Beneficial Aspects 45

L Thank you 47

IntroductionJ.J.

VISION and MISSION

VISION� Wealth creation by the SMEs

through inclusive economic growth.

MISSION� Provide the world class platform for the SMEs and Investors

to come together and raise the equity capital.

MESSAGE TO THE ENTERPRENEURS AND INVESTORS

“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 SME

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”

There are at least a million sizeable SMEs in the country, and so far there

have been only debt financing options without any access to equity capital.

Many SMEs find it difficult to get listed on the Bombay Stock Exchange (BSE), so

the SME Exchange has been conceived.

Introduction

It will help the listed SMEs in raising equity capital for their growth. Raising equity

will

help them balance their debt-equity ratio, and balance sheets will be much healthier.

This will help the companies to unleash their valuation. Listed companies will have

easy

access to alternate funding options like price-to-earning ratios, ADRs, GDRs, foreign

industrial investments and so on.

The repose of faith by investors in listed SMEs is high. Most importantly, all investors

7

Capital Market Regulator SEBI has given ‘In Principle’ Approval

to Bombay Stock Exchange (BSE) Ltd. To launch the BSE SME Exchange.

BSE is leveraging the existing ‘Equity platform’ i.e. BOLT System

Introduction

for launching the BSE SME Exchange. Negligible cost in launching the platform.

All Merchant Bankers empanelled with SEBI are by default MBs for this segment.

Additional responsibility of secondary market for market making.

All Members registered with BSE are by default Members for this segment.

No additional infrastructure required by Members for secondary market trading.

8

SME companies with post issue paid up capital up to 25 crores

can list on the BSE SME Exchange.

100% under writing by the Merchant bankers mean that

Introduction

the SME listing-cum-IPO issue will be 100% success.

Opportunity of Sub-under writing for large investors.

Larger participation of investors – exit option

Liquidity in the secondary market – market making

Better opportunity for SMEs for equity fund raising.9

� The new thing about SME Exchange is that the issue will be 100% underwritten and

this means that the issue will be 100% success. Other new aspect is that there will be

support of three years in the secondary market through market making activity.

� The SMEs with paid up capital up to Rs. 10 crores can come on the SME Exchange, in

contrast to the paid up capital of Rs. 10 crores or more for the main board.

� The Listing norms have been simplified. The issuer has to take the approval of the

How different from Main Board ?

� The Listing norms have been simplified. The issuer has to take the approval of the

Exchange and SEBI approval is not required. A copy of the offer document will be sent

to the SEBI for their information.

� The condition in respect of filing of Draft Red Herring Prospectus (DRHP), obtaining

in-principle approval of SEBI, and issuing public notice are waived for listing of the

SMEs. This saves about 6 moths’ time period. The merchant banker can file the RHP

with due diligence certificate with Exchange and approval of Exchange is sufficient.

10

� The Compliance norms are simplified. Half yearly compliance is required instead

of quarterly compliance.

� The abridged version of the annual reports need to be sent to the investors

instead of the entire annual report and posting the soft copy of the report on the

website is sufficient.

� The issue expenses will be minimal on the marketing, advertisement and

stationery. However, the issue will be charged for underwriting, sub-underwriting

How different from Main Board ?

stationery. However, the issue will be charged for underwriting, sub-underwriting

and responsibility of three years market making.

� Market making is compulsory for 3 years, unlike on main platform.

� Listing fees on BSE SME platform are minimal compared to the main board.

� The SMEs with the paid up capital between Rs. 10 crores and Rs. 25 crores has the

option to get listed either on main board or on the SME Exchange.

� Provision for migration from BSE SME Exchange to Main Board and vice versa.

� Three years profit making is not necessary for SMEs for listing and waived off.11

� The Indian SME Exchange has been formulated after detailed study of the best SME

Exchanges across the world and taking into account the feedback from the market

participants.

� The SME Exchanges elsewhere in the World, like AIM (London), Canada (TSX V),

Hongkong (GEM), Japan (Mothers), Korea (KOSDAQ) and US (NASDAQ) were studied

in detail to understand the salient features, best practices and exchange model.

How SME Exchange is evolved ?

in detail to understand the salient features, best practices and exchange model.

� The learning from the OTCEI as well as the capital market realities are taken into

account in formulating the SME Exchange in the Indian context.

� The issues and difficulties pertaining to the SMEs are also taken into account in

designing the regulations.

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� The concept of SME Exchange is very much similar to the OTCEI Exchange. However, OTCEI

was far ahead of its time. It has launched screen based trading with depository concept

which at that point of time was new to the market intermediaries and they were not so

much equipped to adopt to the OTCEI model. The conditions of the market were bearish

and not condusive for several years. Market making has seriously failed. This is the reason

for the failure.

� During the last two decades, the capital market has matured and adopted well to the

changes brought by the regulators and exchanges, viz online trading, rolling settlement and

How SME Exchange is different from OTCEI Model?

changes brought by the regulators and exchanges, viz online trading, rolling settlement and

depositories. At the same time, the financial institutions, venture capitalists, Bank SME

divisions, institutional investors, QIBs, and HNIs have started investing in the SMEs in a big

way. This has created conducive environment for raising of the equity capital by the SMEs

and thus we are well positioned to successfully launch the SME Platform.

� The present SME Exchange is different from OTCEI in respects of the 100% underwriting of

the issue and guarantee of listing, simplification of listing process, simplification of

compliances, leveraging of the equity platform, and provision for migration to and from the

Main Board.

13

The Listing norms are simplified. The issuer has to take the approval of the Exchange and

SEBI’s approval is not required. A copy will be sent to the SEBI for its information.

The condition of track record of distributable profits in terms of Section 205 of the

Companies Act, 1956, for at least 3 out of preceding 5 years is waived off for SMEs.

Four steps - the filing of DRHP, in-principle approval of the exchange, in-principle of the

SEBI and public notice for one month are waived off for the SMEs listing on the SME

Simplification of the Listing Norms for SMEs on the BSE SME Exchange

SEBI and public notice for one month are waived off for the SMEs listing on the SME

Exchange. This will save about 6 months for the listing of SMEs.

The merchant banker to the issue can file RHP (Red Herring Prospectus) with the due

diligence certificate and the exchange approval is sufficient.

The process of launching an IPO for listing on SME Exchange may be completed within two

to three months, compared to the time frame of 8 to 9 months required for launching an

IPO proposed to be listed on the Main Board.

14

The Compliance norms were also simplified.

Half yearly compliance is required instead of quarterly compliance.

Abridged version of the annual reports to be sent to the investors, instead

of the entire annual report, and keeping soft copy of the report on the

website is sufficient.

Simplification of the Compliance Norms for SMEs on the BSE SME Exchange

website is sufficient.

The summary of the annual performance with balance sheet and P/L

statement need to be sent to shareholders.

This is going to bring down the cost of recurrent compliance from time to

time substantially for listed SMEs, compared to the Main Board.

15

� 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 the non-

promoter shareholders and then apply to BSE SME.

� The SME migrating to the main board has to comply with all the main board norms

Migration from SME Platform to Main Board

� The SME migrating to the main board has to comply with all the main board norms

like minimum 1000 investors, pay main board listing fees and do the quarterly

compliance etc.

16

� The Merchant Bankers in the Main Board assist the company in raising equity

capital through primary record, but in the SME Exchange the Merchant Bankers’

have to hand hold the company for 3 years and ensure that there is continuity in

market making in the SME’s scrip for 3 years.

� The other additional responsibility is that the issue should be 100% underwritten

and the merchant banker has to do compulsory underwriting of 15% in his own

books of accounts.

Responsibility of the Merchant Bankers on SME Exchange

� There is need for syndication for the purpose of underwriting and the

responsibility lies with the merchant banker.

� There is no such responsibility cast upon the merchant bankers while listing scrips

on the Main Board.

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� Only the Members of the stock exchanges recognized by the SEBI can act as a

market maker.

� Members desirous of becoming market maker have to get themselves registered

as market maker with the BSE SME exchange by filing the registration form.

Market Makers

� These members should have a minimum experience of 3 years, minimum net

worth of Rs. 5 crores and a daily turn over of Rs. 10 crores. The market maker shall

have additional net worth of Rs. 2 crores for additional scrip.

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� Market Making is an activity where the Member Brokers registered as market

makers will support the scrip by providing two way quotes.

� All the market makers in a scrip will provide 2-way quotes for 75% of the time in a

trading day.

� The market makers will have to hold 5% of the specified security to be listed at the

time of allotment in their inventory to do the market making.

Market Making & Nominated Investors

time of allotment in their inventory to do the market making.

� The market makers can also buy from or sell to the nominated investors the

required shares for market making. The merchant banker and nominated investor

need to enter into an agreement in this regard.

� The nominated investors can be QIBs and PE Firms who are registered with the

respective Regulator.

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� The Regulator has mandated market making in the SME Exchange platform, which

will ensure that the liquidity is generated.

� The market making concept is not compulsory in the main board.

� The handholding of the company by the merchant banker in the form of market

making will create the liquidity on the SME Platform.

� We are interacting with large number of BSE members and preparing them for

empanelment as market makers. So far, more than 20 members of the BSE have

come forward to do the market making and the number will be even larger by the

Liquidity in the Secondary Market

come forward to do the market making and the number will be even larger by the

time the SME exchange is launched.

� Market making will give an opportunity to the members to charge the fees, similar to

the merchant bankers, and the fees will be charged to the issue expenses. There are

members who have experience of market making in the past and they are positive

about the market making activity.

� Larger participation of the members for the market making activity is going to help in

generating the liquidity on the SME platform. Even the illiquid scrips on the main

platform wishing to create the liquidity can think of migrating to the SME platform.

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� The investors with medium to long term perspective are positive on wealth

creation opportunity in this segment.

� The people of the country had long term investing habits till recently. The IPOs on

the main board have made the investors look for short term gains. These

aberrations need to be corrected.

� Wealth creation can happen in the capital markets in the medium to long run.

� It is very important to identify the companies at early stage and stay invested for a

long term. There are good SMEs with high growth potential.

Liquidity in the Secondary Market

long term. There are good SMEs with high growth potential.

� The change of outlook of the investors can improve the liquidity in the listed SME

substantially. We are trying to educate the investors in this regard.

� The investors should take the SME sector seriously, if they are looking for wealth

creation opportunities.

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About SME IndustryJ.J.

About SME Industry

Classification of Micro, Small and Medium Enterprises

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� Micro, Small and Medium Enterprises (MSMEs) contribute

- 8% of the country's GDP

- 45% of the manufactured output

- 40% of our exports

About SME Industry

� Provide employment to about 6 cr. people through 2.6 cr. enterprises.

� The Micro Small and Medium Enterprise (MSME) sector forms the largest

generator of employment in the Indian economy.

� The MSME sector forms a major portion of the industrial activity.

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Need for SME ExchangeJ.J.

� Provide the SMEs with equity financing opportunities to grow their business –

from expansion to acquisition

� Equity Financing will lower the Debt burden leading to lower financing cost and

healthier balance sheet

� Expand the investors base, which in turn will help in getting secondary equity

Need for SME Exchange

� Expand the investors base, which in turn will help in getting secondary equity

financing, including private placement

� Enhance company’s visibility. Media coverage can provide SME with greater

profile and credibility leading to increase in the value of its shares

� Incentives for greater angle investor, venture capital and P/E funds participation

by providing an exit option thus reducing their lock-in period

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� Greater incentive for the employees as they can participate in the ownership of

the company and benefit from being its shareholders

� Encourage innovation and entrepreneurial spirit

� Capital Market will help distribute risk more efficiently

by transfer of risk to those, who are best able to bear it

Need for SME Exchange

by transfer of risk to those, who are best able to bear it

� SME sector will grow better on two pillars of Financial system

i.e. Banking and Capital Market

Initiating a dedicated Stock Exchange for SMEs’ will lead to mobilisation of the

diversified resources of finance and build a bridge between the SMEs, Private

Equity and the Venture Capital by providing an exit route.

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Life Cycle of a Company

IPOIPOIPOIPO

Decline due to Decline due to Decline due to Decline due to lack of fundslack of fundslack of fundslack of funds

Developing Developing Developing Developing StageStageStageStage

Expansion Expansion Expansion Expansion StageStageStageStage

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Stable Profit Stable Profit Stable Profit Stable Profit MarginsMarginsMarginsMargins

PE Firms hold the PE Firms hold the PE Firms hold the PE Firms hold the hands of SMEshands of SMEshands of SMEshands of SMEs

Supported by Venture Supported by Venture Supported by Venture Supported by Venture Capital FirmsCapital FirmsCapital FirmsCapital Firms

Nascent Nascent Nascent Nascent StageStageStageStage

Growth Growth Growth Growth StageStageStageStage

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ProfitabilityProfitabilityProfitabilityProfitability

High Risk & Lower Profit High Risk & Lower Profit High Risk & Lower Profit High Risk & Lower Profit Margins Margins Margins Margins

Increase in Sales & Increase in Sales & Increase in Sales & Increase in Sales & Rise in ProfitRise in ProfitRise in ProfitRise in Profit

MarginsMarginsMarginsMargins

Profit Margin tends to rise Profit Margin tends to rise Profit Margin tends to rise Profit Margin tends to rise as the business expandsas the business expandsas the business expandsas the business expands

SME Exchange - OverviewJ.J.

� 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 SMEs

� The necessary amendments have been made in the various SEBI Regulations and

Chapter XA has been inserted in the ICDR Regulations.

SME Exchange - Overview

� Model equity listing agreement has been notified

� BSE is eligible for setting up SME exchange and already got the ‘In Principle’

approval from the capital market regulator ‘SEBI’ for launch of SME Exchange

30

� 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 Exchanges

� Suitable provisions for migration to/ from main board

SME Exchange – SEBI Guidelines

� The minimum application amount and trading lot not be less than Rs.1,00,000/-

� At least, 50 investors at the time of the IPO and each investor should invest at

least Rs 1 lakh. The post issue paid-up capital can be as less as Rs 50 lakh.

� All existing Trading Members would be eligible to participate in SME exchange

without any further registration

� 100% underwritting by MB and MB underwrite 15% in their own account

� The 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 years31

� Shall be required to provide two way quote for 75% of time in a day, to be

monitored by the Stock exchange

� The minimum depth of the quote shall be Rs.1 lakh

� Execution of orders at the quoted price and quantity to be guaranteed by MMs

� Not more than 5 market makers for a scrip

SME Exchange – SEBI Guidelines – Market Maker obligation of Merchant Bankers

� Not more than 5 market makers for a scrip

� Market Makers may compete with the other Market Makers

� Market Maker allowed to deregister by giving one month notice to the exchange

� The exchange shall prescribe the minimum spread between Bid and Ask price

� During the compulsory market making period, the promoter holding shall not be

eligible for the offering to market makers

� Trading system may be either quote driven or hybrid.

32

� ICDR Guidelines chapter XA clearly specifies that it will attract all the provisions of

main ICDR guidelines where the exemptions are not being provided under these

provisions.

� Insider Trading Regulations

– Insider Trading Regulations is relaxed to the extent that the merchant banker to

Interpretation of Regulations(1/5)

– Insider Trading Regulations is relaxed to the extent that the merchant banker to

the issue can be on the board of the SME Company

� Clearing and Settlement Mechanism

– The existing clearing and settlement of the equity (cash) segment will be

extended to the SME segment also.

33

Interpretation of Regulations(2/5)

� Investor Protection Fund

– The provisions of the IPF for the main board apply to the SME Exchange also.

� Takeover Code Regulations

– Takeover code will not be applicable to the Market Maker.

– The buy or sell of the shares by the Market Maker for Market Making activity – The buy or sell of the shares by the Market Maker for Market Making activity

is exempted.

– However, the takeover code will apply for all the investors.

Interpretation of Regulations(3/5)

� Long Term Capital Gain tax

– The sale of unlisted shares in short term attract the capital gain tax of 30%

and the long term capital gain tax of 10%.

– The sale of listed securities in the short term attract the capital gain tax of

10% and there is no long term capital gains tax.

– This makes it clear that the listing of shares very attractive.

� Risk Management System

– The Risk Management will be applicable to the BSE SME Exchange the same

way as that of the BSE main board. All the M-to-M (Mark to Mark) Margins,

VAR Margins, ELM (Extreme Loss Margin) and special margins as applicable to

the main board will also apply for the SME Exchange.

Interpretation of Regulations(4/5)

� Grading of IPOs

– As per ICDR guidelines, the grading of IPOs is compulsory. The same applies

to the Listing on the BSE SME Exchange also.

� Website for the SME Companies

– The Regulator has made it mandatory for the companies to have websites, if– The Regulator has made it mandatory for the companies to have websites, if

they propose to be listed on the main board.

– The same applies to the SME companies, if they want to get listed on the BSE

SME Exchange.

� Corporate Governance

– Clause 49 of the listing agreement and corporate governance will be applicable for

the SME Exchanges also.

– There has to be 50% independent Directors and the remaining 50% will be

promoter Directors.

Interpretation of Regulations(5/5)

37

� The merchant bankers have to do the financial and legal due diligence, before the

SMEs are listed on the SME platform.

� The Indian market regulations are disclosure based and all the risk factors have to

be disclosed with the offer documents. The litigations and their magnitude need to

be disclosed. All the risk associated with the company need to be disclosed in the

‘offer document’ of the company at the time of IPO.

� The exchange will ensure that the detailed disclosures are made at the time of

listing and continue to provide the information there after regularly.

Fraudulent Companies & Protection of Investors

listing and continue to provide the information there after regularly.

� There are stringent checks and balances in auditing of the listing companies. The

corporate governance norms as per clause 49 of the agreement to be implemented

and there have to be 50% independent directors on the board of the company.

� These checks and balances will ensure that the fraudulent companies do not list on

the exchange.

38

� BSE has been conducting various Investor Awareness Programs to educate the

investors about investing in the capital market.

� The risk factors associated with the company are being disclosed in the offer

documents. Equity investments involve the risk and the returns depend on the

performance of the company. The investors are advised to read the offer document

before investing in any SMEs and SME platform is for the informed investors.

� The investors can go through the RHP of the listing company and the research report

of the CRAs to understand the company’s profile and take the investment decision.

Fraudulent Companies & Protection of Investors

of the CRAs to understand the company’s profile and take the investment decision.

The general public planning to invest in the SMEs may also take the help of financial

experts for the investing purpose.

� However, if the listed companies are indulging in the fraudulent practices, the

shareholders should check it. The shareholder forums have to become active, if the

fraudulent practices by the companies are to be effectively checked. As far as the

exchange is concerned, it can suspend the company or move it to trade to trade

group. The exchange can recommend to the SEBI for taking action against the

company, if fraudulent practices come to the notice of the exchange

39

� The BSE Exchange has the IGRC (Investor Grievances Redressal Committee) to

redress the complaints of the investors against the member brokers.

� It is known fact to all the market participants that the BSE has the best IGRC in the

Indian capital markets.

� If amicable solution is not reached in the IGRC, the members can opt for arbitration.

� There is also a special cell for redressal of grievances of the investors against the

companies.

� The Grievance Redressal System of the Equity (Cash) Segment will be made

Fraudulent Companies & Protection of Investors

� The Grievance Redressal System of the Equity (Cash) Segment will be made

available for the SME Exchange also.

40

About BSE SME ExchangeJ.J.

� The BSE is leveraging the existing equity platform for the BSE SME.

The BSE SME Segment will be part of the BSE BOLT System.

� The SME Exchange will be included as a group

in the BSE’s BOLT system – ‘M’ and ‘MT’ Groups.

Trading System of SME Exchange

� The systems necessary for monitoring the market making and providing the quotes

are made ready to comply with SEBI Regulations.

� The trading time of this platform is from 09:00 am to 03:30 noon.

� As of now, BSE is fully equipped to launch the BSE SME platform.

42

� BSE has prescribed the slab wise spread for the scrips depending upon their

secondary market transaction price.

� The spread prescribed varies from 5% to 10% depending on share price.

Bid and Ask Spread on SME Exchange

� A minimum spread of 5% is prescribed, which shall facilitate the market making

and make it easier for the members empanelled.

43

Trading of Odd Lots

� Odd 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.

� 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.the particular scrip.

� This is to minimize the odd lots in the system.

Listing Fees on BSE SME Exchange

� BSE has always been forthcoming, considerate and supportive in matters related

to the listing of SMEs on BSE.

� BSE’s Main Board has more than 1500 listed companies each of which has paid-

up capital of up to Rs. 10 crores and more than 2500 listed companies each of

which has paid up capital between Rs. 10 crores and Rs. 25 crores.which has paid up capital between Rs. 10 crores and Rs. 25 crores.

� Keeping up with the tradition and commitment for nurturing the SME companies,

BSE will charge them Listing and other fees related to the primary markets only to

the extent of about 50% , as compared to that of the Main Board.

� All the market makers for scrip put together shall do market making for more than

75% of the market timing.

� In case the market makers for scrip fail to comply with these provisions up to 15

days, BSE has prescribed the monetary penalties.

Penalties for market making violations

� Beyond 15 days, the scrip will be temporarily suspended.

46

Key PlayersJ.J.

� Venture Capital Funds

� P/E funds

� Angel Investors

� HNIs

� Banks,

Key Players

� Financial Institutions,

� NBFCs

� QIBs

� Registrars

� Merchant Bankers

� Members and Market Makers

� Financial Advisors – CAs, CFOs etc

� SME Companies48

Preparations for the IPOJ.J.

Preparations for the IPO – Contents of Offer document

50

� Due Diligence on the various approvals required from regulatory bodies

� Due diligence on the applicability of various regulations

� Risk factors associated with the company

� External environment effecting the company

� Magnitude and listing out of litigations

Preparations for the IPO – Relevance of Due Diligence

� Business activity

� Past performance and financial results

� Material contracts and agreements

� Detailed report on promoters & management

51

� Selection of investment banker

� Selection of registrar and transfer agent (RTA)

� Selection of syndicate member /sub- syndicate members

� Selection of electronic media and advertising agency

� Selection of Escrow Bankers

Preparations for the IPO – Role of Merchant Banker

� Understanding of regulations pertaining to Stock Exchange, SEBI and the other

regulatory bodies

52

� Positioning of company through sustained media efforts including visual media

� Regular interaction with brokers, FII & FIs and HNIs

� Creating awareness about the issue to the investors

� Selection of potential bidding centers

� Effective equity story supplemented by proper research

Preparations for the IPO – Marketing Strategy

� Presentation to the investors and the analysts

� Creating sustainable valuation and shareholder base

� Effective communication for better results

53

Beneficial AspectsJ.J.

� A dedicated exchange for these SMEs will help them in finding a solution to their

financial requirements and crunching expansion plans.

� Listing of a company gives better valuation to the company. The debt and equity ratios

will improve and balance sheet will look much healthier.

How does the SME exchange help SMEs?

� 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.

� The listed SMEs will get better visibility among the investors. The investor base of the

company improves for the listed companies in medium term.

55

� 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.

� 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

How does the SME exchange help SMEs?

raising through ADRs and GDRs become easier. Also, the company can raise more

funds through follow on public offering.

� The tax benefits are also immense. The long term capital gain tax on listed company

is zero.

56

� The working of SME Exchange is not well understood by the SMEs in the country. The

SMEs are mostly not well informed of the capital market issues and modalities of

raising equity capital. There is need for conducting lot of awareness programs to

educate them.

� Merchant Bankers used to handle only the primary market issues so far. On the SME

platform, they have to assist the company in the secondary market through market

Challenges for launch of SME Exchange

platform, they have to assist the company in the secondary market through market

making for three years.

� Merchant banker, issuer and market maker have to work as team for three years to

make the market making activity a success. This is a huge challenge.

� The investor base is limited and only the investors with a minimum investment of Rs.

One lakh are allowed to participate.

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� We have interacted with the market intermediaries over the last six months. There

were apprehensions of the SME model in the beginning.

� After few rounds of discussions, we see the substantial change in the perception of

the SME platform. Many merchant bankers are optimistic and the members with

market making experience are positive about the SME Platform.

Challenges for launch of SME Exchange

market making experience are positive about the SME Platform.

� We are hopeful that the hurdles will not be a roadblock for the successful take off of

the BSE SME Platform.

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� A large number of merchant bankers are optimistic about the SME Exchange/

Platform. Except top 5 MBs, most of the medium size MBs are keen and already

started working.

� The market makers will get the fees out of the issue expenses, like the merchant

bankers. The members who have the experience of market making in the past are

positive on the scope of market making in this segment.

Look out on the SME Exchange

� Investors’ outlook is not yet clear. But the investors with medium to long term

perspective are optimistic on wealth creation opportunity in this segment.

� Regarding the SMEs, the response has been good and getting better day-by-day. The

SMEs are enthusiastic about the opportunity to raise the equity capital on BSE SME.

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� 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.

� The member brokers and the sub brokers having branches and franchises spread

across the country can play important role in educating and mobilising the SMEs with

their market knowledge and experience.

Look out on the SME Exchange

their market knowledge and experience.

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Promoting the BSE SME ExchangeJ.J.

� Approaching SMEs with high growth potential

� Illustrating Advantages of Listing

� Co-coordinating with Banks and Angel Investors for bringing the companies on

this platform

� Target industries at different locations and SME clusters

� Attract promising SMEs and the start- ups by professionals

Attracting Promising SMEs

� Attract promising SMEs and the start- ups by professionals

� Attracting the SMEs through

– Chamber of commerce

– Industry department under state government

– Industry Associations

– SME Clusters and their Associations

– Professional organisations – ICAI/ ICSI etc

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� We have been conducting the Seminars for educating the SMEs on the benefits of

listing and preparations required for listing on the SME Platform.

� We have already conducted the Seminars in Maharastra, Gujarat, AP, New Delhi,

Kolkatta, Orissa, Punjab, Haryana, Rajasthan, UP, Tamil Nadu, Goa etc and lined up

large no. of Seminars to cover all other parts of the country during the year.

� We have detailed Marketing plan to reach out to the SMEs spread across the country.

Reaching SMEs across the country

� We have detailed Marketing plan to reach out to the SMEs spread across the country.

� We are tying up with channel partners which include various institutes and

associations engaged in the development of SMEs so as to create awareness among

the SME companies about the benefits of listing at this platform.

� We are also educating the professionals through the platform of ICSI and ICAI etc, so

that the professionals can play important role in educating the promoters and

management of SMEs.

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� We have got a dedicated website (www.bsesme.com) for the SME Exchange to

disseminate information on the SMEs listed on the SME Exchange.

� We are going to send the printed brochures and awareness materials to the SMEs,

which have potential to get listed in next one or two years.

� We will also reach them from time-to-time through online material content. We

intend to use internet and online multimedia in a big way to reach out to the SMEs

and create the awareness among them.

� We will also take the help of the visual and print media in this regard.

Reaching SMEs across the country

� We will also take the help of the visual and print media in this regard.

� We will be conducting the events and road shows across the country, prior to the

launching of the BSE SME Exchange

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� We intend to reach the investors in a focused way.

� We will reach out to all the categories of the investors over a period of next one year.

� We are addressing the venture capitalists and P/E funds soon.

� We have a plan to target the HNIs and QIBs also.

� We also intend to target the capital market investors through various investor forums

and through investor awareness programs.

� We will be using the internet, visual and print media to reach out to the investors and

INVESTORS – Investing in SMEs

� We will be using the internet, visual and print media to reach out to the investors and

educate them.

� We will also be meeting the institutional investors individually and persuade them for

investing in the listing SMEs.

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� The investors should have medium- to long-term perspective for wealth creation.

� Of late, the investors have developed short-term investing habits due to IPO culture.

� A number of SMEs have the potential to grow into big companies, provided they get

adequate capital support. The listed SMEs are likely to give better returns, if held for a

medium-term or a long-term.

INVESTORS – Investing in SMEs

� BSE SME is going to bring the entire pool of investors on a single platform making it

easier for the SMEs to raise capital in a cost effective manner.

� The investors should take the SME sector seriously, if they are looking at good wealth

creation opportunities.

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� It is not correct to say that we are competing against the banks.

� Banks provide debt capital, and the SME Exchange is for raising the equity capital. The

efforts are complementary, rather than any competition.

� There are millions of SMEs looking for funds for various requirements.

Banks Vs Capital Markets

� There is enough opportunity for everyone to do business and help SMEs to raise the

capital for their growth and expansion.

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� The need and the requirement of the SME exchange for the SMEs to raise the equity

capital are there for very long.

� The SMEs have responded positively in a big way and coming forth for the listing.

� There is a good future for the SME Exchange, considering the huge demand and

requirement of capital for the growth of SMEs.

Prospects of SME Exchanges in India

� The start may be slow, as the SMEs are not aware of capital market practices and may

take some time to understand the advantages of listing in the SME Exchange.

� However, considering the requirement and market potential, it should pick up

gradually and we should be on par with these countries in a decade.

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