SMEs SEBI Initiatives

SEBI: Mandate and Legal

Framework
Mandate: Regulatory and Developmental

- Protect
- Regulate
- Promote
Legal Framework

- SEBI Act 1992 & Regulations

- Provisions of the Companies Act
- Securities Contracts (Regulation) Act 1956 & Rules
- Depositories Act, 1996 & Regulations
- Appellate Mechanism through SAT

Uniqueness of SEBI Powers

SEBI an exception to Separation of Powers doctrine as it

performs :
- Quasi-Legislative
- Quasi-Judicial, and
- Quasi-Executive
The Supreme Court observed that . The Board exercises

its legislative power by making regulations, executive power

by administering the regulation framed by it and taking
action against any entity violating these regulations and
judicial power by adjudicating disputes in the implementation
thereof. (Clariant International v. SEBI AIR 2004 SC
4236)

Regulatory Domain: Broad Areas

Market infrastructure institutions

- Stock Exchanges
- Clearing Corporations
- Depositories
Market Intermediaries
Investment Vehicles: MFs, CIS, FIIs, AIFs, PMS
Capital raising by companies

Primary market - Resource Mobilization

For the period April 01, 2010 February
28, 2014
Type of Issue
2010-11
2011-12
2012-13

Public Issue
Rights Issue
Total
*Apr 2013 - Feb
2014

Amt.

Amt.

(Amount in INR Crores)

2013-14*
Amt.

No. of
issues

Amt.

No. of
issues

58

48,654

35

10,482

33

6,528

35

8672

23

9,503

16

2,375

16

8,944

13

2471

81

58,157

51

12,857

49

15,472

48

11143

No. of
issues

No. of
issues

Primary market - Resource Mobilization

Break-up for 2010-11 (best year in last 4 years):
Issue Size
< 25 cr

No.

Amt. (INR Cr.)

6

59

25 - 50 cr

10

409

50-100 cr

19

1313

100-500 cr

24

6875

>500 cr

22

49501

Total

81

58157

SME Sector Performance

Both growth and margins of SMEs declining in the face of slowdown
70% of SME companies debt is stressed vs. 30% for large and mid-

corporates
Working capital cycle of SMEs have stretched to 130 days (vs. 90 days

for mid-corporates) increasing chances of default on working capital

borrowing
Financing risks increasing
Alternative source of risk capital in the interest of SMEs as well as

financial stability

Source: HSBC Global Research, February, 2014

SMEs - SEBI Initiatives

1991 - Trading platform for Small companies at OTCEI
trading in small companies through market makers

considered ahead of time: failed due to lack of participation

and insignificant volumes

2005 - BSE IndoNext segment

Exclusive trading platform for Small companies
Segment could not
go beyond the first phase: lack of
investor interest

2008

- Focus on
recognised by SEBI:

fund-raising

needs

of

SMEs

Discussion Paper seeking suggestions for the regulatory

framework

SMEs - SEBI Initiatives

2009 - MoU u/s 13 of SCRA, between regional and

nationwide stock exchanges to facilitate trading in

companies listed in regional exchanges
2010 - Separate Exchange/platform for SMEs to make

an IPO and get listed in Stock Exchanges (SEs)

2012 - Review of the framework
Standardised lot size for offer in IPO and trading

thereafter
Maximum permissible obligation on market makers
2013 - Direct Listing of securities in institutional

trading platform (ITP) of SEs without IPO

SME Platform : Highlights

SMEs with post-issue (face value) capital less than INR 10 Cr.: Mandatory listing in

SME platform
SMEs with post issue (face value) capital between INR 10 Cr. to INR 25 Cr. : Listing

in either SME platform or main board

Filing and vetting of SME issue with SEs, rather than SEBI
Eligibility: Minimum track record of 3 years for companies
Minimum allottees at 50 (1000 in a normal IPO)
Less stringent continuous listing requirements
Rationalised regulatory and reporting structure (Periodic submissions can be half

yearly instead of quarterly)

Abridged annual reports
Exemption from publishing financial results (can make it available in their websites)

SME Platform : Highlights

Mandatory Market Making by Merchant Banker (MB) for

3 years to address liquidity concerns

Market Maker (MM) to have at least 5% of inventory of

securities as on date of allotment

MM to give two way quotes till the upper threshold is

reached; thereafter, MM to give only sell quotes

Not more than 5 market makers for a scrip
73 Market makers are registered with BSE; 22 with NSE

SME Platform : Highlights

100% Underwriting by MBs
15% from own account - to ensure that MBs are

thoroughly convinced about the issue quality

Nominated investor viz., QIBs, VCFs etc. enters into
agreement with MB to subscribe
Representative of MB can be on the board of the issuer

Retail investors are ring fenced: minimum

market lot of Rs. 1 lakh

SME Platform : Sector-wise Segregation

Sector

Number of
Companies Listed

Fund Raised (In Cr.)

13

116.59

39.73

Commodity Trading
and Distribution

64.26

Agriculture Products

39.82

Construction and
Engineering

109.2

Others

20

156.78

Total

54

526.38

Finance
Textile

-Out of the above, 50 companies are listed in BSE and 4 companies are listed in
NSE, SME platforms
-Market Capitalization of BSE listed companies > INR 5,000 cr.

Listing without IPO

Announcement by FM in budget speech on Feb 28, 2013:
SMEs, including start-up companies, will be permitted to list on the
SME exchange without being required to make an IPO, but participation
will be restricted to informed investors. This will be in addition to the
existing SME platform in which listing can be done through an IPO and
with wider investor participation"

ITP for SMEs notified by SEBI on Oct 08, 2013 after detailed

consultations with various stakeholders

Operational guidelines and continuous listing requirements

specified
BSE commenced ITP in February 2014; two listings in BSE ITP

ITP : Salient Features

Envisages eligible SMEs and startups to list in SEs without IPO
Listing Process does not involve an IPO, or private placement or

any issue of securities

Upon SE approval for listing, deemed exemption from public

offer requirements of SCRR by SEBI

Option to remain listed in ITP upto 10 years
Trading in lots of INR 10 lakh
Exempted from takeover and delisting regulations

ITP : Additional Requirements

Investment of INR 50 lakh in equity by any of the following investors:
VCF, AIF, or through an association of angel investors
Registered merchant banker, who has exercised due diligence and

invested INR 50 lakh in equity capital.

QIB who has invested in equity capital of INR 50 lakh
Scheduled bank, financing project or working capital requirements
Specialized international multilateral agency or domestic agency (like
SIDBI or NABARD).
Upon listing, SME cannot raise funds through IPO/public issue; private

placement and rights issue permitted (without rights to renunciation).

At least 20% of promoters holding to be locked for 3 yrs from listing - to

ensure promoters commitment

Corporate governance norms on par with main board companies

Alternative Investment Funds (AIF)

Registration under one of the following 3 categories:

Category I - Venture Capital Funds (including angel funds), SME

Funds, Social Venture Funds, Infrastructure Funds

Category II - private equity funds or debt funds for which no

specific incentives or concessions are given by the government or
any other Regulator

Category III - which employs diverse or complex trading strategies

and may employ leverage including through investment in
derivatives including hedge funds or funds which trade with a
view to make short term returns or other open ended funds

AIF - Features
AIF shall not accept an investment of value less than Rs. 1crore
Each scheme of the AIF shall have a minimum corpus of Rs. 20 crore
No scheme of the AIF shall have more than 1000 investors
Category I and II AIFs shall be close-ended and shall have a minimum

tenure of 3 years, Category III AIF may be close-ended or open-ended

Units may be listed
AIFs have QIB status

AIF - Angel Funds

Angel Funds included in the definition of 'Venture Capital Funds'

to raise funds only from angel investors.

Salient features:
Angel Funds shall have a corpus of at least Rs.10 crore
Minimum investment by an investor shall be Rs. 25 lakhs
continuing interest by sponsor/manager in the Angel Fund shall be
not less than 2.5% of the corpus or Rs. 50 lakhs, whichever is lesser
Angel funds to invest only in venture capital undertakings which are
not more than 3 years old
have a turnover not exceeding Rs 25 crore
are not promoted, sponsored or related to an Industrial Group whose group
turnover is in excess of Rs. 300 crore and
have no family connection with the investors proposing to invest in the
company.

AIF Funds raised

Cumulative net figures as at the end of 31st December 2013
(All figures in INR Crores)
Category
Category I
Infrastructure
Fund
Social Venture
Fund
Venture
Capital Fund

Number of registered
AIFs

Commitments raised

Funds raised

Investments made

4945.67

555.08

169.31

434.36

78.21

25.3

13

148.88

66.19

9.16

29

5528.91

699.48

203.77

Category II

51

4821.58

1647.95

1222.67

Category III

18

835.87

559.6

477.65

98

11186.36

2907.03

1904.09

SME Fund
Category I
Total

Grand Total

Dissemination Board
Dissemination board by NSE and BSE, ready to be launched
Exclusively listed companies of non-operational SEs to be

moved to the dissemination board, after the exit of such SEs

Mechanism for willing buyer and seller to disseminate their

offers
Exit option to investors
3 companies from Hy. SE to be the first movers to the Board

Thank You!