NSE EMERGE : MSME can tap public for funding

Do you know that Micro, Small and Medium Enterprises (MSME) can tap the public through stock market?

Yes, you are reading it right. MSME can get their shares listed through National Stock Exchange of India (NSE).

NSE has created a platform called EMERGE for the SMEs to enable them to list their shares in their trading platform. Once the MSME exhausted the initial promoter capital, borrowings from friends/relatives and loans from banks and poised to grow big, they need more capital. At this stage, it is advisable to tap the equity market.

There are 2 levels. SME board and main board

Who are all eligible?

(a) Paid up Capital

	SME Board	Main Board	Remarks
Issuer's post issue paid up capital	Less than Rs.10 crore	Rs.10 crore to Rs.25 crore	It is the face value of the Capital

(b) 3 years operational history

(c) 2 years of cash accruals (operational profits)

(d) Positive networth

(e) good credit standing of company and promoters

Framework

(a) For Initial Public Offering (IPO) on NSE EMERGE

• Minimum allottee : 50
• Public shareholding : Minimum 25% 
• Grading requirement : Nil
• Underwriting : 100% of the IPO
• Draft Red herring Prospectus (DRHP) : Regular IPO format. NSE clearance enough for SME Board with observations
• Market making : mandatory 3 years (see below)

(b) Post listing compliance

• Half yearly audited accounts (quarterly for main board)
• Corporate governance : same as main board

(c) Migration to main board from SME board

• Allowed subject to meeting the criteria

(d) Investors

• Minimum application amount : Rs. 1 lakh
• Minimum trading lot : Rs. 1 lakh
• PE funds, QIBs can support  underwriting and market making

What is the listing process

IPO open days : Minimum 3 days and Maximum 10 days

Listing time : It may take a minimum 6 working days

Benefits of listing

• Higher visibility of the company
• Easy access to raise further capital
• Ease of valuation
• Since there are governance control, credibility will increase
• ESOPs can be issued to employees to retain them

Market maker

Any  member  of  the  Exchange  would  be  eligible  to  act  as  Market  Maker  provided the criteria laid down by the exchange are met. 

The member brokers desirous of acting as Market Maker in this exchange shall apply to the concerned stock exchange for registration as Market Makers unless already registered as a Market Maker. 

The obligations and responsibilities of Market Makers

The  Market  Maker shall fulfill the following conditions to provide depth and continuity on this SME exchange:  

(a)   The Market Maker shall be required to provide a 2-way quote for 75% of the time in a day. The same shall be monitored by the stock exchange. Further, the Market Maker shall inform the  exchange  in  advance  for each and every black out period when the quotes are not being offered by the Market Maker. 

(b) The minimum depth of the quote shall be Rs.1,00,000/-. However, the investors with holdings of value less than Rs 1,00,000 shall be allowed to offer their holding to the Market Maker in that scrip provided that he sells his entire holding in that scrip in one lot along with a declaration  to  the  effect to the selling broker.  

(c) Execution of the order at the quoted price and quantity must be guaranteed by the Market Maker, for the quotes given by him.  

(d) There  would  not  be  more  than  five  Market  Makers  for  a  scrip.

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