news item on continued effort from regulator on the subject issue is reproduced hereunder:
SEBI liberalises market access for SMEs
The equity markets regulator the Securities and Exchange Board of India (SEBI) has proposed conditional market access through initial public offering (IPO) for small and medium enterprises (SMEs) that have not met the continuous “three out of the past five years” of profitability criterion.
As per the existing norms, an entity with continuous profitability of three previous financial from the proposed date of IPO is required. But SEBI in its meeting held on September 16 relaxed this norm and allowed entities to have market access even without this condition.
SEBI has proposed to expand mandatory allocation to QIBs from the existing 50 per cent to 75 per cent. Also, out of the remaining 25 per cent, 15 per cent shall be allocated to non-institutional investors and 10 per cent to individual investors, the SEBI proposal said.
In the present disclosure-based regime, while issuers have been allowed to access the market subject to adequate disclosures, certain objective eligibility criteria have been put in place to decide the mode of issuance, viz. compulsory or voluntary book-built mechanism. Issuers satisfying the conditions laid down under ‘profitability track record route’ can access the market under the voluntary book-built route in which a minimum participation requirement by QIBs is waived. This is based on the premise that the existence of a good operating history for a certain period, leading to an adequate minimum net worth and profitability, would create credibility about an issuer.
In parallel to this, in order to provide sufficient flexibility so that issuers setting up greenfield projects or newer and smaller issuers are not disadvantaged on account of rigid eligibility criteria that may hamper their fund raising plans, an alternative 'compulsory book-built' route has also been provided to issuers not eligible under their profitability track record. The most critical difference in this second alternative criterion is the requirement of minimum 50 per cent subscription of issue size by QIBs which is expected to lend credibility to the issue and provide signals to non-institutional investors on the issue quality.
The Primary Market Advisory Committee (PMAC) recommends that in order to access the primary market through an IPO, a company should have been profitable for at least 3 out of the preceding 5 years, with a minimal average pre-tax operating profit during the 3 most profitable years of Rs 15 crore.
Profitability would be computed on a restated, consolidated basis. Divisional profits would be permitted to be carried forward in cases of situations like de-mergers.
A full disclosure would need to be made of related party transactions with the BRLMs certifying the extent to which profits from these transactions constitute legitimate business profits.
SEBI recommended that the compulsory book-building mechanism be discontinued.
SEBI also proposed to penalise the audit firms that have certified the books of accounts of companies which were later found to have been manipulated, including debarring them for a specified period from certifying the accounts of listed companies. Further the regulator observes that considerable time has elapsed since the extant regulatory framework governing compulsory and voluntary book building routes were put in place. Therefore, it is desirable to have a re-look on the eligibility norms.
As regards profit-making companies, it is proposed to accept the recommendations of the committee indicated. It is desirable that public issue route is the last bastion of fund raising for issuers, it is also necessary that an alternative route is available to the non-profit making companies which have good business models. In this regard, in order to promote the growth of SMEs, SEBI has put in place a relatively diluted regulatory framework which, includes the following: a) An issuer whose post-issue face value capital is less than Rs 25 crore can get its shares listed in the SME segment of the stock exchanges, b) Relaxation from filing DRHP with SEBI for observations, c) Minimum application value shall not be less than Rs 1 lakh per application, d) Minimum number of prospective allottees is less than fifty (instead of 1,000 in the case of non-SMEs) e) Requirement to file half yearly financial results instead of on a quarterly basis, f) Exemption from publishing financial results in newspapers
SEBI in its draft not said, “It is proposed to retain the above framework for SMEs. However, there is a need to provide an alternative route for issuers who neither meet the proposed profitability criteria nor qualify for the norms prescribed for the SME segment. Such issuers should have access to the market subject to complying with more stringent requirements than what is presently applicable to them.”
http://www.business-standard.com/india/news/sebi-liberalises-market-access-for-smes/187086/on
SEBI liberalises market access for SMEs
The equity markets regulator the Securities and Exchange Board of India (SEBI) has proposed conditional market access through initial public offering (IPO) for small and medium enterprises (SMEs) that have not met the continuous “three out of the past five years” of profitability criterion.
As per the existing norms, an entity with continuous profitability of three previous financial from the proposed date of IPO is required. But SEBI in its meeting held on September 16 relaxed this norm and allowed entities to have market access even without this condition.
SEBI has proposed to expand mandatory allocation to QIBs from the existing 50 per cent to 75 per cent. Also, out of the remaining 25 per cent, 15 per cent shall be allocated to non-institutional investors and 10 per cent to individual investors, the SEBI proposal said.
In the present disclosure-based regime, while issuers have been allowed to access the market subject to adequate disclosures, certain objective eligibility criteria have been put in place to decide the mode of issuance, viz. compulsory or voluntary book-built mechanism. Issuers satisfying the conditions laid down under ‘profitability track record route’ can access the market under the voluntary book-built route in which a minimum participation requirement by QIBs is waived. This is based on the premise that the existence of a good operating history for a certain period, leading to an adequate minimum net worth and profitability, would create credibility about an issuer.
In parallel to this, in order to provide sufficient flexibility so that issuers setting up greenfield projects or newer and smaller issuers are not disadvantaged on account of rigid eligibility criteria that may hamper their fund raising plans, an alternative 'compulsory book-built' route has also been provided to issuers not eligible under their profitability track record. The most critical difference in this second alternative criterion is the requirement of minimum 50 per cent subscription of issue size by QIBs which is expected to lend credibility to the issue and provide signals to non-institutional investors on the issue quality.
The Primary Market Advisory Committee (PMAC) recommends that in order to access the primary market through an IPO, a company should have been profitable for at least 3 out of the preceding 5 years, with a minimal average pre-tax operating profit during the 3 most profitable years of Rs 15 crore.
Profitability would be computed on a restated, consolidated basis. Divisional profits would be permitted to be carried forward in cases of situations like de-mergers.
A full disclosure would need to be made of related party transactions with the BRLMs certifying the extent to which profits from these transactions constitute legitimate business profits.
SEBI recommended that the compulsory book-building mechanism be discontinued.
SEBI also proposed to penalise the audit firms that have certified the books of accounts of companies which were later found to have been manipulated, including debarring them for a specified period from certifying the accounts of listed companies. Further the regulator observes that considerable time has elapsed since the extant regulatory framework governing compulsory and voluntary book building routes were put in place. Therefore, it is desirable to have a re-look on the eligibility norms.
As regards profit-making companies, it is proposed to accept the recommendations of the committee indicated. It is desirable that public issue route is the last bastion of fund raising for issuers, it is also necessary that an alternative route is available to the non-profit making companies which have good business models. In this regard, in order to promote the growth of SMEs, SEBI has put in place a relatively diluted regulatory framework which, includes the following: a) An issuer whose post-issue face value capital is less than Rs 25 crore can get its shares listed in the SME segment of the stock exchanges, b) Relaxation from filing DRHP with SEBI for observations, c) Minimum application value shall not be less than Rs 1 lakh per application, d) Minimum number of prospective allottees is less than fifty (instead of 1,000 in the case of non-SMEs) e) Requirement to file half yearly financial results instead of on a quarterly basis, f) Exemption from publishing financial results in newspapers
SEBI in its draft not said, “It is proposed to retain the above framework for SMEs. However, there is a need to provide an alternative route for issuers who neither meet the proposed profitability criteria nor qualify for the norms prescribed for the SME segment. Such issuers should have access to the market subject to complying with more stringent requirements than what is presently applicable to them.”
http://www.business-standard.com/india/news/sebi-liberalises-market-access-for-smes/187086/on
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