SME Exchange

Listed Companies to Attract Secondary Investments

The BSE SME Exchange, likely to kick-start its operation next month expects to list 1 million potential small and medium enterprises.  I believe this number to be a reasonable estimate.  Of the total 30 million enterprises in India, around at least 1 million units have the potential to get listed on the Exchange. I believe that this initiative is aimed enhancing competitiveness among SMEs, promoting financial inclusion and increasing the width and depth of the domestic capital markets. The SME Exchange could help in getting access to funding, better valuation, improvement in debt-equity ratio, bring transparency, help in establishing better standards of corporate governance and in achieving better visibility amongst investors. The exchange would serve its real purpose if it covers SME across sectors and cities, and includes entities from Tier II and III cities and towns.

The current set of proposals envisages listing fees for the SME exchange at 50 per cent of standard BSE listing fees. I believe that listing fees can be made more dynamic based on factors such as the profitability of the company, current industry market capitalization and affordability. There are also relaxations with respect to provisions relating to the mandatory disclosure of quarterly results(to  half-yearly disclosures only).  I also believe that all companies and industries cannot be painted with the same brush. Hence, companies engaged in businesses with higher levels of technological innovation, patents, asset-light (service-based businesses) be allowed the flexibilities they deserve. Of course, the overall interests of the investors must be borne in mind. And the technical background and qualification or number of years of industry-experience of the founder(s) can serve as a fair pointer to this.

Other important features of the proposals include the responsibility of the Merchant Banker sponsoring the IPO being responsible for market making for a minimum period of three years. This should help create a reasonable opportunity for newly listed companies to attract secondary investments from Private Equity Funds, FIIs and Institutional Investors. Traditional lenders and banks would also be more open to extending credit to listed entities, other things being constant.

Indranil Deb is Pricinpal, Mobium Strip capital Advisors