It provides a chance to companies to raise capital.
It increases visibility, prestige and credibility of the company that issues the IPO.
Net worth and working capital of the company is increased.
It helps companies to raise capital borrowed at a higher rate.
It serves as an exit route to provide equity investors.
What is the idea behind SME IPO?
Although SME contribute a large portion to Indian Economy like 40% of the workforce in India , 45% of manufacturing output etc. Yet previously, SMEs used to demand only on Banks and Financial Institutes for capital requirement that too subjected to various loan constraints.
But since 2012, BSE and NSE have launched SME platforms where they could raise funds from the capital markets. Also, after few years the company can get their share transferred from SME platform to the Main Board.
What are the prerequisites to launch SME IPO?
The company should
make necessary changes in the Board of Directors like appointment of Independent Director, CFO etc.
Have its own website which contains the financial statement of last 3 years.
Consult merchant bankers, share transfer agents and carry out agreement with them.
Eligibility criteria for IPO:
As per latest audited financial statements, net tangible assets and net worth of company must be at least 3 crores separately.
In terms of section 123 of the Companies Act , track record of distributable profit be at least 5 crores for last 5 years.
The post- paid up capital of the company should at least be 3 crores.
