BSE SME Exchange to Lure Cos with Direct Listing Option

Facility will be offered only if there is a three-year market making arrangement for investors to exit

 Many companies listed on dying regional stock exchanges are likely to take shelter under the BSE SME Exchange with the newly-launched bourse planning to allow them direct listing as part of a strategy to consolidate its position in the space. 

The facility, however,will be offered only if there is a three-year market making arrangement for investors to exit — one of the Sebi-prescribed eligibility norms for new listings on SME stock exchanges. 
"We are hopeful that at least 1,000-2,000 out of about 7,000 companies listed on dormant regional stock exchanges will opt for direct listing on our SME platform over a period of time," said Lakshman Gugulothu, CEO, BSE SME Exchange. 
Since its launch in March, five companies — Max Alert Systems, Monarch Health Services, Sangam Advisors, BCB Finance and Jupiter Infomedia — have raised funds through initial public offerings (IPOs), with equity offers in the range of . 4 crore to . 12 crore. Five more companies will soon get listed on the exchange. Another 10 are likely to debut in two months, said Gugulothu. But past performance of most of these companies do not inspire much confidence, which could be a cause for concern for prospective investors. Weak fundamentals, according to some merchant bankers, kept many institutional investors away from smaller IPOs. "There has to be a fundamentally strong issue to attract institutional participation in fund-raising through SME platforms," said G Ganesh, president, Inga Capital, a Mumbai-based boutique merchant banking firm. He also felt the three-year market-making rule as mandated by Sebi should be relaxed because very few merchant bankers would be able to sustain a liquidity arrangement for such a long period. 
Gugulothu attributed the absence of institutional participation to lack of any policy on how to create fund flows into SMEs. But he insisted that a proper due diligence was necessary to ensure listing of quality issues on the bourse. "We don't judge any issue on the basis of merit but adopt disclosures-based regulations while allowing listing on our platform. If we deny listing to any company strictly on the basis of merit, we will not be able to encourage many smaller companies to raise funds, thereby defeating the very purpose of setting up an SME exchange," he said. 
Based on various guidelines issued by Sebi, the BSE SME Exchange has prepared eligibility norms for listing of new companies and also migration norms from the SME exchange to the main board of the BSE. Accordingly, net tangible assets and net worth (excluding revaluation reserves) should be at least . 1 crore each as per the latest audited financial results.