IPO - less listing of tiny cos not against retail interest, says SEBI chief.



Listing of shares by start-ups and small and medium enterprises without initial public offering is not aimed to drive away retail investors.

Entities failing to raise needed capital after exhausting all available fund raising options alone shall list on this special platform, said UK Sinha, Chairman, Securities and Exchange Board of India (SEBI).


Sinha said this while delivering a lecture on ‘How SMEs and start-ups can raise money from the market’ at the Asian School of Business here on Wednesday.

Kerala State Planning Board and the Asian School of Business co-hosted the event.

Quoting HSBC Global Research, he said that 70 per cent of the small and medium enterprises have been debt-stressed as against 30 per cent of large and medium corporates.

Working capital cycles have stretched to 130 days in comparison to 90 days for mid-corporates. Defaults on working capital borrowing abounded and so did financial risks.

SEBI has since intervened meaningfully with its initiatives for finding alternative sources of risk capital for SMEs.


“Safeguarding interests of genuine investors will remain paramount while promoting alternative fund raising mechanisms for the industry,” Sinha said.

Listing of shares on exchanges without an IPO aids price discovery and liquidity and grants private equity and venture capital easier exit options.

It also provides better visibility, wider investor base and greater fund raising capabilities to aspirant SMEs/start-ups.

Investors do not need to pay capital gains tax on the transaction either. Such short-term gains on a non-market platform attract up to 20 per cent.

Sinha said that initiatives aimed at facilitating SME listing can be traced back to the 1990s.


The OTC Exchange of India set up in the early 1990s was the first specifically designed for the purpose.

Considered an idea ahead of its time, the initiative however failed due to lack of investor participation.

In 2005, the BSE IndoNext segment offered to list SMEs which had registered negligible business in regional stock exchanges and struggling to raise fresh resources in the absence of price discovery.

But this experiment too failed take off beyond the first phase of due to lack of investor interest, liquidity and promotion.

Successive failures on this front were attributed to often divergent and contradicting demands on SEBI associated with SME listing.

On the one hand investor interests had to be protected while on the other SMEs needed help to raise required funds easily.

The latter had also to meet the ‘huge and onerous demand’ of complying with disclosure and corporate governance norms.


In response, SEBI relaxed listing norms for SMEs on May 19, 2010, by providing for market-making support and assured liquidity, among others.

It has proved a big success, Sinha said, with 54 companies having raised Rs 526.38 crore in 2011-12.

This represents only 25 per cent of their capital legally mandated as part of listing; their original capital would be to the order of Rs 2,100 crore.

But their market capitalisation has since grown to Rs 5,000 crore at current prices, appreciating by 2.5 times in fewer than as many years.

Sinha also referred to Dissemination Board on BSE that offers exit option to shareholders of listed companies on stock exchanges which seek closure.

Erstwhile Hyderabad Stock Exchange has already shifted companies listed exclusively on it to the Dissemination Board.


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