SME LISITING

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BENEFITS OF

Funding Convenience

  • Access to capital and financing opportunities : Going public provides SMEs with equity financing opportunities to grow their business from operations to expansion to inorganic acquisitions. Access to equity financing lowers the debt burden leading to lower financing costs and healthier balance sheets. The continuing requirement for adhering to stock market rules for the issuers lowers the ongoing information and monitoring costs for the banks.
  • M&A; currency :
    Listed shares act as a currency, especially for inorganic business acquisition transactions. Listed shares can be utilized as an acquisition currency, as an alternative to cash consideration, to acquire existing businesses / assets. Using shares as a currency can be a tax efficient and cost effective vehicle to finance an acquisition transaction.
  • Efficient Risk Distribution for Investors :
    It is expected that the development of capital markets helps distribute risk efficiently by transfer of risk to those best able to bear it. Capital is a precious resource. When one can afford, he can invest it; when one needs it back, he can exit. This in-built mechanism of risk-transfer, in turn, lends to sustainability to market forces. Thus capital markets for SMEs are also expected to ensure that capital flows to its best uses and even the riskier activities with higher payoffs could be funded.
  • Premium Valuation
    Valuation of a company is determined by various factors, one of which is class of company – listed or closely-held. The value discounting by investors of an unlisted entity can be avoided, if the shares are listed on a nation-wide exchange platform including SME Exchange.
  • Entry & Exit Platforms for PE / Other Investors :

    The presence of a market-driven transparent trading platform provides with a ready and easy entry and exit for strategic investors. Listing not only offers the investors flexibility for entry and exit, but also the confidence required for any such transaction.

Tax Benefit

Tax benefits, often, turn out to be one of the prominent factors for listing:

  1. Tax on Buy Back of Shares:
    Unlisted companies subject to 20% tax on buy back of shares.
  2. Tax on Infusion :
    Unlisted Companies subject to 30% tax on issue of new shares at a premium exceeding fair value.
  3. Purchase of distressed asset :
    Purchase of distressed asset below NAV is subject to tax@ MMR.

All the above taxes are not applicable in case the shares are listed. This enables tax- free-
Entry and exit (through buy back, fund infusion)
Purchase of distressed assets,
Share transfers (eg. Family Succession, Intra- Group Transfers, Third-party Transfers etc.)

OTHER BENEFITS

  • Visibility – Profile Building
    Going for a public issue is most likely to enhance the company’s visibility. Greater public awareness gained through media coverage, and research coverage by sector investment analysts provide the SMEs with greater visibility and help brand building which otherwise may remain a dream, especially for SMEs.
  • Unlocking / Benchmarking Value
    The fair value of an unlisted company may not be benchmarked appropriately, in the absence of a market-driven mechanism. The companies listed on a stock exchange are traded and the market forces are expected to establish their fair value or near-fair value. This leads to unlocking or benchmarking of the fair value of the SME businesses
  • Incentive Mechanism for Employees
    The employees of an SME can participate in the ownership and benefit from being a shareholder. This can serve to ensure stronger employee commitment to the company’s performance and success. ESOPs and any other share-based compensation plan of a listed company have an immediate and tangible value to employees. This, in turn, serves as a talent retention tool.

 

  • Benefits for Companies in Supply Chain
    The companies in the supply chain in the forward or backward integration may take a strategic stake as part of growth & expansion. Also, companies in the same business line planning to expand their operations may take a stake in listed SMEs.
  • Governance – Internal Systems
    Though the requirements for a company listed on SME Exchange are not as stringent as that for Main Board listed companies, nevertheless SME listing ensures that the company has drawn up the internal control systems and set up a minimum required framework of corporate governance. This, in turn, lends sustainability to the business.
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