Small and medium enterprises (SMEs) play a crucial role in the Indian economy, contributing significantly to industrial output and job creation. However, these enterprises often face challenges in cost-effective fundraising and building brand awareness. To address these challenges, SMEs have the option of raising funds through Initial Public Offerings (IPOs) on the BSE SME and NSE Emerge platforms, which allow them to get listed on the stock exchange. In this article, we will delve into the various expenses and fees associated with SME IPOs, providing valuable insights for entrepreneurs considering this fundraising route.
Benefits of Raising Funds through SME IPOs #
Before we dive into the costs involved in SME IPOs, it is essential to understand the benefits that this fundraising method offers to small and medium enterprises. Some of the key advantages include:
- Easy Access to Capital: SMEs can raise substantial capital through IPOs, allowing them to fuel their growth and expansion plans.
- Reduced Cost of Borrowing: Compared to traditional borrowing methods, raising funds through IPOs can be more cost-effective in the long run.
- Increase in Personal Net Worth of Promoters: Going public can lead to an increase in the net worth of the promoters and stakeholders of the SME.
- Increase in Liquidity: Listing on a stock exchange provides shareholders with a liquid market to buy and sell their shares, enhancing liquidity in the business.
- Tax Benefits: Some tax benefits are available to SMEs that go public, making it an attractive option for raising funds.
- Branding: IPOs can significantly boost the brand image of the SME, increasing its credibility and visibility in the market.
Understanding SME IPO Expenses #
The process of an SME IPO involves several parties, including lead managers, legal advisers, registrars, stock exchanges, depositories, and distributors. Each of these parties incurs expenses, which collectively form the cost of raising capital through the IPO route for SMEs. It’s important to note that the fee structure may vary depending on the specific IPO, and the charges mentioned below exclude market maker fees and incidental costs.
SME IPO Expenses Breakdown #
- Lead Managers to the Issue: ₹20,00,000
- Lead managers play a vital role in managing the entire IPO process, including due diligence, documentation, and marketing of the issue.
- Legal Advisors Fees: ₹2,00,000
- Legal advisors provide legal counsel and ensure compliance with regulations throughout the IPO journey.
- RTA Fees, CDSL NSDL Joining Fees: ₹1,00,000
- These fees cover the costs associated with engaging the Registrar and Transfer Agent (RTA) and joining the Central Depository Services Limited (CDSL) and National Securities Depository Limited (NSDL).
- Stock Exchange Filing Fees: ₹50,000
- This fee is charged by the stock exchanges for processing and listing the IPO.
- Peer Review Auditor Fees: ₹2,00,000
- Peer review auditors analyze the financial statements and other critical aspects of the IPO to ensure accuracy and transparency.
- Allotment-Expenses: ₹150,000
- This includes various expenses related to application collection, reporting, ASBA fees, stationery, mailing, handling, and uploading fees.
- Statutory Advertising (Minimum Cost): ₹2,50,000
- Statutory advertising costs involve promoting the IPO in compliance with the regulatory requirements.
- Printing Charges: ₹2,50,000
- Printing expenses encompass the cost of printing prospectuses and application forms.
- BSE/NSE Software Expenses (For Issue below 10 Crs.): ₹1,00,000
- This expense is specific to SME IPOs with issue sizes below 10 crores.
- Miscellaneous Expenses: ₹1,50,000
- Miscellaneous expenses include any additional costs incurred during the IPO process.
The total cost of fundraising through SME IPOs amounts to ₹35,00,000.
Service Fees #
Service Fees for SME IPO #
The fees paid by the issuing company to the intermediaries appointed for SME IPO:
| Intermediary | Service Charges |
|---|---|
| Merchant Banker | Rs 25 to 30 Lakhs |
| RoC Fees | – |
| Banker | 0.10% |
| Sponsor Bank | Rs 10 per retail application |
| Market Maker | Paid per annum. Fees are decided by Market Maker and Issuer. |
| Underwriting Fees | – |
| Legal Advisor | – |
| Auditors | – |
| Company Secretary | – |
| Advertising and printing costs | – |
Exchange Fees #
The fees charged by the NSE for SME IPO:
| Transaction | Fees |
|---|---|
| Processing Fees | Rs 25,000 (one time) |
| Exchange Refundable Deposit | 1% of the Issue Size |
| Initial Listing Fees | Rs 25,000 |
| Annual Listing Fees (based on paid-up capital). |
|
BSE SME IPO Fee Structure #
| Transaction | Fees |
|---|---|
| Processing fee | Rs 50,000 (one time). |
| Exchange Refundable Deposit | 1% of the Issue Size |
| Bid Verification Charges (paid on issue opening date) | 0.01% of the issue size, subject to a minimum of Rs 25,000 and a maximum of Rs 50,00,000. |
| Security Deposit | 1% Security Deposit (To be paid at Issue Opening Stage) |
| Annual Listing Fees (based on paid-up capital). | The Annual Fees is Rs 25,000 or 0.01% of full market capitalization (Post Issue Shares Multiply with Issue Price), whichever is higher. |
Conclusion #
SME IPOs offer a viable option for small and medium enterprises to raise capital and leverage the benefits of being a listed entity. While the costs associated with the IPO process are significant, they are often justified by the advantages it brings to the SME in the long term. Before proceeding with an IPO, it is crucial for SMEs to carefully evaluate their financial position, growth prospects, and compliance requirements. Seeking professional guidance from experienced advisors can streamline the process and help SMEs make informed decisions to achieve their fundraising goals.
Frequently Asked Questions #
What is an SME IPO, and how does it benefit small and medium enterprises? #
An SME IPO refers to the process of raising funds by a small or medium enterprise through the issuance of shares to the public and getting listed on the stock exchange. SME IPOs offer various advantages, including easy access to capital, reduced borrowing costs, increased liquidity in the business, tax benefits, and improved branding and credibility.
What are the expenses associated with an SME IPO? #
The expenses related to an SME IPO include lead managers’ fees, legal advisors’ fees, Registrar and Transfer Agent (RTA) fees, stock exchange filing fees, peer review auditor fees, expenses for application collection and reporting, statutory advertising costs, printing charges for prospectuses and application forms, BSE/NSE software expenses (for issue below 10 Crs.), and miscellaneous expenses.
How much does it cost to raise capital through an SME IPO? #
The total cost of fundraising through an SME IPO is generally around ₹35,00,000. However, it is essential to note that these costs may vary for each IPO and depend on specific factors associated with the offering.
What role do lead managers play in an SME IPO? #
Lead managers are instrumental in managing the entire IPO process. They conduct due diligence, handle documentation, and facilitate the marketing of the IPO. They also assist in determining the IPO price and coordinate with regulatory authorities.
Why is statutory advertising necessary for an SME IPO? #
Statutory advertising is crucial as it ensures compliance with regulatory requirements and disseminates essential information about the IPO to the public. It helps in creating awareness and interest among potential investors.
Are there any tax benefits associated with SME IPOs? #
Yes, there are certain tax benefits available to SMEs that go public through an IPO. These benefits may include deductions and exemptions that can reduce the tax liability for the SME and its stakeholders.
Is the fee structure for each SME IPO the same? #
No, the fee structure for SME IPOs may vary for each offering. Each IPO is unique, and the charges can differ based on various factors, including the size of the issue, the lead managers involved, and the complexity of the offering.
What is the significance of the BSE SME and NSE Emerge platforms in SME IPOs? #
BSE SME and NSE Emerge are dedicated platforms provided by the Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) for SME IPOs. These platforms offer a conducive environment for SMEs to raise funds and get listed on the stock exchange with simplified listing requirements.
How can SMEs ensure a successful IPO process and manage the associated expenses? #
To ensure a successful IPO, SMEs should carefully evaluate their financial position and growth prospects. Engaging experienced professionals such as lead managers, legal advisors, and auditors can help streamline the process and manage expenses effectively.
What steps should an SME take if they are considering an IPO? #
SMEs considering an IPO should begin by evaluating their eligibility and compliance requirements. Seeking guidance from knowledgeable advisors who specialize in SME IPOs can help them navigate through the process and make informed decisions.
