Transitioning from a Small and Medium Enterprise (SME) to a mainboard-listed company is a pivotal achievement for any business. This shift marks a company's evolution and readiness to adhere to higher regulatory, financial, and governance standards.
The process is more than just a procedural change. It involves detailed planning, strategic shifts, and an overhaul of operational and governance structures. This chapter delves into the reasons, advantages, challenges, and the detailed steps required for a company to move from an SME board to the Mainboard of a stock exchange.
Benefits of transitioning from SME to mainboard
Moving from an SME platform to the mainboard presents several advantages for an SME company, encouraging them to pursue a mainboard listing.
- Increased Visibility and Credibility: Being on the mainboard boosts a company's profile, drawing attention from institutional investors, analysts, and the media, which enhances credibility with customers, suppliers, and partners.
- Signals Growth: It shows investors, customers, and competitors that the company has matured and is ready to operate on a larger scale.
- Greater Access to Capital: The mainboard offers a wider capital pool, facilitating funding for expansion, acquisitions, and R&D.
- Better Liquidity: Shares on the mainboard are generally more liquid, making trading easier and offering an exit strategy for existing shareholders.
- Attracting and Retaining Talent: A mainboard listing enhances the company's reputation, making it more appealing to top talent.
- Increased Shareholder Value: A successful transition can boost the company's share price, benefiting current shareholders.
- Boosted Investor Confidence: Meeting mainboard listing criteria requires robust governance practices, enhancing operational efficiency and investor faith.
- Improved Valuation: Mainboard companies often enjoy better valuation multiples due to perceived stability and strict compliance.
Criteria for SME to mainboard migration
Switching from an SME platform to the mainboard requires meeting specific eligibility criteria set by stock exchanges and regulatory bodies. While each exchange has its criteria, common requirements include:
- Financial Performance: Companies must achieve minimum thresholds for revenue, profitability, and net worth.
- Operating History: A proven record of profitable operations over a defined period.
- Paid-Up Capital: A substantial equity base is required.
- Shareholding Structure: Adequate public shareholding and free float as per mainboard standards.
- Corporate Governance: Adherence to strong governance practices, with independent directors, audit committees, and clear disclosure policies.
- Listing Rules Compliance: Companies must follow the stricter listing rules of the mainboard compared to SME platforms.
BSE SME to mainboard - Eligibility Criteria
| Criteria | Requirement |
|---|---|
| Paid-up Capital | More than ₹10 Crores |
| Market Capitalization | Minimum ₹100 Crores |
| Promoter Holding | Minimum 20% of equity share capital |
| Profitability | Average of ₹15 crores over the last 3 years; Minimum ₹10 crores EBITDA each year |
| Net Worth | Minimum ₹1 Crore for each of the preceding 3 years |
| Listing Track Record | Listed on SME Exchange for at least 3 years |
| Regulatory Actions | No trading suspension, SEBI debarment, or director disqualification |
| Public Shareholders | Minimum 1,000 public shareholders |
| IBC & Defaults | No pending IBC cases or default in payments |
| Utilization of Funds | Certification by SEBI-registered agency |
| Investor Complaints | No pending complaints |
| Cooling-off Period | 2 months if recently removed from surveillance measures |
| Promoter Shareholding | 100% in demat form |
| Market Liquidity Requirements | Share Trading Activity, Active Trading Days, Turnover, and Number of Trades |
| Net Tangible Assets | Minimum ₹3 Crores each year, not more than 50% held in monetary assets |
| Business Consistency | Same line of business for 3 years |
Documents required for BSE SME migration
- Board Resolution approving migration
- Shareholders' Approval from AGM/EGM
- Financial Reports for the last 3 years
- Profit & Net Worth Certificate
- Market Capitalization Certificate
- Credit Rating Agency Certificate for fund utilization
- Corporate Governance Report
- Information Memorandum
- SEBI SCORES Registration
- PAN & DIN of Directors
- Scrutinizer's Report
- Undertakings for compliance with SEBI & BSE norms
- Fees Payment Proof
- Net Tangible Assets Certificate
- Liquidity Proofs
- Public Shareholding Details
- Business Consistency Proof
SME to mainboard migration NSE - Eligibility criteria
| Criteria | Requirement |
|---|---|
| Paid-up Capital | Minimum ₹10 Crores |
| Market Capitalization | Minimum ₹100 Crores |
| Profitability | Positive EBITDA for at least 2 out of last 3 financial years |
| Listing Track Record | Listed on SME Exchange for at least 3 years |
| Net Worth | At least ₹75 crores |
| Other Listing Conditions | No BIFR or IBC proceedings, no winding-up petitions, no SEBI debarment |
| Public Shareholders | Minimum 500 public shareholders |
| Additional Requirements | Disclosure of litigations, cooling period for surveillance actions, etc. |
| NSE's Right to Reject Applications | Incomplete application, false information, or unmet criteria |
| Revenue from operations | Greater than ₹100 crores in the last financial year |
| Promoter and Promoter Group Holding | Minimum 20% of equity share capital, at least 50% share retention |
Documents required for NSE SME migration
- Company Confirmations
- Company Details
- Statutory Auditor Certificate for Net Worth
- Certificate on Fund Utilization
- Board Resolution for migration
- Secretarial Compliance Report
- XBRL Utility for Corporate Governance
- Certified Postal Ballot Notice
- Information Memorandum
- Scrutinizer Report
- Shareholder Resolution Copy
- PCS Certificate for SEBI compliance
Steps for migrating from SME to mainboard
- Engage Advisors
- Assessment and Planning
- Regulatory Approvals
- Financial and Compliance Audit
- Restructuring (if needed)
- Shareholder Approval
- Application and Documentation
- Review and Approval
- Roadshow and Marketing
- Migration and Trading Commencement
- Post-listing Compliance
Timeline for SME to mainboard migration
Typically, the process of migrating from an SME board to the mainboard takes between 3.5 to 6 months. The timeline can vary based on regulatory procedures, approvals, stock exchange requirements, and the company's preparedness.
Key Takeaways
- Transitioning from an SME board to the mainboard is a transformative process that enhances a company's market position, financial flexibility, and growth opportunities.
- Despite challenges related to compliance, costs, and operational restructuring, the long-term advantages of such migration are substantial.
- Successful transition requires thorough planning, adherence to regulations, and strategic implementation.