alternate capital raising platforms - bombay …€¢stock exchange quotations •analyst coverage...

Alternate Capital Raising Platforms

– An Opportunity

For Internal Discussion Only

Mahavir Lunawat Pantomath Capital Advisors (P) Ltd BCAS Seminar at BSE, Mumbai, January 13, 2016

2 2 Pantomath Capital Advisors Pvt. Ltd. (SEBI Registered Category I Merchant Bankers) – A Pantomath group entity

ITP : Listing with IPO (Start-up IPO)

Emerging Market Platforms : Transforming Economy

ITP : Listing without IPO SME Platforms

Crowd Funding

Emerging Platforms for Growth Funding


SME IPO & Listing


Cos Listed So Far Nos

BSE SME 119

NSE Emerge 11

Total 130

Contribution to GDP 17%

Share of Industrial output 45 %

Share of Exports 40 %

Total Employment : 60% 69 mn

Job creation every year 1.3 mn

SMEs – The Macro Context Markets So far… SEBI SME Framework – Dream Come True

Relaxed Framework for SME Listing Norms of min operating profit, track

record exempt Faster processing time Easy Migration to Main Board

5 Key Conditions : 25% MPS; 50 Investors, 1 Lac Lot Size; 3 year Market Making

Never-Before Opportunity : SMEs can list on Bombay Stock Exchange within short time of 3-4 months with relaxed norms. Listed SMEs can migrate to Main Board after 2 years : 13 companies have migrated on Main Board so far…

Key Trends : 100 cos from 25 cities; Avg. IPO Size 8-10 Crs; Avg. Returns 7-8 times. Biggest IPO : 43 Crs; Biggest Co (t/o) : 600 Crs.

Wealth Creation : Combined market capitalisation of listed SMEs has peaked INR 10,000 Crores within 3 years. Highest growth globally

Key Observations

SME Capital Markets - Overview


SME Listing Experience


Norms & Key Benefits


Offer doc not subject

to SEBI vetting

SME Exchange

SME/Main Board

Main board

10 Crores

25 Crores

Po

st Is

sue

Face

Val

ue

Cap

• Minimum application/trading lot of Rs 1 lakh

• 100% Mandatory Underwriting (of which 15% to be done by MB in his own account)

• Market making through Exchange-registered market makers for min 3 years

• Public Shareholding of min. 25% involving min. 50 investors

• Provisions for migration to / from Main Board from / to SME Exchange

Post Issue paid up capital:-

Max: Rs 25 crore Min : Rs 3 crore

Track Record • Net Tangible Assets : INR 3 crore as per latest audited

financial results. • Net Worth (excl. Rev. Reserve) : INR 3 crore as per

latest audited financial results. • Track record of distributable profits for at least 2 years

out of preceding 3 completed FYs or Networth shall be at least INR 5 crore

Other Regulatory Requirements • Mandatory facilitation of trading in Demat securities • Certificate that no winding petition or reference to

BIFR • Mandatory corporate website • Promoters to attend to interview with Listing Advisory

Committee • No change in promoter in preceding 1 year

SME Listing – Key Requirements & Eligibility Norms


Parameters Main Board SME Exchange

Post – issue paid up capital

Min INR 10 crore Min INR 3 crore on BSE SME; Max INR 25 crore

Minimum Allotees in IPO 1000 50

IPO underwriting Non Mandatory (Under 50% compulsory subscription to QIB’s)

Mandatory (100% underwritten with MB underwriting 15%)

Track record Stringent track record norms like Operating Profit of 15 Cr

Relaxed track record norms

Offer Document vetting By SEBI By Exchange

IPO Application Size INR 10000 – INR 15000 Min. INR 1 lac

IPO Time frame 6 months – 1 year 2 – 3 Months

Reporting Requirements Quarterly Half yearly

Reporting Requirements Quarterly Half yearly

“SME Exchange

has a winning

edge over Main

Board”

BSE SME vs. Main Board


Implications of Listing Resulting Benefits

Collateral Value Listed securities can serve as collateral for raising additional loans

Improved Credit Rating

Cost of finance (Rate of Interest) likely to come down

Increased Visibility • Brand building • Stock Exchange quotations • Analyst coverage

Lender’s / Supplier’s increased comfort

• Increased acceptability and prestige among suppliers

• Lesser negative covenants

Transferability of shares at market price

• ESOPs – Higher compensation for senior executives without cash outgo

• Overseas listing possible

Governance

Operational Wealth

Creation

Tax

Core Advantages of SME Listing (1 of 5)



Unlisted companies subject to 20% tax on buy back of shares

Tax on Buy Back of Shares

Unlisted Companies subject to 30% tax on issue of new shares at a premium exceeding fair value

Tax on Infusion

LTCG @20%

Capital Gains tax on transfer of shares

Purchase of distressed asset below NAV is subject to tax @ MMR

Purchase of Distressed Asset

Governance

Operational Wealth

Creation

Tax No Tax on

Entry and exit (through buy

back, transfer, fund infusion)

No Tax on

Purchase of distressed

assets

Lower Tax on

Share transfers (eg. Family Succession, Intra-Group

Transfers, Third-party Transfers

etc.)


Valuation benchmarking

Wealth creation through

market cap of shares upon listing (Refer Next

Slide)

Promoter Profile Building

Adds to social

reputation and status

Listed shares as currency

Use of shares for takeovers / M&A

transactions, leading to inorganic growth

Governance

Operational Wealth

Creation

Tax



Governance

Operational Wealth

Creation

Tax

Wealth Creation – Select Examples


* Closing Price as on December 9, 2015 or last traded price of the scripts

AIFL Ultracab Momai

Apparels M.D.

Inducto MRSS

A. Market Cap INR Crores

Pre Issue Net Worth 10.98 6.25 17.12 24.89 0.75

Issue Size 21.00 7.97 43.33 17.24 1.42

Market Capitalization* 505.37 170.00 129.87 103.58 28.61

B. Price Pattern INR Per Share

Issue Price 40.00 36.00 78.00 27.00 12.75

CMP (Face Value INR 10)*

259.60 213.00 90.00 43.00 69.40


Improved Systems

Better Information

Flow

Data manageme

nt

Internal Controls

Good corporate governance helps companies immensely and

also increases the confidence among its stakeholders

Governance

Operational Wealth

Creation

Tax



Due Diligence & Transition Management


First Level Due Diligence

Detailed discussion & visits

Final discussion with Management

A preliminary background check of the Company, its existing Directors and Promoters. This step is very important, albeit initial.

Preliminary Background Check

Due Diligence Process (1 of 5)






It covers areas of

General Corporate Information

Capital structure

Business Overview

Management

History & Corporate Structure

Group Companies

Legal Information

Government & Other Approvals

Industry Overview

On receipt of documents from the company as per the Due Diligence checklist, the documents along with their supporting back up source papers are examined. The evaluation covers the product/services offered by the Company, the management team and their background, technology (if any), market, competition, differentiators, financial plan amongst other areas.





• Understanding Industry in which Issuer operates

• Verification of RoC compliance, IT compliance and other compliance

• Review of Minutes, Statutory Registers, Resolutions, etc.

• Review of sanction letters from lenders

• Review of Issuer, Promoter, Group Companies, Director Litigations

• Review of Government approvals, Licenses required

• Confirmation / Management undertaking for various information

• Review of property lease or purchase agreement including title search report

• Preparation of restated Financials with Peer Reviewed Auditors



Analyzing the Company records

Identify risk related to the Company







Discussion with Management

Visit to Office & Plant

Access to management & operational capabilities

Nature of Business of the Company

Corporate Governance Compliance

During the process, broad verification of the company and business processes is prepared with the help of company write ups, published documents, annual report etc. which enable DD team to carry out SWOT Analysis, and identify areas of risk relating to the industry as well as specific to the company







Valuation and Determining the Issue Price

Entering into agreements with Intermediaries

Deciding disclosures to be made in Draft Prospectus

Finalising Issue Schedule

Drafting of Draft Prospectus

Approval of Draft Prospectus



Transition Management (1 of 4)

Takeover threat ?

Regulatory intervention ? Oh God! I am under so much of pressure, should I, at all, think of SME listing?

Business confidentiality ? Increased compliance levels ?

Market intervention ?

Pricing ? Increased ongoing costs ?


Transition Management means taking several steps for transitioning an unlisted company into a listed company. Such steps span from creating the right corporate group structure to changes in Board to Capital Structure to Social Media and so on.

Corporate Group Structure

• Various businesses could be pursued by a business group either in a single entity or through multiple entities

• Different business are carried on usually with separate entity name

• Businesses to be streamlined/ consolidated before deciding on IPO entity



Board Composition Atleast 50% independent NEDs if Chairman

is promoter (otherwise 33%) Atleast one Woman Director on the Board

Compliance Officer Appointment of a CS Appointment of Chief Financial Officer

Audit Committee Min 3 Directors with 2/3rd IDs All members to be financial literate with at

least one having accounting or related financial management expertise

Chairman to be an ID Company Secretary to act as the secretary to

the committee

Nomination & Remuneration Committee At least 3 independent NEDs

Conversion into public limited company

Increase in authorised share capital

Audited restated financials by a peer-reviewed auditor

NoC required from bankers / lenders / other contracting parties, if any

Identifying and finalizing corporate / group* structure

Putting in place the Corporate Governance Structure such as -



Restructuring of Pre-IPO capital

Due Diligence & Pre-IPO

preparation

Valuation & Issue Pricing

Preparation of Draft Prospectus

Appointment of Intermediaries

Filing of Draft Prospectus with

Exchange

Marketing Strategy

Exchange approval

Filing of Prospectus with

ROC

ROC Approval

IPO Launch

Receipt of Applications –

IPO Management

IPO Closes

Issue Pricing & Allocation

Listing & Market Making



Market Making & Trading


Buyer / Seller

Buyer / Seller

Buyer / Seller

Buyer / Seller

Buyer / Seller

Market Maker

• Provides liquidity to in-frequently traded securities

• Enhance demand-supply situation in stocks

Market Maker

Risk & Return

Companies with good fundamentals were thinly traded

Need for

Market Maker

"Market Maker" is a firm that stands ready to buy and sell a particular stock on a regular and

continuous basis at a publicly quoted price

Need for Market Making

Evolution

Why Market Making?


Registered with SME Exchange

Mandatory Market Making

for 3 years

2 way quotes for 75% of the day, monitored by

Exchange

Maximum 5 market maker for

a scrip

Compete with other Market

Makers for better price discovery

Exchange to prescribe

minimum spread

Allowed to de-register by giving 1 month notice

Trading System may be quote

driven or hybrid

Obligations of Market Maker


Standard lot size Price Band (in Rs.) Lot Size (No. of Shares)

< 14 10000

>= 14 < 18 8000

>= 18 < 25 6000

>= 25 < 35 4000

>= 35 < 50 3000

>= 50 < 70 2000

>= 70 < 90 1600

>= 90 < 120 1200

>= 120 < 150 1000

>= 150 < 180 800

>= 180 < 250 600

>= 250 < 350 400

>= 350 < 500 300

>= 500 < 600 240

>= 600 < 750 200

>= 750 < 1000 160

> 1000 100

• Minimum size of INR 1 Lakh

• Exchange not to reduce lot size below initial lot size, in case trading price > Issue price

• Exchange can review lot size once in 6 months

• Lot size to be same across the Exchange

Trading Lot Size


ITP Listing


SEBI filing and Comments required

Listing within 30 days, from:

date of issuance of observations by SEBI; or the expiry of period stipulated in Regulation 6(2)

within 30 days from the later of:

I. date of receipt of the draft offer document

II. Where SEBI seeks clarification, date of receipt of satisfactory reply from lead Merchant Banker

III. Where SEBI seeks clarification, receipt of satisfactory reply from any regulator or agency

IV. Date of receipt of copy of in- principal approval by recognized stock exchange

Listing with Public Issue

Min Application Size: Rs. 10 Lacs

Min No. of Allotees: 200

Permitted categories of investors : Institutional & Non-Institutional*

Mode of Allotment:

a. Institutional Investors: Discretionary (max allotment; 10% of issue size) or proportionate.

b. Non Institutional investors: Proportionate

Subscription:

Institutional investors: 75% of Net offer to Public

Non Institutional Investors: Balance (under subscription in this category shall be made

available to Institutional Investors *The definition of QIB extended to include systematically important NBFCs (defined as per RBI guidelines), family trusts and any other entity registered with SEBI. Further all the aforesaid investors are required to have a minimum net-worth of Rs. 500 crore.

Listing without Public Issue

SEBI filing and Comments required

ITP Framework (1 of 2)


• Minimum trading lot: Rs. 10 lacs • Lock-in of securities: As

mentioned in the adjacent table • Exit of entities listed on ITP

without making a public issue if; shareholders approval is sought

by passing special resolution through postal ballot where 90% of the total votes and the majority of non-promoter votes have been cast in favour of such proposal; and

the recognised stock exchange approves such exit.

• Migration to Main Board: An entity may at its option migrate its shares to the main board any time after 3 years from the listing date, subject to compliance with the eligibility requirements of the stock exchange.

Category Lock In

In case of Public

Issue

Entire pre-issue capital shall be

locked-in for a period of 6 months

from the date of allotment

Without Public

Issue

Entire pre-issue capital shall be

locked-in for a period of 6 months

from the date of listing except for

equity shares held by persons other

than promoters, continuously for a

period of at least one year prior to

the date of listing

In case of venture

capital fund or

alternate

investment fund

of Category 1 or a

foreign venture

capital investor

Locked in for a period of at least 1

year from the date of purchase by

the venture capital fund or

alternative investment fund or

foreign venture capital investor

ITP Framework (2 of 2)


Crowd Funding


• Crowd-funding is an alternative method of raising finance for a business, project or idea through an online campaign. The idea is to effectively communicate the concept to like-minded individuals to seek funds.

• The SEBI discussion paper defines crowd funding as “solicitation of funds (small amount) from multiple investors through a web-based platform or social networking site for a specific project, business venture or social cause.”

• The first online crowdfunding project had occurred in 1997. Rock band Marillion was unable to afford to tour after the release of their seventh album so American fans used the then fledgling internet to raise $60,000 so they could play in the US. Source : www.ukcfa.org

What is Crowd Funding


Crowd Funding Models

There are primarily 4 types of crowdfunding models which have come into practice

In this fund is raised via public campaigns and outreach programs. This option usually does not provide any kind of returns to the investors and hence is done voluntarily without any formal documentation. This option might not be viable in long term due to its non rewarding nature.

This provides certain benefits to its investors, tangible or intangible, varying from services provided to goods offered. This option is also not very rewarding as it does not provide any equity options for investors where they can get long term rewards.

For any investor, return on investment is the basic criteria. In this option investors are made partakers of the equity and profit earned by the business, which brings security of funds and accountability.

It is parallel to raising equity by debt, where money can be raised by taking loans from various investors by offering something in addition to the interest on loan, e.g., profit sharing during the period of investment. This option involves high risk, as start-ups may not be able to afford loans at high rates.

Donation based

Reward based

Equity model

Lending model


Crowd Funding in India

• Crowdfunding is still at growing stage in India but there are few sites already operational like milaap.org, ketto.org, funddreamsindia.com and catapooolt.com.

• In December 2012, Pick A Venture rigorously assessed 30 startups and chose 12

to refine their pitches and iterate on their concept. • SEBI had issued discussion paper on crowdfunding in June 2014, to give

entrepreneur an additional avenue for raising capital. • In the discussion paper SEBI had proposed that crowd-funding platforms be

provided only by registered entities, while companies could raise up to Rs 10 crore in a year through this route. Given the risks associated with this way of fund raising, SEBI had also proposed that only ‘accredited investors’ be allowed to participate in such activity.

• However there are no regulatory norms for crowdfunding in India . The discussion

paper issued by SEBI is into cold storage due to lack of similar regulation in other jurisdiction and for treatment of cross-border investment.


Few Crowd Funding Platforms in India (1 of 3)

Fund Dreams India is a crowd-funding platform that enables people to raise funds for personal causes, life events and social causes. Fund Dreams India offers free personal fundraising websites along with sharing tools so that word can be spread quickly about your fundraiser.

Fund Dreams India has setup few categories such as education, sports, weddings, travels etc. for which money can be raised. However, the list is not exhaustive and money can be raised for anything and anyone.

Few projects of Fund Dreams India are save the dreams of bhawana’s girls, donate a face, adopt my street – chennai rain recovery.


Ketto is Asia’s one of the most visited crowdfunding platform with the largest funding community.

Starting a campaign on Ketto is free. There is no penalty if you don’t raise the total amount. Whatever fund is raised will still get disbursed.

They have fundraising for movie & film projects, music projects, other entrepreneurial projects, fund raising for NGOs and personal cause.

Few projects of Ketto are make each mile count, chennai calling, running for differently abled children, gift a dream, gaur baran radhika.



Catapooolt is a platform that brings together crowdfunding, crowdsourcing and access to seasoned investors across various domains

Catapooolt provides personalised guidance on campaign. Their project coordinators work with you hands on to offer all necessary support and guidance.

Till date, catapooolt has helped over 30 projects to raise over 75 lakhs. They have fundraising for movies, books, music, startups, social, sports etc.

Few projects of catapooolt are PeeBuddy for startups & social, Mirror mate for startups, Maati milaap for creative & social.



Crowd Funding across Globe

• The first instance of crowdfunding was in 1997 in US. Crowdfunding across the globe has recently taken the limelight with a lot of multi-million companies which have taken the recourse to crowdfunding for their various ventures.

• Crowdfunding in UK is regulated by FCA i.e. Financial Conduct Authority. Some

crowdfunding activity is unregulated, some are regulated and some are exempt from regulation. FCA is responsible for regulating loan based crowdfunding and investment based crowdfunding.

• In the United States, the Securities and Exchange Commission (SEC) regulates intrastate

equity crowdfunding offerings under the Securities Act of 1933, and a variety of state and federal regulations.


Listing

Scaling up Business

Migration to Main Board

Further Capital Raising

Further business Expansion

Become leading company

SME Listing gives access to the path of long term wealth creation for all

stakeholders

First Step To Long Term Wealth Creation

Long Term Wealth Creation – Way Forward…

40

Thank You…

Pantomath Capital Advisors (P) Ltd Progress with Values

Disclaimer: All data and information is provided for informational purposes only and is not intended for any factual use. It should not be considered as binding / statutory provisions. Neither Pantomath Capital Advisors nor any of its group company, directors, or employs shall be liable for any of the data or content provided for any actions taken in reliance thereon.

Corporate Office Mumbai 406-08, Keshava Premises, Bandra Kurla Complex Bandra (East), Mumbai - 400 051 Landline: (022) 2659 8691 Fax: (022) 2659 8690 Website: www.pantomathgroup.com E-mail : [email protected]

Branch Offices Ahmedabad Indore Surat Other Associate Offices at Bhavnagar, Bhopal, Gandhinagar, Naroda, Rajkot, Vapi, Vadodara

Online Initiatives : www.smeipo.net | www.dobusinessinindia.in | www.pantomathangels.com

http://www.pantomathgroup.com/

mailto:[email protected]

http://www.smeipo.net/

http://www.dobusinessinindia.in/

http://www.pantomathangels.com/

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