Due diligence must for companies below Rs 10 cr issue size

Our Bureau

The minimum number of public shareholders after the issue shall be 1,000 for small-cap companies

Mumbai, July 11

The Bombay Stock Exchange has decided to tighten the norms for listing shares of initial public offering (IPO) and follow-on public issue (FPO) to check fly-by-night operators entering the capital market.

An important requirement under new norms, which will come into effect from August 1, is that due diligence for IPOs and FPOs for less than Rs 10 crore has to be done by merchant bankers and chartered accountants appointed by the BSE.

This requirement will be waived off if a financial institution or a scheduled commercial bank has appraised the project in the preceding 12 months, according to the revised listing norms issued here on Tuesday.

The minimum number of public shareholders after the issue shall be 1,000 for small-cap companies.

Small-cap companies are those companies that have a market capitalisation of less than Rs 25 crore or companies that tap the IPO market with an issue size of less than Rs 10 crore.

Under the new norms, BSE said minimum post-issue paid-up capital and minimum issue size for a small cap companies should be Rs 3 crore respectively.

Again, for small-cap companies tapping the IPO/FPO market, the minimum market capitalisation is stipulated at Rs 5 crore and the minimum turnover of the company should be Rs 3 crore in each of the preceding 12 months period, the BSE said.

For large-cap companies, the minimum post-issue paid-up capital of the applicant company should be Rs 3 crore; and the minimum issue size is stipulated at Rs 10 crore.

Under the existing norms, new companies can be listed on the BSE, if their issued and subscribed equity capital after the public issue is Rs 10 crore.

In addition to this, the issuer company should have a post issue net worth (equity capital + free reserves excluding revaluation reserve) of Rs 20 crore.

BSE said the new norms would be in addition to the conditions prescribed under SEBI (Disclosure and Investor Protection) Guidelines, 2000.

(This article was published in the Business Line print edition dated July 12, 2006)
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