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IPO by small and medium-sized companies can be a costly affair due to the high cost of fundraising. Approximately 10% of the funds raised through the IPO are used for various expenses.
Listing shares on the SME stock exchange provides easy access to capital, but at the same time involves various expenses. The SME IPO issue process incurs expenditures for lead manager/merchant banker fees, marketing expenses, underwriting expenses, advisor fees, exchange listing fees, and service fees charged by various intermediaries involved in the SME IPO.
The share listing fee varies between the two SME platforms; BSE SME and NSE Emerge (NSE SME). If you are a SME company looking to issue shares to the public, you need to know how much it will cost to raise capital through an IPO.
Small and medium companies seeking capital via IPO are subject to different types of charges, costs, or expenditures. SME IPO issues can be a costly affair as companies spend a significant proportion of the funds raised to comply with the regulatory norms and marketing of the issue. The IPO issue cost includes share listing fees payable to the stock exchange, underwriting commission, merchant banker fees, registrar fees, advertising, marketing and printing expenses, brokerage fees, and payment to intermediaries or service providers such as legal advisors, lead managers, auditors, market makers, depositories, etc.
During the COVID-19 Pandemic, when SMEs were badly hit due to the stoppage of economic activities, both the BSE and NSE exchanges reduced SME listing fees by 25% to cut the compliance cost for SMEs.
The exchange listing department monitors the company’s compliance with the listing agreement, especially regarding the timely payment of annual listing fees.
Securities listed on the BSE SME platform have to pay the following charges;
BSE SME IPO Listing fee structure | Amount |
---|---|
Initial Processing Fee | Rs 50,000 (One-time) |
Exchange refundable deposit | 1% o the IPO offer size |
Security Deposit | 1% of the issue amount to be paid before the issue opens |
Bid Verification charges | 0.01% of the issue size subject to minimum charges of Rs 25,000 |
Annual Listing Fee | Rs 25,000 or 0.01% of market capitalization, whichever is higher |
Important Points
The SME IPO listing fee schedule at the Emerge platform of NSE from April 1, 2012, is as follows;
NSE Emerge Listing fee structure | Amount |
---|---|
Processing Fee | Rs 25,000 (One-time) |
Initial Listing Fee | Rs 25,000 |
Exchange refundable deposit | 1% of the IPO issue size |
Annual Listing Fee (Based on Paid-up capital) | |
Upto Rs 5 crore | Rs 10,000 |
Rs 5 crore-10 crore | Rs 15,000 |
Rs 10 crore - 20 crore | Rs 25,000 |
20 crore - 25 crore | Rs 45,000 |
It is mandatory to provide a NoC to the exchange to get back 1% of issue size deposits.
More than 50% of fundraising expenses in SME IPO are spent on merchant banker fees. Lead managers (LM) or merchant bankers (MB) play an important role in ensuring IPO due diligence and verifying compliance with applicable rules and regulations.
In addition, bankers must offer a 100% underwriting guarantee with 15% from their accounts. They are also required to enter into market making arrangements for a period of 3 years to ensure the liquidity of the shares. All these services offered by Merchant Bankers result in high fees charged by them.
Generally, a merchant banker may charge 1.5% to 6% fee for providing services to the issuing company. However, they play a crucial role in the successful listing of SME shares and hence, selecting the right Merchant Banker with a good profile and high success rate is important.
Apart from the exchange charges, the issuer company has to pay miscellaneous expenditures including;
BSE SME and NSE SME (Emerge) platforms have a similar fee structure with minor differences in the exchange listing fees. The major part of SME IPO cost goes into merchant banker fees, underwriting commission, registrar fees, advertising, marketing and printing expenses, brokerage fees, and payment to intermediaries or service providers such as legal advisors, lead managers, auditors, market makers, depositories, etc.
Usually, a merchant banker facilitates all the services and in return, charges a consolidated fee from the company. It may vary from a few lakhs to crores depending upon the IPO issue size, preparation time for IPO, and other factors.
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Small and medium-sized companies with securities listed on the BSE SME platform are charged a listing fee every year. In this regard, BSE SME Index charges an annual listing fee of higher of Rs 25,000 or 0.01% of the market capitalization of the last trading session in the financial year.
Listing securities by a small and mid-sized company attracts an annual listing fee from Rs 10,000 to Rs 45,000. The Emerge NSE platform charges a listing fee on the basis of the company’s paid-up capital, higher paid-up capital means higher listing charges or vice-versa.
The BSE SME and NSE SME (NSE Emerge) platform charges a listing fee of Rs 50,000. The listing fee is a one-time charge or payment that has to be paid at the time of shares listed on the SME exchange.
There are many parties involved in an SME IPO issue and listing process who charge a service fee from the issuer company. SME IPO expenses include expenditures on marketing, advertising, lead manager fee, legal compliance cost, listing fee, market maker fees, merchant banker fees, commissions to underwriters, etc.
The cost to raise funds via SME IPO depends upon the platform an SME seeks to list its shares. Both the SME segment at BSE and NSE charge initial share listing fees, processing fees, and annual listing fees from the share issuing entity.
BSE SME IPO charges
Companies seeking to list securities on the BSE SME platform have to pay a one-time processing fee of Rs 50,000 and an annual listing fee of higher of Rs 25,000 or 0.01% of the company’s market cap.
NSE SME IPO charges
NSE SME platform charges an initial listing fee of Rs 25,000 and a processing fee of Rs 25,000. Moreover, it charges an annual listing fee ranging from Rs 10,000 to Rs 45,000 based on the company’s paid-up capital.