The Gujarat and Rajasthan governments have announced subsidies to pay for the expenses of SMEs going public through Initial Public Offerings (IPOs) of equity. The governments of Maharashtra and West Bengal will employ Venture Capital (VC) funds to invest in the IPOs, say sources.
The Gujarat government is now reimbursing 10 per cent of the IPO expenses of SMEs in the state, subject to a maximum of Rs 5 lakh each. Rajasthan has announced a similar policy, to reimburse up to Rs 2.5 lakh towards IPO expenses for SMEs there.
Small Industries Development Bank of India (Sidbi) and the Maharashtra government have come together to set up a Rs 200 crore VC fund, to provide easier financing options to Micro, Small and Medium Enterprises (MSMEs). The investment will be in the form of equity and the fund is soon expected to be registered with the Securities and Exchange Board of India.
Similarly, the MSME and textiles departments of the government of West Bengal are readying a Rs 200-crore West Bengal MSME VC Fund. The government will provide Rs 100 crore and the rest will be mobilised from other investors. Sidbi has agreed in principle to join the fund, with a 15 per cent share in the corpus, and will also manage the fund (through Sidbi Venture Capital). A fifth of the fund shall be earmarked to provide incubation support for start-ups through tie-ups with established entities in the state such as the IIM Calcutta Innovation Park, among others.
State govts lend support to SME platforms “The initiative to float dedicated funds for investment in SME IPOs will be beneficial, especially considering the lack of institutional participation in the segment,” said Uday Patil, Director, investment banking, Keynote Corporate Services.
“We are in discussion with policy makers and state governments to kickstart initiatives to support their SMEs. The funding can help SMEs to grow their businesses faster and in turn contribute to state economies,” said Mahavir Lunawat, Managing Director of Pantomath Capital Advisors, a merchant banking firm that handles SME issues.
Adding: “Large institutions such as mutual funds, banks and insurance companies should be mandated to earmark a small portion of their portfolio in SME IPOs.”
At present, BSE has 119 companies listed on its SME platform; NSE has 36. Both exchanges had launched separate SME platforms in March 2012, after the regulator came out with easier listing and disclosure guidelines, to help small companies tap the capital market. The SME segment is still grappling with issues such as lack of liquidity and lacklustre institutional participation. Both exchanges are in talks with institutions and state governments to improve participation in the segment, said sources.
Noteworthy institutional participation in past SME IPOs include investments by the Central Bank of India and Bank of Maharashtra in Opal Luxury Time Products and that of ICICI Bank, State Bank of India, Bank of Baroda, Bank of India and Union Bank of India in Mitcon Consultancy & Engineering Services.
Source: Business Standard