NSE Revises FCFE Norms For SME Listings On NSE Emerge

NSE, India’s leading stock exchange, has revised its formula for measuring Free Cash Flow to Equity (FCFE) for companies wishing to get listed on its SME segment, NSE Emerge, in a circular issued on April 17.

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As per the new guidelines, the income from the issue of capital comprising of equity shares, preference shares, and securities premium will also be considered while computing FCFE. Earlier, such inflows were excluded, with FCFE primarily derived from cash flow from operations, capital expenditure, and net borrowings.

The updated definition will apply with immediate effect to all draft red herring prospectuses (DRHPs) filed on NSE Emerge from April 17, as per the exchange circular.

Eligibility Criteria Remains Unchanged

Requirement for positive FCFE in any two out of the previous three years prior to listing for SMEs still stands unchanged. The requirement was established in September 2024 and applies even under the new regulations.

Guidance on FCFE Calculations

Guidelines for FCFE calculations have also been provided by the exchange. It stated that all computations must be based on restated financial statements disclosed in the offer document. Projected or estimated figures will not be considered.

Moreover, stub period figures would not be considered, and the companies would have to use information from their three consecutive full accounting periods for evaluation.

In order to eliminate any redundancy, the exchange explained that the effect of short-term borrowings could be treated under cash flow from operations or cash flow from financing activities, but not under both.

Treatment Of Assets And Costs

The modified rules clearly indicate that the fixed assets considered for FCFE computations would include both tangible and intangible assets.

For financial costs, only interest on borrowings will be considered, while other charges like bank fees, penalties, and statutory dues will be excluded, as per the circular.

Additional Norms For Specific Entities

If a company has subsidiaries, the FCFE needs to be computed on a consolidated basis wherever appropriate. The stock exchange has also provided special guidelines regarding NBFCs, owing to their different approach towards borrowings and lending.

Moreover, the hybrid securities, such as convertible preference stocks and debentures, shall be categorized depending on how they are treated in restated financial statements.

The revised framework standardises FCFE computation for SME listings and will be applied for all relevant filings submitted on NSE Emerge from April 17.