Bursa Malaysia Proposes New Market for SMEs

September 2016
by Wong Mei Ying, Yoon Ming Sun, Lai Yin Yin

The information in this article is intended only to provide general information and does not constitute professional advice or legal opinion.

@2018 Chooi & Company + Cheang & Ariff.
All rights reserved.

On 2 September 2016, Bursa Malaysia issued a consultation paper on its proposal to establish a new market for small and medium enterprises (“SMEs”) on Bursa Malaysia (“New Market”) to provide SMEs greater access to the capital market and a venue to spur investment activities by venture capital, private equity firms and other sophisticated investors (“Consultation Paper”). Under the proposed framework, SMEs may opt for listing with fund raising, via placement or excluded issue (as defined under section 226 of the Capital Markets and Securities Act 2007) or listing without fund raising, via listing by introduction.

Based on SME Corp Annual Report 2014/ 2015, the criteria for categorisation of companies into small and medium sized companies are as follows: 

Size

Small

Medium

Sales Turnover

Employees

Sales Turnover

Employees

Manufacturing sector

RM300,000 to < RM15 million

5 to < 75 employees

RM15 million to ≤RM50 million

75 to ≤ 200 employees

Services and other sectors

RM300,000 to < 3 million

5 to < 30
employees

RM3 million to ≤ RM20 million

30 to ≤ 75 employees


The Consultation Paper seeks feedback in the areas of listing framework, listing process, adviser framework, post-listing disclosures, graduation facilitation, investors, and trading, clearing, settlement and depository framework. The New Market is premised on three key guiding principles, which are cost efficiency, appropriate regulations and a qualified market for sophisticated investors.

Overview

Currently, Bursa Malaysia operates two markets, namely the Main Market which provides a platform for established companies with profit track record and/ or sizeable operations to raise funds and the ACE Market which provides an alternative sponsor-driven market designed for companies with growth potential to tap equity funding.

The table below sets out the salient features of the proposed New Market in comparison with the Main Market and ACE Market:

 

Main Market

ACE Market

New Market (proposed features)

LISTING FRAMEWORK 

Listing Qualifying Criteria

Applicant must satisfy the profit test or market capitalisation test, or infrastructure project corporation test as detailed in the Equity Guidelines issued by the Securities Commission Malaysia.

No minimum operating track record or profit requirement.

No minimum operating track record or profit requirement.

Type of Shares

Any securities may be issued and listed which may include preference shares, convertible securities and debt securities.

Any securities may be issued and listed which may include preference shares, convertible securities and debt securities.

Only ordinary shares allowed to be listed.

Convertible preference shares will not be listed but may be issued by the listed corporation.

Offer for sale

Offer for sale is not allowed for applicant seeking listing under the infrastructure project corporation test, unless the infrastructure project has generated two consecutive full financial years of operating revenue based on the audited financial statements prior to submission to the Securities Commission Malaysia.

Offer for sale is only allowed for an applicant which has generated one full financial year of operating profit based on the latest audited financial statements.

A promoter must not make an offer for sale if it will result in all promoters in aggregate holding less than 45% of the enlarged issued and paid up capital of the applicant at the date of admission to the Official List.

Offer for sale is not allowed for promoters but allowed for registered venture capital corporation, registered venture capital management corporation, private equity firms and qualified angel investors accredited by the Malaysian Business Angels Network as an exit strategy.

Types of Investors

Public.

Public.

Sophisticated investors only as per Part 1 of Schedules 6 and 7 of Capital Markets and Services Act 2007

Public Shareholding Spread

At least 25% of the total number of shares must be held by a minimum of 1,000 public shareholders holding not less than 100 shares each at the admission stage.

At least 25% of total listed shares (excluding treasury shares) must be held by public shareholders post listing.

 

At least 25% of the total number of shares must be held by a minimum of 200 public shareholders holding not less than 100 shares each at the admission stage.

At least 25% of its total listed shares (excluding treasury

shares) must be held by public shareholders post listing.

At least 10% of the total number of shares must be held by public shareholders at the admission stage.

No minimal public spread post listing.

Moratorium

Moratorium on the promoters' entire shareholdings for six   months from the date of listing for listing under the profit test, market capitalisation test or infrastructure project corporation test.

End of moratorium at the end of the six months if the infrastructure project has generated one full financial year of audited operating revenue, failing which the promoters must retain their shareholdings amounting to 45% of the issued and paid-up share capital of the applicant. The moratorium on the 45% shareholding will be lifted upon achieving one full financial year of audited operating revenue.

Moratorium on the promoters' entire shareholdings for six months from the date of admission.

Subsequently, at least 45% must be retained for another six months and thereafter, further sell down is allowed on a staggered basis over a period of three years, subject to the listed corporation generating one full financial year of operating revenue.

 

 

First year from date of listing: moratorium on the entire shareholdings of the promoters.

Second year onwards:  promoters’ aggregate shareholding amounting to at least 45% of the nominal issued and paid-up ordinary capital of the listed corporation to remain under moratorium.

Underwriting of Shares

Underwriting arrangements are at the discretion of the applicant and its principal adviser. 

Underwriting arrangements are at the discretion of the applicant and its Sponsor.

Not required.

POST LISTING 

Issuance of Annual Report 

Required.

Required.

Not required.

Issuance of New Shares

Approval of Bursa Malaysia Securities Berhad (“Bursa Malaysia Securities”) required.

Approval of Bursa Malaysia Securities required. 

Approval of Bursa Malaysia Securities not required.

Transactions

Announcement for transaction with value of RM500,000 or more for:

  • related party transaction (“RPT”) with percentage ratio of 0.25% or more; and
  • non-RPT with a percentage ratio of 5% or more.

 Shareholders’ approval for transaction with value of RM500,000 or more for:

  • RPT with percentage ratio of 5% or more; and
  • non-RPT with percentage ratio of 25% or more.

Announcement for transaction with value of RM200,000 or more for:

  • RPT with percentage ratio of 0.25% or more; and
  • non-RPT with a percentage ratio of 5% or more.

 Shareholders’ approval for transaction with value of RM200,000 or more for:

  • RPT with percentage ratio of 5% or more; and
  • non-RPT with percentage ratio of 25% or more.

 

Announcement for:

  • RPT with percentage ratio of 5% or more; and
  • non-RPT with percentage ratio of 10% or more.

Shareholders’ approval for transaction with value of RM200,000 or more for:

  • RPT with percentage ration of 10% or more; and
  • non-RPT with percentage ratio of 25% or more.

Proposed Adviser Framework

The New Market will operate under a full disclosure based regime and adviser-driven framework.  In line with this proposal, Bursa Malaysia intends to expand the existing pool of advisers to include qualified corporate finance advisors (CFA) licensed by the Securities Commission Malaysia to undertake initial listing activities and post listing activities. Bursa Malaysia Securities will review admission documents in focused areas such as corporate governance, conflicts of interest and public interest but will not assess the suitability of an applicant for listing on the New Market. However, Bursa Malaysia Securities will reserve the right to refuse listing of an applicant to the New Market if it may be detrimental to the orderly operation or integrity of Bursa Malaysia.

Under the proposed framework, a listed corporation has to retain an adviser at all times for at least three full financial years from the date of its listing on the New Market or at least one full financial year after the applicant has generated operating revenue, whichever is later. It is also proposed that the applicant’s approved adviser who submitted its application for listing on the New Market will act as its adviser for at least one full financial year following the applicant’s admission to the New Market.

Corporate Governance

The requirement to announce immediately any information which is reasonably expected to have a material effect on a listed corporation, which is applicable to the Main Market and ACE Market, is proposed to be retained for the New Market. However it is proposed that some flexibility be accorded to the requirement for independent directors, audit committee, nomination and remuneration committee. Further, a more relaxed financial disclosure regime is introduced to limit periodic disclosure of financial results to semi-annual unaudited results for the New Market compared to the current quarterly results reporting requirement for the Main Market and ACE Market.

Proposed Graduation Criteria

The processing period for graduation of a listed corporation from the New Market to the ACE Market is proposed to be less than three months. Bursa Malaysia also proposes for waiver of the ACE Market initial listing and processing fees for corporations which transfer to the ACE Market within three years of listing on the New Market and waiver of the ACE Market annual listing fees for the first two years of transfer.

Conclusion

The proposals contained in the Consultation Paper are subject to Securities Commission Malaysia’s assessment and approval. The proposals seek to strike a balance between cost efficiency, appropriate regulations and investors’ protection. The proposals may provide new opportunities for SMEs that have exhausted traditional funding avenues and unable to gain access to the existing capital markets due to the listing criteria or the compliance and listing costs.


The information in this article is intended only to provide general information and does not constitute professional advice or legal opinion.

@2018 Chooi & Company + Cheang & Ariff.
All rights reserved.