Saturday August 1, 2009
ACE Market – easier to list
Generally the aim is to provide greater certainty and efficiency in listing.
INNOVATIVE entrepreneurs seeking to list their fledgeling companies have many options these days because alternative markets have become widely accepted components of the capital market. In this part of the world, they can choose to go to Singapore’s Catalist or Hong Kong’s GEM (Growth Enterprise Market), for example.
Malaysian companies have been floated on the London Stock Exchange’s AIM (Alternative Investment Market). Malaysia has the Mesdaq Market, but from next week, it will be known as the ACE Market. More importantly, it will be sponsor-driven and open to companies of all sizes and from all sectors.
Generally, the aim is to provide greater certainty and efficiency in the listing process and to make it easier for issuers to tap the capital market. The ACE Market’s regulatory framework also promotes greater transparency via enhanced disclosures. This is important if the ACE Market is to compete with the likes of Catalist and GEM.
Says Federation of Public Listed Companies president Tan Sri Megat Najmuddin Megat Khas, “There should be a new emphasis on giving our young, innovative entrepreneurs access to the capital market. Otherwise, they may move elsewhere and it will be hard for Malaysia to move up the global value chain.”
In a July 27 report, OSK research analyst Shin Kao Jack says, “Generally, the ACE Market emphasises disclosure and efficiency compared with Mesdaq.
“We think the advantage of the transformation is that investors will get the opportunity to invest in the non-technology Malaysian SMEs (small and medium enterprises) early rather than at a later stage in the Main Market, by which time some businesses would have already reached a growth bottleneck.”
However, it will be interesting to see how the market participants take to the concept of the sponsors playing a much larger role in the ACE Market than they had in Mesdaq.
The sponsors are mostly investment banks that are hired to guide and advise the companies en route to listing and beyond. Their services are needed because typically, the companies are startups with little expertise and experience with the ins and outs of the capital market.
Under the new regulatory framework for the ACE Market, the sponsors will have to evaluate the suitability of applicants seeking admission. Essentially, the sponsors will take over the SC’s function as gatekeeper.
In addition, the sponsors will be required to conduct, actively participate in and oversee the preparation and due diligence process for the ACE Market companies’ public documents. Also, the sponsors must maintain regular contact with the companies, including being available at all times to advise and guide the companies.
All these indicate that a sponsor is laying a lot on the line in signing up with an ACE Market company. “There is reputational risk attached to being a sponsor,” says a corporate observer.
A sponsor is tied to the ACE Market company for at least three years after listing. In AIM, the nominated adviser or nomad, the equivalent of a sponsor, has to serve that function as long as the company is listed.
OSK Investment Bank Bhd director and head of equity capital markets Gan Kim Khoon says the ACE Market rules mean that investment banks and other would-be sponsors will have to be selective in which companies they want to help list.
“We will have to play our role as gatekeepers. We need to make sure that only good quality companies are brought to the market,” he adds.
Some people worry that the tough demands on the sponsors may raise costs for listing in the ACE Market if the sponsors charge high fees.
Says CJ Ang, who was CEO of Datascan Bhd (now known as Cucaspi Bhd) when it was listed on Mesdaq in July 2004, “It’s painful to be a small listed company. Governance requirements are the same for everybody but the costs make up a larger proportion of the smaller companies’ total costs.”
(Ang has left the company and is now president of the National ICT Association of Malaysia, better known as Pikom.)
Sceptics also doubt that the sponsors can be effective in acting as both advisers and regulators to the ACE Market companies. On the other hand, Bursa Malaysia will be monitoring the sponsors and considering the the most of the sponsors are investment banks, it is unlikely that they will want to jeopardise their standing.
The question is, can the ACE Market be more successful than Mesdaq?
REDtone International Bhd group managing director Wei Chuan Beng says it does not necessarily make a difference to an investor if the company is the Main Market or the ACE Market. The factors that count is its size and its growth stage.
He adds: “It’s important to acquire a certain size and liquidity. There’s a sufficient pool of funds with the mandate to put money in higher-growth, riskier companies in the hope of getting better returns.
“It’s good for the SC to educate fund managers and work with them with the aim of persuading them to allocate some funds for investing in ACE Market companies. To invest in the ACE Market, people must think long-term.”
Shin of OSK Research warns of post-IPO traps. “As the ACE Market does not require a company to report any revenue, operating record or profit, we may see mant start-up companies getting listed as long as their sponsors believe in their growth stories.
“Investors would, for instance, need to analyse carefully the use of listing proceeds. We are likely to see some companies raising capital to fund R&D expenses and pay back borrowings, which will not benefit those who have just become their new shareholders through IPOs.”