The ACE Market, a submarket of Bursa Malaysia, presents an enticing opportunity for small and medium-sized enterprises (SMEs) to raise capital and gain access to liquidity through the stock market in Malaysia. However, before considering listing on ACE Markets, it is crucial to understand the benefits, drawbacks, and the course of action involved. In this article, we will explore these aspects to help SMEs make informed decisions.
Background of the ACE Market
The ACE Market is a stock exchange in Malaysia that was established in 2009 to provide a platform for small and growing companies to raise capital and achieve their growth objectives. The ACE Market has a lower listing requirement than the Main Market, making it more accessible to smaller companies.
There are a number of benefits to listing on the ACE Market. First, it can help companies raise capital to fund their growth plans. Second, it can increase the visibility and credibility of the company, which can help attract new customers and partners. Third, it can improve the corporate governance of the company, which can make it more attractive to investors.
Benefits to Listing in the ACE Market
There are a number of benefits to listing on the ACE Market. For example, companies listed on the ACE Market can raise capital to fund their growth plans. They can also benefit from the increased visibility and credibility that comes with being listed on a stock exchange. Additionally, listing on the ACE Market can help companies improve their corporate governance practices.
Access to High Capital
One of the key advantages of listing on ACE Markets is the ability to raise significant capital to expand existing business operations. This influx of funds can fuel growth initiatives such as research and development, market expansion, and infrastructure investments, providing opportunities for accelerated business growth.
Liquidity for Company Shares
SMEs can offer their shares to the public, providing liquidity and potential valuation based on market demand. The valuation of a company depends on various factors, including profit track record, business nature, growth rate, and dividend policy. Investors arrive at an earnings multiple, known as the Price Earnings (PE) ratio, which is multiplied by the company's profit after tax (PAT) to determine the valuation.
Increased Corporate Transparency
Listing on ACE Markets requires greater corporate transparency, including regular reporting and disclosure obligations. This increased transparency enhances the company's credibility, making it more attractive to potential investors and lenders, which in turn can also increase access to funds through borrowings by demonstrating financial stability and accountability.
Improved Profiling and Market Presence
A company's profiling, branding, and market presence can be enhanced when it is listed on the ACE Market. It provides increased visibility to customers, suppliers, and potential employees, instilling confidence in the company's stability and growth prospects. This can lead to better business opportunities and partnerships.
Drawbacks to Listing in the ACE Market
However, there are some drawbacks when it comes to listing in the ACE Market. These include the following:
Loss of Ultimate Control
Listing on ACE Market entails a loss of ultimate control for SMEs. A minimum of 25% public shareholder spread is required, and significant business decisions or related party transactions may require advice and permission from sponsors or major shareholders. This can limit the flexibility and autonomy of the company's decision-making process.
Capital Requirements and Profit Track Record
Although a profit track record is not mandatory, it is recommended to maintain a minimum profit after tax (PAT) of RM5 million. This expectation places additional pressure on SMEs to demonstrate financial stability and profitability. Moreover, there is a requirement for paid-up capital of more than RM5 million, which can be a significant financial commitment for some SMEs.
Shares Moratorium
After listing, there are restrictions on share disposals. Shareholders must retain their entire shareholding for six (6) months, maintain at least 45% shareholding in the subsequent six (6) months, and can only dispose of the remaining shares up to a maximum of one-third (1/3) per annum. This limited ability to dispose of shares may affect liquidity for existing shareholders.
Greater Accountability and Scrutiny
Listing on ACE Market subjects SMEs to increased accountability and scrutiny from shareholders and the public. The company must adhere to stricter reporting and disclosure requirements, ensuring compliance with regulatory standards and meeting market expectations. This can involve additional administrative efforts and costs.
Upfront Costs of Listing
The process of listing on ACE Market incurs upfront costs, including processing fees, prospectus fees, and listing fees imposed by Bursa Malaysia. Additionally, professional fees and sponsor fees can significantly contribute to the overall expenses, ranging from RM1.5 million to RM2.5 million. SMEs need to carefully evaluate their financial capacity to cover these costs.
Course of Action Required
Identify the Entity to be Listed
Determine whether the listing will be at the holding company level or subsidiary level. Compile a list of competitors to assist in the valuation process.
Pre-Consultation with the Exchange (Bursa)
Set up a pre-consultation meeting with Bursa Malaysia to discuss the listing requirements and obtain guidance. Prepare the following information for the consultation:
a) Company Name
b) Date and Place of Incorporation
c) Date of Commencement of Operations
d) Principal Activities and Business Model, including necessary permits and/or licenses
e) Principal Place of Business
f) Shareholding Structure and Group Structure, if applicable
g) Details of the Promoters, including qualifications, experience, and interests in other businesses
h) Audited Financial Information for the past three (3) financial years or since incorporation (on a consolidated basis, if applicable)
i) Brief Future Plans of the Company
j) Rationale for seeking listing and description of proposed fund utilisation.
Appoint Internal Advisor and Due Diligence Working Group
Select an internal advisor and at least one director from the issuing company to establish the Due Diligence Working Group (DDWG). The DDWG should include the following members:
a) Promoters
b) Independent market researchers
c) Lawyers
d) Reporting accountants
e) Corporate secretary (CoSec)
f) Sponsor
g) Principal adviser
Due Diligence and Documentation
The DDWG will conduct due diligence on various aspects of the company, including financials, legal compliance, market research, and corporate governance, and prepare the necessary documentation, including the prospectus and other required disclosures.
Meet Listing Requirements
Ensure compliance with the listing requirements set by Bursa Malaysia, such as maintaining a minimum paid-up capital, profit track record, and fulfilling shareholder spread criteria.
Financial and Legal Preparation
Engage professionals, including reporting accountants and lawyers, to assist with the financial and legal aspects of the listing process. They will help ensure compliance with accounting standards, assist in the preparation of financial statements, and handle legal documentation.
Obtain Regulatory Approvals
Submit the listing application to Bursa Malaysia and other relevant regulatory bodies for approval. The approximate timeline for pre-submission and regulatory approvals is 25 weeks, with the submission required within six (6) months of the financial year-end.
Post-Approval and Listing
Once all regulatory approvals are obtained, proceed with the listing on ACE Market. This phase involves finalising the offering price, marketing the shares to potential investors, and completing the necessary administrative and procedural steps. The listing process from approval to listing can take up to 14 weeks.
TL;DR? We got you covered with a summary of the article in the below diagram.
In conclusion, the ACE Market can be a good option for small and growing companies that are looking to raise capital and boost their visibility. However, it is important to weigh the benefits and risks before making a decision about whether or not to list on the ACE Market. If you are considering listing your company on the ACE Market, you may always reach out to us at Biji Deals to discuss further on the benefits and requirements of listing. We hope this article has given you a better understanding of the pros and cons of listing on the ACE Market.
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