PETALING JAYA: The stage has been set for the setting up of the Leading Entrepreneur Accelerator Platform (LEAP) following an announcement by Bursa Malaysia on new listing requirements and amendments to some of its regulations.
This is good news for the approximately 19,000 small and medium enterprises (SMEs), who will now have a new avenue to raise funds via the capital market in an efficient manner.
In a nutshell, the LEAP market will be the “feeder” market for an SME seeking for a listing. The LEAP platform will provide them with fund raising access and visibility through capital markets.
Currently, 96% of SME funding comes from the banking sector, an indication of its dependence on financial institutions for its needs. Less than 4% comes from the capital market.
“This marks a significant milestone for Bursa Malaysia. The LEAP market complements both the Main Market and ACE Market by addressing the funding gap faced by the SMEs.
“As the national exchange, we believe the exchange can play a greater developmental role to facilitate fund raising for the growth of SMEs,” said Bursa Malaysia chief executive officer Datuk Seri Tajuddin Atan in a statement.
MIDF Amanah Investment director of corporate investment banking Sherilyn Foong said there were many SMEs that lacked the criterias to qualify for an Ace Market listing just yet.
“The LEAP market will be the intermediary market where the company can be listed first while providing all the capital access and regulations required of a company preparing for a proper listing,” she said.
The LEAP market is part of a larger ecosystem created by the regulators which began with the implementation of the equity crowdfunding (ECF) platform two years ago. ECF was to be the first platform, followed by the LEAP, and subsequently a graduation to the Ace Market and Main Market.
The ECF was implemented so that SMEs and start-ups could raise funding through monetary contributions from a large number of people. In less than a year, a total of RM10.4mil has been invested in 14 companies via these platforms.
However, liquidity is an issue in the ECF market. Thus the setting up of the LEAP market will also allow ECF investors to sell their equity to interested buyers.
On some of the challenges for companies opting to list in the LEAP market, Rakuten Trade research head Kenny Yee said valuations could be lower, given issues with regards to liquidity.
This is because only high net-worth and sophisticated investors are eligible to trade on this platform. Furthermore, there is only a 10% public spread requirement upon listing.
“Initial fees involved are also some of the challenges that SME owners may find daunting. The SME candidates would have to go through the steep learning curve of profiling and proving their growth story for their fund raising journey,” said Foong.
So what sort of company qualifies for LEAP?
It is open to all Malaysian SMEs which are public companies. No profit track record and operating history is required. For its submission, an information memorandum will suffice. No prospectus is needed.
Nonetheless, the public spread of the shares must be equal to or more than 10% at listing. There is no requirement to maintain any minimal public spread post-listing.
For now, though, trading on the LEAP market is limited only to qualified investors – mainly those that are known as sophisticated investors. This includes a venture capital corporation, venture capital management corporation, private equity corporation and private equity management corporation registered with the Securities Commission.
On this note, LEAP will provide an efficient and transparent venue to spur investment activities by venture capital and private equity firms as well as other sophisticated investors.
On the sort of businesses, the issuer of the company must have an identified core business. It cannot be an investment holding corporation with no immediate or prospective business operations or an incubator company.
Admission of the company to the LEAP board will be via fundraising or introduction.
For the first year, the entire shareholdings of the promoters are under moratorium. Starting from year two, the promoters must at least maintain a 45% stake.
The LEAP bourse is something which is also being done in Hong Kong.
The Hong Kong stock exchange published last Friday a long-awaited proposal to introduce a new board for pre-profit companies and issuers with non-traditional corporate governance structures in a bid to attract foreign issuers who have typically chosen New York over the Hong Kong bourse.
The new board would exclusively list “new economy” companies in sectors such as Internet and biotech, with separate segments for start-ups and established companies, the bourse said.