SC reviews due diligence guidelines
Regulator seeks to enhance clarity, standardisation and accountability
KUALALUMPUR: TheSecuritiesCommission (SC) is reviewing its guidelines on due diligence for corporate proposals to enhance clarity, standardisation and accountability.
SC deputy chief executive Datuk Ahmad Fairuz Zainol Abidin said the review process would involve collaboration with industry as well as legal and accounting professionals.
Speaking at the Capital Market Conference 2017 organised by the Malaysian Institute of Accountants yesterday, Ahmad Fairuz said that financial information has been described as the “lifeblood of capital markets”.
“Investors require information that they can trust so they can make informed investment decisions.”
He pointed out that studies in emerging markets have linked high quality reporting standards to an increase in foreign investment.
“In addition, the assurance of quality of financial information contributes to a lower cost of capital as it alleviates the need for a risk premium that would otherwise have been levied by foreign investors and passed on to the business, and the country it operates in,” he added.
The capital markets, he said, ought to provide solutions to business needs, particularly for the lesser served segment of smaller companies, which were the small and medium enterprises (SMEs).
On that note, Maybank Investment Bank Bhd chief executive officer Datuk John Chong said although the new Leading Entrepreneur Accelerator Platform (Leap) Market was an avenue for SMEs to raise funds and expand, it would take a while for the companies to evolve and mature.
“The market must be realistic in terms of the timeline that this sort of asset class can provide to investors.
“In an interim period, the banking market will still remain the backbone to support the SME industry for the next couple of years and we are looking at different solutions to meet their funding needs,” he said, adding that transparency was key to any fundraising exercise.
Chong said that it was pertinent to look at the type of investors that the firm intended to attract and the valuations it aimed to have.
He said like in any new markets, there would be lack of liquidity intially, which explained the premium one had to pay when investing.
Nevertheless, he assured that as the firms evolved and started to see returns, it could perhaps migrate to the ACE or Main Market of the exchange in the future.
“The valuation for such companies on the platform will be quite wide since they ranged from SMEs to start-ups and traditional brickand-mortars.
“The approved investors need to be conservative in terms of valuation range and let the market and sophisticated investors decide what the valuation should be. This creates an asset class for high networths who are prepared to invest,” he pointed out.
Meanwhile, Bursa Malaysia Bhd chief operating officer Datin Azalina Adham noted that SMEs prefer long-term strategic investors and therefore the bourse does not expect trading to be similar to those on the ACE or Main Market.
“Our main goal is to make Leap an efficient fundraising platform for SMEs,” she noted.
Azalina said there are still sufficient internal controls in place for Leap, although it is not required to have independent directors and an audit committee.
“We (as the regulators) looked at three things – conflict of interest, public interest and governance, and the governance team on Bursa does evaluate the processes (in Leap) market to ensure that there are sufficient internal controls in place.
“We just take a view that these companies are too young, and too early to be burdening them with requirements of formal committees, it does not mean to say that these companies do not need to worry about governance,” she said.
Only semi-annual financial reporting and a disclosure of annual audited accounts are required for companies in the Leap market, Azalina added.