A LEAP for SME standards
Meeting listing requirements helps increase transparency of small businesses
THE newly launched Leading Entrepreneur Accelerator Platform (LEAP) will not only add another platform for SMEs to raise funds, it will also be a platform to raise the standards and visibility of small businesses in Malaysia, said industry observers.
In a recent LEAP Listing Requirement seminar organised by The Associated Chinese Chambers of Commerce and Industry of Malaysia (ACCCIM), Wong & Partners partner Wong Sue Wan noted that there are corporate governance requirements that SMEs will have to follow upon their listing on the platform.
“Certainly, SMEs will need to adjust the way they’ve been doing things. There are standards and legality that need to be followed once they are listed. It is a shift,” she said.
For example, companies will need to inform their shareholders on any changes in substantial shareholdings and of any material changes that may affect the company.
Notably, SMEs are not known for their transparency as they are not required to publish their financial information. Additionally, most companies are family-owned businesses and would rather keep any information within the folds of their family.
“Listed companies cannot continue to be run like a family-owned company,” added ACCCIM member of the Finance & Capital Market Committee Datuk Christopher Chan.
Chan also advised SMEs to be forthcoming in providing their sponsors with information even before the listing exercise to avoid any complication in the later stage.
Some of the other considerations that SMEs will have to bear in mind about listing on the LEAP platform include meeting accounting standards, minimum shareholding spread and ensuring proper governance.
While this may seem like a lot of rigidity for small businesses, meeting the requirements will help raise the standards of SMEs by making them more transparent to shareholders.
Also, unlike other fundraising platforms such as equity crowdfunding (ECF), the LEAP market gives SMEs a listing status, which will raise the vibility of the company and give them a boost in their credibility.
“I think the LEAP market is a good platform for SMEs. If you look at the ECF, it has a limit to how much you can raise, which is RM5mil.
“And with LEAP, companies have to provide more information and there are more safeguards,” said Chan.
One of the possible issues for LEAP could be liquidity.
“But if the listed companies can capture the imagination of the investors, then I don’t think it will be a problem. We have a lot of high-networth investors,” he said.
He noted that Bursa Malaysia has taken the initiative to reduce the cost of listing on LEAP by cutting down on some of the requirements imposed on public listed companies, such as the need for independent directors and annual reports, among others.
He estimated the cost of the listing exercise at about RM700,000 but noted that it was not an amount across the board.
According to Chan, companies that are suitable for listing on LEAP are those that could generate RM4mil to RM5mil in profits within three to five years upon listing.
The company will need to go through due diligence conducted by advisers and sponsors, who will assess its suitability to be listed. The role of a sponsor is also to ensure ongoing compliance with listing rules and regulations after listing.
A listee is required to have a sponsor for at least three years upon listing.
Commerce DotAsia Ventures Sdn Bhd founder and executive chairman Ganesh Kumar Bangah also reminded SMEs to be conservative with their valuations and to listen to the professionals managing their listing process.
“An initial public offering has to be managed in a way where everybody wins. What people are really buying into is your business. So you have to make sure that your business is a good business before you list and then you have to convince investors to buy into your business when you list. The most difficult part of a listing is usually convincing people to buy into it,” he said.
The LEAP market is only open to sophisticated investors such as high net worth individuals, with more than RM3mil in personal assets excluding primary residence or a gross income of more than RM300,000 a year, and corporate bodies with more than RM10mil in assets under management.