LEAP pi­o­neers un­likely to test rule lim­its yet

> Na­ture of cur­rent SMEs and in­vestors’ mind­set may curb riskier of­fer­ings for now

The Sun (Malaysia) - - SPEAK UP - BY V. RAGANANTHI­NI

PETALING JAYA: The Lead­ing En­tre­pre­neur Ac­cel­er­a­tor Plat­form (LEAP), which is set to see its first list­ing next Tues­day, is un­likely to see ini­tial list­ings test­ing the com­plaisant na­ture of the new mar­ket’s rules yet, as one in­dus­try player pointed out, bri­dled by the na­ture of cur­rent small and medium en­ter­prises and in­vestors mind­set.

The list­ing re­quire­ments for the LEAP mar­ket are less strin­gent than for the other two mar­kets in terms of com­pany track record, fo­cus­ing more on the fu­ture prospects of the en­ter­prise.

A case in point is the mar­ket’s first list­ing, Cloudaron, which un­der its founder Ong Chang Jeh has been around since 2010. It has a pres­ence in Sin­ga­pore, In­done­sia and Malaysia and has to­tal as­sets of RM58 mil­lion. For the fi­nan­cial year ended March 31, 2017, the com­pany made a net profit of RM5.2 mil­lion, 3,818.2% higher than the RM126,000 made for the same pe­riod in fi­nan­cial year 2016.

A se­nior cap­i­tal mar­ket player who spoke to Sun­Biz on con­di­tion of anonymity said while the re­quire­ments on pa­per for the LEAP mar­ket are very le­nient, ideally com­pa­nies opt­ing for list­ing are those which al­ready have a track record, and are in the “tod­dler” stage of growth rather than at in­fancy level.

“Some of the com­pa­nies we look through, they are very much new star­tups. The guide­line doesn’t say you must have been in oper­a­tion for three to five years like (that for) the ACE Mar­ket. But it doesn’t mean you have a busi­ness ven­ture that you started but you have not even gen­er­ated sales or prof­its, you are ready for the LEAP mar­ket be­cause this is not in­no­va­tive SMEs like Sil­i­con Val­ley,” he said.

"We usu­ally look at his­tor­i­cal busi­ness rev­enue to show that you (com­pa­nies) have al­ready com­mer­cialised your prod­ucts. You’ve al­ready man­u­fac­tured your prod­ucts and have a bit of prof­itabil­ity to show you can grow with (cap­i­tal) in­jec­tion,” he added.

He opined that Malaysian in­vestors are also not used to in­vest­ing in “real” star­tups com­pared to in­vestors in the Sil­i­con Val­ley, which is also the rea­son why Mul­ti­me­dia Su­per Cor­ri­dor-sta­tus (MSC-sta­tus) com­pa­nies have strug­gled to raise money in the past – hence the need for a track record.

The banker said eval­u­at­ing a LEAP mar­ket lis­tee is, how­ever, eas­ier com­pared to the ACE and the Main mar­kets, as most SMEs only have a sin­gle core busi­ness but the for­mer two may have four or five core busi­nesses.

The size of the com­pany, the in­dus­try it is func­tion­ing in and the ex­pe­ri­ence and his­tory of the in­di­vid­ual man­ning the busi­ness are among the areas of scru­tiny.

DWA Ad­vi­sory Sdn Bhd man­ag­ing prin­ci­pal Datuk Wan As­madi Wan Ah­mad, how­ever, said even star­tups or ven­tures which are on the draw­ing board level can list, as long as they pos­sess growth prospects and have the abil­ity to sus­tain them­selves.

“In terms of el­i­gi­bil­ity of list­ing of SMEs on Bursa Se­cu­ri­ties, we would need to look at nu­mer­ous things. Among them, we would be look­ing at sus­tain­abil­ity of the busi­nesses,” he added.

Un­like the ACE and the Main mar­kets where es­tab­lished busi­nesses are listed, the LEAP mar­ket looks at busi­nesses that have the po­ten­tial to grow but have not charted their growth story yet.

“For ex­am­ple, if the com­pany is in­volved in a cer­tain busi­ness that we know that there would be a good mar­ket for that type of prod­uct/ser­vice/ busi­ness and that the mar­ket is still rel­a­tively un­tapped, then there would be a pos­si­bil­ity that this spe­cific com­pany could ac­tu­ally grow re­gion­ally rather quickly – but may have some fund­ing re­quire­ments that it would need to ad­dress first,” he added.

Adding on, se­nior prin­ci­pal Farid Rahman said com­pa­nies should have the in­ten­tion to grow as the LEAP mar­ket is seen as a gate­way to ac­cess­ing more cap­i­tal.

He added that it is im­por­tant for com­pa­nies to have a vi­sion to even­tu­ally grad­u­ate to the other two boards in­stead of re­main­ing in their com­fort zone.

Wan As­madi opined that in­sti­tu­tional in­vestors should treat the LEAP mar­ket as a pre-ini­tial pub­lic of­fer­ing (IPO) and look to par­tic­i­pate more in it. He noted that the par­tic­i­pa­tion of in­sti­tu­tional in­vestors is lim­ited in the ACE Mar­ket as well.

“At this mo­ment, while it is still rather pre­lim­i­nary, we fore­see more par­tic­i­pa­tion from pri­vate in­vestors as we have been made to un­der­stand that var­i­ous fund man­agers and gov­ern­mentlinked in­vest­ment com­pa­nies/agen­cies cur­rently do not have blan­ket man­dates for eq­uity in­vest­ments into this class of as­sets,” he said.

“As we progress, we hope in­sti­tu­tional in­vestors would have an al­lo­ca­tion to in­vest in LEAP mar­ket com­pa­nies and would see LEAP mar­ket com­pa­nies as pre-IPO com­pa­nies for in­vest­ment and as an as­set class, where the in­vestors will get the up­side upon their mi­gra­tion to the ACE and Main mar­kets," he added.

Ac­cord­ing to Wan As­madi, the LEAP mar­ket serves as a “feeder” or in­terim mar­ket which could pos­si­bly en­able com­pa­nies to skip the ACE Mar­ket and head di­rectly to the Main Mar­ket.

Farid (left) and Wan As­madi

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