SMEs and Sophisticated Investors now have an alternative capital raising and investment platform with Bursa Malaysia’s Leading Entrepreneur Accelerator Platform (LEAP) Market. Is it right for you?
By Abdul Razak Rahman
Bursa Malaysia’s new Leading Entrepreneur Accelerator Platform (LEAP) Market aims to provide small and medium enterprises (SMEs) with an alternative and efficient fund-raising platform and raise their visibility through the capital market.
On 25 July 2017, Prime Minister Dato’ Sri Mohd Najib Tun Haji Abdul Razak officially launched the Leading Entrepreneur Accelerator Platform (LEAP) Market at the Invest Malaysia Kuala Lumpur (IMKL) 2017 conference.
“The LEAP Market is an alternative capital raising platform for SMEs which is the first of its kind in ASEAN. It is designed to address the funding gap for SMEs and make it easier for them to take their businesses to the next level through raising funds in the capital market. It also provides investors with a new investable asset class. The availability of such a platform would further aid the development of SMEs and support broader economic activities,” said Datuk Seri Tajuddin Atan, Chief Executive Officer of Bursa Malaysia, at the launch of LEAP, as reported by various media.
At the same event, he also estimated that around 19,000 SMEs are in need of funds and that LEAP could help mitigate this. At an earlier presentation on LEAP at the Capital Market Conference (CMAC) 2017, Bursa Malaysia Chief Operating Officer Datin Azalina Adham had called attention to a study by consulting firm Oliver Wyman which showed that the capital market could bridge SME financing gaps by providing up to 20% of the financing needs of SMEs. “Based on SME Corp data, financial institutions fund approximately 96% of total SME financing, with the capital market providing less than 4%. The proposed LEAP market could address the overdependency by providing access to the capital market.”
As explained by Salihudin Mohd Razali, VP IPO Marketing, Securities Market, Commercial and Development, Bursa Malaysia Berhad, at MIA’s Public Practitioners Forum 2017, the LEAP Market was developed based on the following guiding principles:
- Cost-efficient fund raising and listing
- Rules that have been formulated on the light-touch basis balanced with prudent standards
- Qualified market for Sophisticated Investors.
The approving authority for the LEAP Market is Bursa Malaysia. As part of the light-touch rules, there is no requirement to prepare or lodge a Prospectus. The applicant only has to lodge an Information Memorandum (IM) with the Securities Commission (SC) and there is no pre-vetting by Bursa or SC.
As far as the IM is concerned, the most important disclosure item is the Risk Factors. They have to be comprehensive to enable the Sophisticated Investors to form opinion and decide on the investment. Other standard disclosures in the IM include information on applicant such as business activities, history of business and future plan, group and shareholding structure, competitive analysis and prospects, last two years’ financial results, licenses and permits, conflict of interests (if any), related party transactions (if any), details of promoters, substantial shareholders, directors and key management, proposed utilisation of IPO proceeds and material agreements.
Banking on Advisors
Much assurance will depend on the competency and credibility of the LEAP Advisors. According to Salihudin, the suitability assessment such as the feasibility and viability of the business, and the valuation are undertaken by the Advisors. In addition to the Principal Advisors, the list of approved advisors or sponsors for the LEAP Market has been expanded to include eligible Corporate Finance Advisors. LEAP Market also has no minimum profit or operation requirements as admission criteria but the moratorium period on promoters’ shares is four years. The minimum public spread for the LEAP Market is 10% and there is no minimum number of shareholders. The listing process for LEAP Market is also significantly shorter compared with the Main or ACE Markets. The lead time from the submission of the IM to approval by Bursa is estimated at three weeks. The listings of Cloudaron Group Berhad (the inaugural LEAP listing) and Red Ideas Holding Berhad took approximately one month. For post-listing, reports required are semi-annual financial reporting and annual audited accounts. There are also no requirements for annual report as well as Independent Directors, Audit Committee, Nomination Committee and Remuneration Committee.
At the pre-listing stage, the approved advisor’s role is to perform suitability and viability assessments on the company. Next is to advise on the structure, timing and pricing, in collaboration with other professionals such as Auditors, Lawyers and Market Researchers. Finally, the advisor must prepare, lodge and submit relevant documents for approval. Post-listing, the advisor’s role is to continue in an advisory capacity on corporate matters as well as disclosure and post-listing requirements. The appointment of an advisor is for four financial years.
Ensuring Good Governance
Although requirements are lighter, this doesn’t mean that corporate governance is being lightened for LEAP. Datin Azalina at CMAC 2017 had emphasised that LEAP will have adequate internal controls to ensure good governance and investor protection, even though companies listed on LEAP are not required to appoint Independent Directors and an Audit Committee. Further, companies listed on the LEAP market are not required to submit quarterly financial reports and annual reports, only semi-annual financial reports and annual audited accounts. “(Post listing) The governance team in Bursa will conduct evaluations to ensure that there are sufficient and proper internal controls and processes in place. We look at three elements — conflicts of interest, public interest and corporate governance,” she explained.
For LEAP listings to succeed, the advisor must understand the business well and be able to articulate it to the investors. “Investors’ engagement is key and it is therefore important to start the process early,” said Salihudin.
Given the streamlined requirements, Bursa is limiting investor participation to Sophisticated Investors who are able to stomach the higher investment risks posed by the LEAP market, versus the Main and ACE markets. Schedule 6 & 7 of the Capital Markets and Services Act 2007 (CMSA) define Sophisticated Investors as high net worth individuals with assets of more than RM3 million or income of more than RM300,000 per annum or a combined husband and wife income of more than RM400,000 per annum. To be eligible, corporates including Partnerships and Trust Companies must own net assets of more than RM10 million.