22 December, 2017
The LEAP Market, or the Leading Entrepreneur Accelerator Platform Market, was introduced by Bursa Malaysia into the Malaysian capital markets with some fanfare in the mid-2017, amidst a rather challenging economic climate. After the dust has settled, we have compiled a list of frequently asked questions and insights for your reading pleasure.
What is the Leap Market?
The LEAP Market is a platform for Small and Medium Enterprises (“SMEs”) to raise funds and visibility in the capital market, despite not being able to meet the criteria for listing on the Main Market and the ACE Market, in an efficient, regulated and transparent marketplace. The LEAP Market is only accessible to Sophisticated Investors, i.e. entities with total net assets exceeding RM10 million, or individuals whose net personal assets exceed RM3 million or whose gross annual income exceed RM300,000.
SMEs often struggle to raise funds to fulfil their capital requirements, and depend primarily on financial institutions to fulfil SME’s financing needs. Financial institutions account for approximately 96% of total SME financing. Meanwhile, the capital market only accounts for less than 4% of SME financing. With the LEAP Market, the Bursa Malaysia CEO foresees that the LEAP Market could address the overdependency on financial institutions, and open up the capital market to SMEs. [1]
I’ve got other ways to raise funds, why the LEAP Market?
There are already numerous ways to raise funds in the private market in Malaysia. This includes raising funds from angel investors, venture capital funds, through Equity Crowdfunding (“ECF”) platforms, Peer to Peer (“P2P”) Lending platforms and the likes.
However, compared to these fundraising alternatives, the LEAP Market offers other additional benefits such as:
- Being able raise funds from the ‘Sophisticated Investor’ segment of the public;
- Raising the profile and credibility of the listed company via media and analysts’ attention;
- Having a higher standard of corporate governance, management and compliance compared to unlisted companies;
- Starting its journey towards ‘graduating’ to the ACE Market and then Main Market;
- Greater liquidity for its shareholders and investors to trade its shares;
- Performance of the company being reflected in share price and market capitalisation.
What is the response so far?
The LEAP Market has only been in operation for less than a year. However, 2 companies have already successfully listed on the LEAP Market, with approximately 10 or more in the pipeline.
The first listed company is the Cloudaron Group Berhad (being cloud services company having its operations based in Singapore), which debuted on the Leap Market on the 3 October 2017 issuing 50 million shares at RM0.11 per share, for a gross value of RM5.5 million[2]being raised. At the time of this article, the share price has doubled to about RM0.20 per share.
The second debutant, Red Ideas Holdings Berhad, listed on 8 November 2017, raised a grand total of RM7 million by issuing 20 million shares at RM0.35 per share.
How much does it cost?
Any fund raising exercise without an understanding of the costs involved could result in a zero-sum game. Based on informal surveys, a ball park figure of the costs (including the professional fees for the investment advisers, lawyers, market researchers, external auditors and company secretary) to list on the LEAP Market would be between RM800,000 to RM1,500,000.
Is it difficult to qualify for listing on the LEAP Market?
Compared to listing on the Main Market or ACE Market, it is not difficult to qualify at all! Here are some requirements for a company to be listed on the LEAP Market:
- theoretically, it does not require a minimum profit or operation track record (whether this is true in practice, is left to be seen), nor is there any minimum market capital requirement;
- it needs to be a ‘public limited company’ (Berhad) incorporated in Malaysia or converted into a public limited company, which then requires a minimum of 51 members or more;
- it needs to have a minimum shareholding spread of 10% of its ordinary shares upon admission to the LEAP Market;
- it only requires the approval of Bursa Malaysia, and not the Securities Commission (even though submission of an Information Memorandum is still required). Interestingly, entry onto the LEAP Market is on a ‘disclosure basis’ rather than on a ‘merit /approval basis’;
- it takes only an estimated 3-4 weeks from lodging of application to Bursa Malaysia to approval from Bursa (assuming no queries are raised by Bursa Malaysia);
- it does not need to appoint an independent audit committee or independent board of directors.
What’s the catch?
The LEAP Market is only open to Sophisticated Investors, meaning that there is a smaller pool of investors compared to the ACE and Main Markets. In fact, the largest funds in Malaysia have indicated wariness, or even reluctance, to add LEAP Market companies in their portfolio. [3]
Moreover, there will be a moratorium on the promoters’ shares 12 months from the date of admission into the LEAP Market. ‘Promoters’ are persons who own more than 33% of the voting shares or who is in position to control the composition of a majority of the board.
Upon the expiry of 12 month moratorium, the promoters must hold at least 45% of the entire issued share capital of the company (fully diluted / converted basis) for another 36 months. Then, the company must have generated at least 1 full financial year of operating revenue, before the promoters are able to freely deal with their shares in the company.
There are also continuing obligations for a company that has listed on the LEAP Market. For example, the company will have to maintain the services of an Adviser (registered with the Register of Advisers), and implement and comply with corporate disclosure policies in accordance with the Leap Market Listing Requirements.
However, both the moratorium and continuing obligations are less onerous compared to those applicable to the Main Market and ACE Market.
Ok, I’m interested, can I sign up tomorrow?
To list on the LEAP Market, potential issuers must appoint an Adviser that is approved and licensed by the Securities Commission of Malaysia. Approved Advisers will assess the commercial suitability and viability of a potential issuer and guide them through the listing process and beyond.
In addition to meeting the qualifying requirements, it will be a good opportunity for potential issuers to engage in some “house-cleaning”, including ironing out its affairs such as company structure, legal compliance, regularizing related party transactions, financial and tax compliance matters, with the view that it will eventually have to achieve the level of corporate governance required of listed companies (whether it be in the ACE or Main Markets).
How can I invest in companies traded on the LEAP Market?
The trading of shares in companies listed on the LEAP Market is only available to ‘Sophisticated Investors’.
While offering greater liquidity than that of shares in an unlisted private company, the liquidity of the LEAP Market will require some time to gain traction. It is anticipated that the investors on the LEAP Market will likely comprise of industry players and business associates of the listed company closely familiar with the business and investing for the long haul, in that the company will, one day, list on the ACE or Main Markets.
Conclusion
The LEAP Market opens up exciting opportunities for SMEs which are in need for funds to grow, raise public awareness and start its journey towards the Ace and Main Market, as well as for investors seeking to participate in the growth of emerging companies.
References:
[1] http://www.minda.com.my/2017/07/internal-controls-in-place-for-leap-market-bursa/
[3] http://www.thesundaily.my/news/2017/09/04/leap-market-may-be-tough-sell-malaysias-biggest-funds
For further information, please contact:
Donovan Cheah, Partner, Donovan & Ho
donovan@dnh.com.my
