In recent months, Thailand’s Securities and Exchange Commission (SEC) has made significant regulatory strides toward realizing its plan to allow small and medium enterprises (SMEs) and startups to access funding through public offerings.
These SME and startup public offerings, or “SME-POs,” were first announced by the SEC in September 2021 and will take place on a new, dedicated secondary exchange. On December 29, 2021, the SEC issued new regulations setting out the requirements for SMEs and startups seeking to offer securities for sale to the public, and for listing securities on the newly created secondary market (which is named the “Live Exchange”). This was soon followed—on January 7, 2022—by an SEC announcement of a “New Year gift,” declining to set any fees for SMEs and startups that wish to raise funds through an SME-PO.
While there were several notifications announced by the Capital Market Supervisory Board on December 29, 2021, two key notifications apply to SME-POs and the Live Exchange:
- Notification No. TorJor. 71/2564 re: Newly Issued Shares by Public Companies for Listings on Live Exchange and Securities Offerings on Live Exchange
- Notification No. TorJor. 75/2564 re: Post-obligations of Companies after Offering Newly Issued Shares for Listing on Live Exchange
These notifications took effect on January 16, 2022.
Under the new legal framework set out by the notifications, an SME-PO issuer must be structured as a public company, with no characteristics of an investment company (i.e., no activity related to investment in the business of other companies) or involvement in illegal activities. Businesses are also expected to receive similar tax benefits to entities that list securities on the Stock Exchange of Thailand (SET) or the Market for Alternative Investment (MAI).
The new regulations rely on an information-based approach, whereby general approval is granted without the requirement to apply for approval of the offering, no financial advisor is needed to assist with the offering, and no related fees are charged. These rules are more lenient compared to those for initial public offerings via the SET or the MAI. However, due to the high risk and limited liquidity of the SME-PO securities, investment in these assets is limited to sophisticated investors who are risk tolerant, experienced, and wealthy.
SME-PO Procedural Requirements
All procedures for SME-POs and listings on Live Exchange are executed via an online platform. The SEC has named three key steps in the process of launching an SME-PO:
- SME-PO filing. Disclosure of required information through the SME-PO filing application and registration statement.
- Crowd opinion. A 30-day period for general investors and the issuer to exchange questions and answers on the information disclosed in the filing.
- Cooling-off period. A 14-day cooling-off period for the establishment and stabilization of all information and management structures prior to commencement of the offering process.
The business, as the issuer of the securities under the SME-PO, must disclose material information that covers at least all topics in the filing application and registration statement (item 1 above). The disclosure of business information is a key issue for investment in a capital market. The accuracy and completeness of the material information can provide protection for the business, since this ensures that the investors have been notified in advance of the material information and the key associated risks. Conversely, disclosure of untrue or misleading information to investors can lead to legal liabilities for the business.
Ongoing Requirements for Listed SMEs and Startups
After the completion of the offering and the listing of securities on the Live Exchange, the listed company must fulfill ongoing requirements, which mainly fall into two categories:
- Disclosure of information as required by relevant laws (e.g., periodic disclosures, disclosures for material events, and disclosures in response to specific questions from investors); and
- Ongoing requirements to enable monitoring the operations of a business (e.g., qualifications and fiduciary duties of directors and executives, and criteria and procedures for material transactions and related-person transactions).
However, there are no requirements relating to maintaining the status of a company listed on the Live Exchange. This differs from the status-maintenance requirements for companies listed on the SET or the MAI, which relate to issues such as composition and qualifications of the directors and executives, share distribution ratio, and business performance.
Graduation of SMEs to the SET or MAI
The SEC and the SET, in an online seminar on the SME-PO scheme on December 1, 2021, explained that the SET will introduce a springboard mechanism that will enable listed companies to migrate to other trading boards without having to delist from the Live Exchange. Under this planned mechanism, when a company meets all the qualifications required to list on the SET or the MAI, it can immediately submit its request to the SEC and the SET in order to transfer from the Live Exchange to the SET or the MAI. Thereafter, the procedures would be carried out in accordance with the rules for securities offerings and listing on the SET or the MAI.
For further information, please contact:
Kobkit Thienpreecha, Partner, Tilleke & Gibbins