Taking a ‘Leap’ of faith with SMEs

Tajuddin: The Leap market offers private equity risk and return with public market transparency.

Bursa cuts regulatory burden to lower the entry barrier for smaller businesses

BIG is no longer beautiful.

A vast majority of large initial public offerings (IPOs) in recent years are now under water, with Lotte Chemical Titan Holdings Bhd being the latest flop.

In the meantime, the list of companies planning to float their shares on Bursa Malaysia has dwindled to a trickle.

New listings are rare and far between.

In the past 10 years, the number of public-listed companies has barely budged, stagnating at fewer than 1,000.

The proposed merger between RHB Bank Bhd and AMMB HOLDINGS BHD, if it goes through, will further reduce the shrinking list of quality companies in the market.

Even the recent entry of Lotte didn’t add to the numbers.

 

The company was taken private by its South Korean owner in 2011 and made its return earlier this week.

To reinvigorate the IPO market, Bursa is taking a leap of faith with the small- and medium-sized enterprises (SMEs).

Enter the Leading Entrepreneur Accelerator Platform, or Leap Market.

Bursa chief executive officer Datuk Seri Tajuddin Atan (pic) says the third board on the exchange, to be launched on July 25, is intended to broaden the funding options available to companies that are too small to list on the Main Market or Ace Market.

The Leap Market, he says, is positioned to fill the gap between the capital market and start-ups.

“It is a platform for entrepreneurs to showcase their companies,” he says, adding that the bourse has taken the Taipei Exchange’s SME market and Korea New Exchange as models for the market.

The South Korean market gets its inspiration from London’s Aim market.

There is a growing trend among stock exchanges around the world to provide a special market for SME fund-raising.

Bursa will be the first stock exchange in Asean to launch a dedicated platform for SMEs.

Its counterparts in Thailand and Indonesia have also announced plans to introduce a similar initiative.

At stake is the region’s fast-growing SME sector, which accounts for between 30% and 53% of Asean’s gross domestic product.

Bursa is hoping to attract the most promising of the small companies to list their shares.

As the start-ups and small businesses grow, some of them would eventually move up to the bigger boards on Bursa.

“This allows a better pipeline for us,” Tajuddin says.

 

While SMEs can still choose to get listed on the Ace Market, the Leap Market offers several advantages.

It has been formulated as a sponsor-driven market and Tajuddin says that it will be regulated on a “light touch” basis, but balanced by prudential standards.

In short, Bursa is cutting the red tape and regulatory burden to lower the entry barrier for cost-conscious smaller businesses.

Most of the heavy listing work will be done by the sponsors, with Bursa acting as the single point authority in the market.

Companies seeking to float their shares are not required to submit their prospectus for evaluation. They can list their shares without raising capital.

While the Leap Market is open to SMEs in all business sectors, experience in other markets shows that such a market attracts a lot of tech start-ups.

Such listings may not appeal to the large traditional investment bankers because of their small offerings.

To speed up time to market and reduce listing expenses, Tajuddin points out that the exchange will increase the number of approved advisers from outside the investment banking circle.

Once they are listed, companies in the Leap Market are only required to make public their financial statements twice a year, compared with a quarterly submission requirement for companies on the bigger boards.

The emphasis on loose regulation, however, risks reducing investor appetite for such offerings.

A typical retail investor does not want too much volatility in the stock, or see their investments go up in smoke.

Tajuddin says that due to the inherent risks in investing in young companies, the Leap Market will only be open to investors categorised as high-net-worth individuals and sophisticated investors.

“The Leap Market offers private equity risk and return with public market transparency,” he says.

But investing in small and nimble companies with high growth potential is an exciting and rewarding business.

An index tracking a similar SME-centric stock market in India, operated by the Bombay Stock Exchange, has vastly outperformed its more established peers during the first half of the year.

Reports also say that of the more than 180 companies that have gained listing on the SME exchange, at least 30 have graduated to the Main Market.

But even before the introduction of an SME stock market, Bursa is already home to exciting high-growth companies.

Top Glove Corp Bhd began its journey as a company on the Second Board of Bursa in 2001, before graduating to the Main Market a year later.

Today, Top Glove is one of the biggest glove manufacturers in the world.

And before the collapse of global crude oil prices, Bursa was home to a number of fast-growing oil and gas service providers.

But the ever-changing boom and bust economic cycle is creating a new breed of high-flying companies.

The surging demand for smartphones and electronic gadgets around the world is a boon to electronic component makers such as Vitrox Corp Bhd and INARI AMERTRON BHD.

These companies were penny stocks five years ago, but their shares are worth at least 10 times more at current market prices.

These are the kind of returns that excite investors. The Leap Market is positioned to offer such exciting prospects.

Tajuddin describes the Leap Market as a “matchmaking” platform for high-potential companies and investors.

It offers the public a chance to invest in what can be described as a “pre-IPO” market before the companies make it to the big boards.