The Securities Commission (SC) today released its Guidelines on Initial Public Offerings and Listings on the MESDAQ Market of Bursa Malaysia Securities Berhad (MESDAQ IPO Guidelines), which replace the admission requirements stipulated in the Bursa Malaysia Securities Berhad (Bursa) Listing Requirements for the MESDAQ Market.
The new MESDAQ IPO Guidelines are available on the SC website here and are effective immediately.
The Guidelines reaffirm MESDAQ’s original objective of allowing qualified technology-based and high growth companies to raise funds from the capital market for business development. As at 28 November 2005, a total of 105 companies are listed on the MESDAQ Market, raising approx imately RM1.6 billion from IPO exercises. Such proceeds have been mainly applied towards business expansion and research and development initiatives.
The thrust of these latest Guidelines is to promote quality companies on Bursa Malaysia and to continue to leverage on the uniqueness of the MESDAQ Market as a fund raising platform for young and dynamic companies that represent the engines of economic growth for Malaysia.
The enhanced requirements in the Guidelines, which are aimed at improving the investibility of MESDAQ companies, focus on the following key areas:
|Qualitative attributes to be demonstrated by the potential issuers;|
|Price-discovery process and method of distribution of securities;|
|Corporate governance, commitment and accountability of directors and promoters; |
|Role of advisers as quality controllers; and |
|Consistency of requirements between the MESDAQ Market and the Main Market (i.e. Main and Second Boards) in areas which are common to both markets.|
The SC will continue to place great importance on the feasibility of business plans of potential issuers and their value proposition to the market.
Further details on the new MESDAQ IPO Guidelines are:
- Enhancing qualitative criteria to promote higher quality companies
While retaining the principal quantitative admission criteria i.e. minimum RM2 million paid-up capital and no profit track record requirement, the Guidelines place great emphasis on issuers’ justifications of their suitability for listing by demonstrating certain qualitative attributes pertinent to the nature of their business activities and growth prospects. These qualitative attributes are listed in the guidance notes to the Guidelines and broadly include involvement in a profitable growth industry, potentially large industry market size for the issuer’s principal products or services, and healthy market share for its principal products or services.
In addition, the following enhanced qualitative criteria will be applied:
(i) Technology-based companies are required to demonstrate some degree of commercialisation of the technology that has been achieved, and past, present and future research and development capabilities and commitments. These criteria are in addition to the requirement that the activities of these companies must fall within the identified technology areas such as in the design, development and/or manufacturing of advanced electronics and information technology, biotechnology and healthcare.
(ii) Other high-growth companies are required to comply with a new quantitative requirement to have at least three years audited operating revenue, besides having to demonstrate relevant qualitative aspects such as an intensive application of technology in its business processes and its growth rate to surpass the average growth rate of the industry and its peers.
- Enhancing price-discovery process and method of distribution of securities
The SC aims to encourage effective and efficient price-discovery of securities offerings by encouraging o fferings via book-building, while introducing enhanced requirements for offerings made via placements.
- Enhancing level of corporate governance, reporting and accountability
The new Guidelines require that reporting accountants review the submission of profit and cash flow forecasts . This new requirement is aimed at enhancing the reliability of financial forecasts and business plans submitted for the SC’s consideration.
Further, the Guidelines require the submission of follow-up questionnaires, which will report on the progress of implementation of the business development plan over the entire business plan period, the achievement of the financial forecasts and status of utilisation of proceeds.
The Guidelines retain the three-year moratorium period on promoters to encourage the commitment of promoters towards achieving the business development plan. In this regard, it is noteworthy that although MESDAQ Market applicants are subject to a minimal historical track record requirement, they are expected to fulfil the promises made in the application documents namely the business development plan and financial forecasts. Should they fail to do so, action could be taken against them as provided by the securities laws and listing requirements.
- Enhancing role of advisers as “quality controllers”
The Guidelines also contain provisions to enhance the role of advisers. Principal advisers are now required to act as lead underwriter and placement agent, and provide an opinion on the adequacy of the applicant’s procedures, systems and controls as well as the competency of the applicant’s management.
These roles are in addition to the requirement for the principal adviser to act as the applicants’ sponsor for at least one year under the Bursa’s Listing Requirements for the MESDAQ Market.