Kuala Lumpur, 18 December 2013
SC revises Equity Guidelines to simplify transfer of listing and clarify regulatory principles for SPACs
Securities Commission Malaysia (SC) today revised its Equity Guidelines to enhance investor protection and market efficiency. The key changes include additional investor safeguards and a practice note to clarify the regulatory principles and requirements of Special Purpose Acquisition Companies (SPACs), as well as introducing an easier transfer process for ACE Market counters to move to the Main Market of Bursa Malaysia Securities Berhad (Bursa Securities).
The changes are part of the SC’s on-going efforts to ensure that regulations and guidelines remain relevant and effective with balanced regulation to ensure the risk associated are proportionately addressed.
Practice Note on Regulatory Principles of SPACs
In August 2009, after stakeholder and public consultations, SC introduced a framework for the listing of SPACs on the Main Market of Bursa Securities to promote private equity activity, spur corporate transformation and encourage mergers and acquisitions.
While there is keen interest in SPAC listings, SC has noted that frequently, applicants and their advisers have not fully observed the principles for the listing of SPACs, despite the consultations and briefings held prior to the launch of the SPAC framework.
The new practice note is intended to address this and clarify, amongst others, that a SPAC proposal must be viewed holistically and must ensure that the management team’s experience and track record ties in with the SPAC’s business objective and strategy. The new practice note also clarifies that the management team’s compensation and reward structure must be commensurate with the potential returns to shareholders.
SC has also introduced additional safeguards in the guidelines which are intended to ensure that a SPAC’s management team has a more meaningful financial participation and strengthen alignment of interest with the SPAC’s public shareholders.
The new safeguards, among other revisions, include prohibiting the use of initial public offering (IPO) proceeds for payment of management team remuneration prior to the completion of a qualifying acquisition by the SPAC, restricting the management team’s ability to sell securities held in the SPAC before the assets acquired are income generating and requiring a minimum capital contribution from the management team.
The practice note issued by the SC has taken into consideration feedback received through industry consultations involving a cross section of stakeholders, as well as developments and market practices in other jurisdictions.
Transfer of Listing
In the revised Equity Guidelines, the SC has removed the requirement for an introductory document for companies seeking to transfer their listing from the ACE Market to the Main Market of Bursa Securities.
The requirement has been removed only for companies eligible for a transfer based on the strength of their current businesses, and not through an acquisition which constitutes a reverse take-over or backdoor listing of the assets acquired.
The guidelines also now clarify that companies seeking a transfer are required to have a healthy financial position, which includes positive cash flow from operating activities, sufficient levels of working capital for at least 12 months from the date of the transfer and no accumulated losses based on its latest audited balance sheet.
The revisions take effect immediately and a copy of the revised Equity Guidelines can be found here.
SECURITIES COMMISSION MALAYSIA