The flexibilities are effected through amendments to the relevant provisions in the SC's Policies and Guidelines on Issue/Offer of Securities (Issues Guidelines) and Guidelines for Public Offerings of Securities of Infrastructure Project Companies (IPC Guidelines) as well as MESDAQ's Listing Rules (MESDAQ Listing Rules). The SC had undertaken its own study on the matter for quite some time but has only now decided to allow the flexibilities in view of improved economic conditions. In allowing the flexibilities, the SC has taken into consideration the following factors:
- That investor protection and market integrity would not be compromised as a result of the flexibilities;
- That the SC is progressing towards a disclosure-based regulatory framework; and
- That the requirements on chain listing and par value of ordinary shares in other jurisdictions are liberal; hence, the need for our own requirements to be updated and be more facilitative.
Details of the flexibilities are as follows:
(A) On Chain Listing
Chain listing is a term used to describe a situation where a subsidiary/associated company, or a holding company, to a listed company is seeking listing on its own. Currently, a subsidiary/associated company of a holding company listed on either KLSE or MESDAQ which seeks to list on any one of the stock exchanges is required to fulfil the following requirements:
- The subsidiary/associated company to be listed must be involved in a distinct and viable business of its own;
- The relationship between the subsidiary/associated company to be listed and other companies within the group, including the listed holding company, must not give rise to intra-group competition or conflict-of-interest situations;
- The subsidiary/associated company to be listed should demonstrate that it is independent from the listed holding company and other companies within the group, in terms of its operations, including purchases and sales of goods, management, management policies and finance; and
- The listed holding company (excluding the subsidiary/associated company to be listed and existing listed subsidiary/associated companies) must, on its own, meet the requirements for listing on the stock exchange on which it is listed (i.e. either KLSE or MESDAQ) as if it were a new company seeking listing.
These particular requirements are stipulated in Chapter 10 of the Issues Guidelines, section 8 of the IPC Guidelines and Chapter 2 of the MESDAQ Listing Rules respectively. For a subsidiary/associated company seeking listing on KLSE under the Issues Guidelines, an additional requirement that the company would need to fulfil is that its after-tax profit and/or net tangible assets should not account for more than 50% respectively of the consolidated after-tax profits and/or net tangible assets of the listed parent in respect of each of the past three or five full financial years, as the case may be.
The requirement that the listed holding company must, on its own, meet the requirements for listing, as per item (iv) above, and the requirement that a subsidiary/associated company seeking listing on KLSE under the Issues Guidelines should not account for more than 50% respectively of the consolidated after-tax profit and/or net tangible assets of the listed parent in respect of each of the past three or five full financial years have now been removed. Other existing requirements, however, remain unchanged. In addition, the following three principles have now been introduced:
- A subsidiary/associated company of a holding company listed on KLSE or MESDAQ is not allowed to seek listing on either one of the stock exchanges unless the listed holding company has a separate autonomous business of its own, either directly or through its other unlisted subsidiary/associated companies, and is able to sustain its listing in the future;
- A subsidiary/associated company of a holding company listed on KLSE or MESDAQ is not allowed to seek listing on either one of the stock exchanges if it was injected previously into the listed holding company through a reverse take-over or back-door listing exercise. The same restriction applies to a business which had previously obtained a direct listing; and
- A subsidiary/associated company of a holding company listed on KLSE is not allowed to seek listing on KLSE if it is a company which is required to fulfil the historical profit track record requirement as stipulated under the Issues Guidelines unless the listed parent company is able, on its own, to meet the aggregate after-tax profit record test (but not necessarily the uninterrupted profit record test and minimum profit level for the most recent financial year) of the listing requirements as stipulated under the Issues Guidelines.
(B) On Par Value of Ordinary Shares
A company seeking listing on KLSE is currently required, under Chapter 10 of the Issues Guidelines, to fix the par value of its ordinary shares at RM1.00 each.
This requirement has now been removed and a company seeking listing is given the discretion to fix the par value of its ordinary shares at a level which it deems appropriate, subject to a minimum par value of not less than 10 sen per share. The SC, nevertheless, wishes to advise companies seeking listing and their advisers, that the par value of the ordinary shares should be commensurate with the intended offer prices of the shares and should not be set too low if the offer prices are already affordable. The SC's policy of not allowing share splits for companies already listed would, however, continue to apply for the time being.
The flexibilities granted on the chain-listing and par-value requirements are effective immediately.
