What is the ACE Market?
The ACE Market which stands for ‘Access, Certainty, Efficiency’ is actually the new name for the formerly known MESDAQ (Malaysian Exchange of Securities Dealing and Automated Quotation) market. MESDAQ came into existence in 1997 when it was the home of mainly technological stocks and today it is replaced by the ACE Market under Bursa Malaysia. The ACE Market was derived together with the unification of the Main and Second Board into the Main Market of Bursa Malaysia in 2009.
The ACE Market is seen as the ideal market for start-ups and new companies which are run by entrepreneurs who are looking to push for more capital by listing their companies public. This is where they might not have the large and high amount like companies in the Main Market but would probably have a strong product or service portfolio which if given more capital, would surely succeed.
The ACE Market is very much like the GEM (Growth Enterprise Market) in Hong Kong or Catalist of Singapore and companies in ACE Market are sponsor-drive and it is not only limited to the technological sector when it was called MESDAQ.
This means that companies from any sector or size can apply to be listed in the ACE Market where it is designed to offer a more efficient and certain way for you to do so. Typically, the regulations for listing in ACE market are less stringent and the company need not provide the track records like how it is required in the Main Market.
The regulatory framework of the ACE Market is to offer companies and entrepreneurs with better transparency and hence makes it easier to list. Such is the objective of this market where the whole idea is to encourage more innovative products and companies to push for development and growth. Entrepreneurs would be encouraged to offer better products and services where there is now an option o try and inject more capital into their company for the development of their offerings. This in return will provide investors with the opportunity to start investing in SMEs (small and medium enterprises) which might not be technology based.
ACE Market: Listing Factors for Consideration
In reviewing a listing application for the ACE Market, Bursa Malaysia essentially relies on the Sponsor to assess the suitability of the listing applicant. Additionally, Bursa Malaysia will also assess your listing proposal to ascertain if it is against public interest. The following attributes would allow a Sponsor to decide that a company is well-suited to list on the ACE Market.
Growth Prospects
A company in which its core business and its industry are expected to have a visible growth trajectory within the foreseeable future.
Capable Directors and Management
A company with a leadership team of good standing and who has demonstrated the capability and ability to grow the business.
Commitment to Compliance
A company with sufficient systems, procedures, policies, controls and resources in place to ensure continuous compliance with the relevant rules and regulations.
Responsible Directors
A company in which its directors are fully aware of and understand their fiduciary obligations.
Risk Management
A company whose internal control and risk management systems are in place in view of the company’s business and growth plans.
Good Corporate Governance
A company whose founders, promoters, directors and management team have a good track record in corporate governance and are not in a conflict of interest situation with the company.
Similar to the Main Market, relevant and adequate disclosures will be made in your Prospectus articulating the prospects of your company and your investment proposition. Companies listed on the ACE Market may subsequently apply for a transfer to the Main Market provided they meet the profit track record required for the Main Market.
IS YOUR COMPANY PREPARED TO LIST?
Some key considerations to take into account prior to listing:
How does the listing meet the goals and objectives of your stakeholders?
While there is a general sense of acceptance on the benefits of listing, expectations of these benefits would likely vary between the shareholders, the directors, the management and the employees of a company. As such, it is important to ensure that the goals and objectives of your internal stakeholders are aligned. Open and transparent communication of the value proposition for each stakeholder segment is key. Indeed, company-wide support and buy-in for a listing exercise will go a long way in facilitating a smooth listing process.
Are you and your management team prepared to invest the time and effort that goes into a listing?
The road to a successful listing can be challenging. The effort and time to be invested in a listing exercise can never be over-estimated. It is not just about carrying out the necessary paper work required in the process. It is also about dealing with unexpected issues along the way that may take up management time.
While your advisers will try to prepare you as best as they can for the road ahead, every listing candidate is unique. There may be difficulties and setbacks along the way. That is why it is important to ensure that there is committed support from all relevant parties right from the beginning.
Also, the investment in time and effort does not end with a successful listing. Making the necessary disclosures to the public, be it announcing financial results or a significant corporate development, is an important element of being a listed company. Hence, it is crucial that the directors and key management of your company are prepared to invest the necessary time and resources in ensuring that all the disclosures are timely, relevant and accurate.
Are you prepared to bear the cost involved in the listing process and ongoing cost of maintaining the listing?
Being listed on a stock exchange is a major investment for any business. The cost involved in a listing exercise can be significant. There are fees payable to the SC and Bursa Malaysia for the listing, including the processing of the IPO application and the issuance of the Prospectus.
Fees are also incurred from the engagement of various professional advisers/parties including:
• Principal Adviser
• Sponsor (for listing on the ACE Market)
• Lawyers
• Reporting Accountants
• Underwriters, if required
• Placement Agent/Book-Runner
• Public Relations (PR) Firm
• Issuing House
• Valuers, if required
• Independent Market Researchers, if required
• Tax Advisers, if required
The fees charged by these professionals will vary depending on the prevailing market condition, the complexity of the listing exercise and the size of the IPO. You may be able to fix some of your cost at the start of the process such as the professional fees which will help you get a clearer idea of your expenses in advance. Apart from the initial outlay, the listing cost can be paid out from the proceeds of your listing.
It is also important to note that for the listing on the ACE Market, your company must secure and maintain the services of a Sponsor for at least three full financial years after your admission into the ACE Market. This is a listing cost that you should account for.
After a successful listing, there are also costs associated with meeting the continuing obligations of a listed company. These include cost of raising additional capital, cost of an ongoing investor relations programme and annual fees payable to the Exchange for maintaining the market for your shares. As such, prior to making a decision to list, the cost of listing and maintaining that listing must be weighed against the immediate to long term benefits your company will receive as a listed
entity.
Are you prepared to come under constant scrutiny with ongoing disclosure and reporting requirements?
The greater accountability to outside shareholders inevitably means you lose much of the privacy and autonomy you may have enjoyed when managing a private business.
As a listed entity, there are rules and regulations your company is obliged to comply with primarily on the obligation to periodically disclose the company’s affairs and financial performance to the public.
In addition, information such as directors’ remuneration policy and procedures need to be made public. Due to your heightened profile, you can expect greater media coverage which is beneficial in good times but may have a negative impact in times of underperformance or crisis.
Are you prepared for a dilution in the control of your company with a listing exercise?
Depending on your shareholding structure upon listing, control by the original shareholders of your company will be
diluted subsequent to listing. This is because new shares will be issued and the original shareholders may have to sell their shares to meet the public shareholding requirements.
Once listed, at least 25% of the shares must be in public hands. This inevitably involves a certain degree of dilution in control to outside shareholders whose views must be taken into account. In fact, certain corporate transactions such as significant acquisitions are only possible with the prior approval of shareholders.
Even if you are a controlling shareholder, you will not be able to control who buys and sells the shares. In this sense, depending on the proportion of shares which remains in the directors’ hands, a listed company can be subjected to take-over bids in the future.
Are you prepared to engage in continuous communication with the investors?
Investor Relations (IR) is an important component of any listed company. After all, as a listed company, your company’s overall performance will be tracked against the performance of its share price, no longer just on its financial performance. This means that you have to be mindful of the fact that share price can be impacted by, amongst others, the company’s fundamentals and strength, prevailing market conditions and perceived outlook.