THE STAGE has been set for the setting up of the Leading Entrepreneur Accelerator Platform (LEAP) after an announcement by Bursa Malaysia on new listing requirements and amendments to some of its regulations.
This is good news for the approximately 19,000 small and medium-sized enterprises that will now have a new avenue to raise funds via the capital market in an efficient manner.
In a nutshell, LEAP will be the “feeder” market for an SME seeking for a listing. The platform will provide them with fundraising access and visibility through capital markets.
Currently, 96 per cent of SME funding in Malaysia comes from the banking sector, an indication of its dependence on financial institutions for its needs. Less than 4 per cent comes from the capital market.
“This marks a significant milestone for Bursa Malaysia. The LEAP market complements both the main market and ACE Market by addressing the funding gap faced by the SMEs,” Bursa Malaysia chief executive officer Tajuddin Atan said in a statement.
“As the national exchange, we believe the exchange can play a greater developmental role to facilitate fund raising for the growth of SMEs.”
Sherilyn Foong, MIDF Amanah Investment director of corporate investment banking, said there were many SMEs that lacked the criteria to qualify for an ACE Market listing just yet.
“The LEAP market will be the intermediary market where the company can be listed first while providing all the capital access and regulations required of a company preparing for a proper listing,” she said.
The LEAP market is part of a larger ecosystem created by the regulators, which began with the implementation of the equity crowd-funding (ECF) platform two years ago. ECF was to be the first platform, followed by the LEAP, and subsequently a graduation to the ACE Market and the main market.
The ECF was implemented so that SMEs and start-ups could raise funding through monetary contributions from a large number of people. In less than a year, a total of 10.4 million ringgit (Bt82.6 million) has been invested in 14 companies via these platforms.
However, liquidity is an issue in the ECF market. Thus the setting up of the LEAP market will also allow ECF investors to sell their equity to interested buyers.
On some of the challenges for companies opting to list in the LEAP market, Rakuten Trade research head Kenny Yee said valuations could be lower, given issues with regards to liquidity.
This is because only high-net-worth and sophisticated investors are eligible to trade on this platform. Furthermore, there is only a 10-per-cent public spread requirement upon listing.
Foong said: “Initial fees involved are also some of the challenges that SME owners may find daunting. The SME candidates would have to go through the steep learning curve of profiling and proving their growth story for their fundraising journey.”
So what sort of company qualifies for LEAP?
It is open to all Malaysian SMEs that are public companies. No profit track record and operating history is required. For its submission, an information memorandum will suffice. No prospectus is needed.
Nonetheless, the public spread of the shares must be equal to or more than 10 per cent at listing. There is no requirement to maintain any minimal public spread post-listing.
For now, though, trading on the LEAP market is limited to qualified investors – mainly those that are known as sophisticated investors. This includes venture-capital and VC-management corporations, private-equity corporations and private-equity management corporations registered with the Securities Commission.
On this note, LEAP will provide an efficient and transparent venue to spur investment activities by venture-capital and private-equity firms as well as other sophisticated investors.
The issuer of the company must have an identified core business. It cannot be an investment-holding corporation with no immediate or prospective business operations or an incubator company. Admission of the company to the LEAP board will be via fundraising or introduction.