Page 52 - CMP3

C. ENABLING GREATER EFFICIENCY IN THE EQUITY MARKET FOR LATE-STAGE FINANCING
The public equity market provides an avenue for private companies in late-stage growth to fund their next stage of expansion and offer the option for private investors to exit. Although the overall value of IPOs has declined over the last decade, the number of late-stage growth companies that have listed on the LEAP and ACE markets have more than doubled over the same period and constitute 80-90% of the total IPOs. As the private market grows, there is potential for a much larger pipeline of late-stage growth companies that may seek to tap into the public market. To cater for this, there will be a need to increase the efficiency of the listing process and enable more listing options beyond IPOs.
Most late-stage growth companies entering the LEAP and ACE markets have been small to mid-cap in size. However, the pool of recognised principal advisors (PAs) which cater to this segment of companies is relatively small. To better enable Malaysia’s profile of late-stage growth companies, there is a need to gradually expand the pool of PAs and approved advisors to include a variety of firms such as smaller advisory firms, specialised legal firms, and in the longer term, foreign-based PAs. This expansion of advisors will need to be accompanied by capability development programmes, to ensure that these advisors can play an effective role in gatekeeping due diligence for IPOs.
To enable greater listing efficiency moving forward, companies listing on the ACE market will see a more streamlined regulatory framework. Efforts are already underway to migrate the ACE market regulatory framework, including registration of prospectuses, to Bursa Malaysia. This will pave the way for Bursa Malaysia, as the single approving authority, to enable a more efficient approval process for companies listing on the ACE market.
Beyond IPOs, there are various alternatives for MSMEs and MTCs to benefit from the public markets. This can range from Special Purpose Acquisition Companies (SPACs) to listed closed-end fund structures such as business development companies (BDCs) in the US and investment trusts in the UK. Such structures will enable the broader public to participate in funding high-growth companies with the necessary measures for investor protection.
SPACs are special purpose entities led by experienced promoters to raise funds from the equity market in order to acquire businesses in their relevant areas of expertise. This provides target companies with a cheaper and faster route to the public market compared to IPOs. Against growing demand for such vehicles for high-growth companies, the current SPAC framework is being reviewed for greater efficiency.
BDC, Investment Trusts or other variants of listed closed-end funds are innovative structures that raise funds from the public market and channel them to a portfolio of private companies in the form of equity or debt-based financing. Such listed structures allow for greater transparency and governance over the management of these funds, while enabling retail investors access to an asset class which is currently only accessible to institutional and sophisticated investors. The SC will continue to evaluate these alternative options beyond the traditional IPO process to enhance the efficiency of the equity market for late-stage financing.
50 SECURITIES COMMISSION MALAYSIA