Daniel’s technology start-up is growing fast but has yet to make a profit, so it cannot pass the Main Market’s Profit Test and is not yet large enough for the Main Market’s other tests. That does not rule out a public listing. Daniel needs money to expand into new markets and hire more engineers, and he wants to offer shares to reward and keep his team. The ACE Market has no profit requirement, though Daniel will need a Sponsor and must still meet a number of other requirements. This guide explains what they are, using Daniel’s start-up as an example along the way.
Bursa Malaysia’s ACE Market is designed for companies with growth potential that may not yet have the profits or operating history the Main Market asks for. There is no minimum track record or profit requirement. Instead, the company must show that it is suitable for listing: that it has growth prospects, good governance and proper disclosure, and that it is ready to follow the listing rules.
Listing Requirements
A. Listing Factors
For Daniel, the most important relationship in the whole process will be with his Sponsor.
For an ACE Market listing, Bursa Malaysia relies on a principal adviser acting as “Sponsor” to assess whether the company is suitable for listing. In general, the company should be able to show the following:
Prospects
The company’s core business and industry should have good prospects in the foreseeable future.
With no profits yet, this is where Daniel’s case rests. He will need to show, for example, a growing customer base, rising revenue and a clear plan to become profitable.
Good management
The company should be run by capable people with the right experience and qualifications. There should also be enough continuity in the management team.
Investors will be backing Daniel and his team as much as the business itself, so the Sponsor will look closely at their experience.
Responsible directors
The directors should understand their fiduciary duties (their legal duty to act in the company’s best interests) and be able to carry out their duties as directors of a public listed company.
Risk management and internal controls
The company should have internal controls and risk management systems that support its business operations and growth plans.
Healthy financial position
The company should be in good financial health, including enough working capital for at least 12 months after listing.
This matters for a loss-making start-up like Daniel’s. Suppose it spends about RM1 million a month on salaries and running costs. It would need to show it can cover at least 12 months of its needs after listing, even before it turns a profit.
Commitment to compliance
The company should have enough systems, procedures, policies, controls and resources to keep complying with the applicable rules and regulations on an ongoing basis.
Identifiable core business
The company should have a clear core business that is its main source of operating revenue or after-tax profit.
If most of Daniel’s revenue comes from selling subscriptions to his software platform, that platform would be his core business.
No unresolved conflicts of interest
Any conflicts of interest should be properly resolved before listing.
For example, if Daniel personally owns the software code or other intellectual property the start-up relies on, this may need to be transferred to the company before listing.
Good corporate governance
The company should have strong corporate governance policies and practices. Its founders, promoters, directors and management team should also have a good track record on corporate governance.
Public interest
Listing the company should not go against the public interest.
As with the Main Market, the prospectus will set out relevant and adequate information on the company’s business and prospects. Companies listed on the ACE Market can later apply to transfer to the Main Market if they meet the Main Market admission criteria.
Once his start-up is larger and profitable, Daniel could consider this route.
B. Admission Requirements
On top of the listing factors above, the company must meet the formal admission requirements for the ACE Market. These are mainly found in the ACE Market Listing Requirements issued by Bursa Malaysia Securities Berhad.
Approval by Bursa Malaysia and application through Sponsor
Daniel cannot apply to Bursa Malaysia on his own.
A company seeking to list on the ACE Market must get approval from Bursa Malaysia Securities Berhad to be admitted to its Official List (the list of companies whose shares are traded on the exchange). The application must be made through a Sponsor, and both the company and the Sponsor must follow the admission procedures and requirements set by Bursa Malaysia.
Sponsor’s assessment of suitability
The Sponsor must assess whether the company is suitable for listing. In doing so, it must consider matters such as the company’s business prospects, corporate governance record, board and key management, conflicts of interest, compliance systems and internal controls. It must also consider whether the listing would harm investors or go against the public interest.
No minimum operating track record or profit requirement
This is the main reason the ACE Market works for Daniel.
Unlike the Main Market, the ACE Market has no minimum requirement on how long the company has been operating or how much profit it has made. However, the company must still show that it is suitable for listing, including having business prospects and being ready to comply with the ACE Market Listing Requirements.
Core business and independence of business
The company’s core business cannot be the holding of investments in other listed companies. Where the company is part of a listed group, extra requirements may apply. These are to ensure that the company has a distinct and viable business of its own and is sufficiently independent from the other listed or unlisted companies in the group.
Working capital
The company must have enough working capital for its current needs and for at least 12 months from the date of its IPO prospectus.
Management continuity
If Daniel founded his start-up only two years ago, the rule applies from when it started operating, as explained below.
The company must have had substantially the same executive directors and senior management for its most recent 3 full financial years before applying to Bursa Malaysia. If it has been operating for less than 3 full financial years, this applies from when it started operating.
Public spread
Public spread refers to how widely the company’s shares are held by the public. At least 25% of the shares being listed must be held by at least 200 public shareholders, each holding at least 100 shares.
For Daniel, that is a much smaller pool than the 1,000 public shareholders generally needed on the Main Market.
Bursa Malaysia may accept a lower percentage if it is satisfied that this is enough for a liquid market (one where shares can be readily bought and sold).
Independent directors and audit committee
Like many start-ups, Daniel’s board may currently be made up only of the founders and representatives of early investors, so he is likely to need to appoint independent directors.
At least 2 directors, or one-third of the board (whichever is higher), must be independent directors. The company must also set up an audit committee made up mostly of independent directors.
Constitution
The company’s constitution must include the provisions required under Chapter 7 of the ACE Market Listing Requirements. These cover matters such as capital, issuing new shares, lien and forfeiture of shares, transfer and transmission of securities, directors’ borrowing powers, notices of meetings, the record of depositors, voting rights, proxies, appointment and retirement of directors, directors’ remuneration, directors’ interests in contracts, distribution of assets on winding up, and the effect of the ACE Market Listing Requirements on the company’s constitution.
Prospectus requirements
The company cannot issue or offer shares, or apply for listing, unless Bursa Malaysia has registered a prospectus for those shares that complies with the ACE Market Listing Requirements. The prospectus must contain the required information and be factual, clear, accurate and detailed enough for investors to make informed investment decisions.
Offering of shares to the general public
Where shares are offered to the general public, they must be allocated through balloting (a random draw among applicants). The balloted portion must be at least 5% of the enlarged number of shares if the company’s enlarged issued share capital is below RM200 million, or at least 2% if it is RM200 million or more.
Placement, restricted offers and pricing
This section is relevant to Daniel’s plan to give his engineers a stake in the company, as employees are one of the groups that can receive restricted offers.
Where shares are placed with selected investors as part of the IPO, the Sponsor must act as the placement agent or a joint placement agent. Restricted offers (offers made only to certain groups) can only be made to prescribed groups. These include directors, employees, people who have contributed to the company’s success and, where relevant, shareholders of the listed holding company. Shares offered to related parties as part of the IPO must be priced at least at the issue price offered to the general public.
Underwriting
Whether to have the IPO underwritten (where underwriters agree to take up shares that investors do not subscribe for) is up to the company and its Sponsor. If there is underwriting, the Sponsor must be one of the underwriters. The prospectus must also disclose the minimum level of subscription, how that level was set and the level of underwriting arranged.
Moratorium on shares
A moratorium is a lock-up period during which certain shareholders cannot sell their shares.
As a founder and major shareholder, Daniel is likely to be a specified shareholder, so his shares would be locked up for a period after listing.
Generally, specified shareholders cannot sell, transfer or assign any of their shares for 6 months from admission. After that, shares equal to at least 45% of the company’s total issued ordinary shares must stay under moratorium for another 6 months. After that, up to one-third of the remaining locked-up shares may be sold each year over 3 years, provided the company has generated at least one full financial year of operating revenue.
Moratorium on pre-listing investors
Suppose an investor buys into Daniel’s start-up six months before he submits his listing application, at a price below the IPO price. That investor’s shares could also be locked up.
A moratorium also applies to pre-listing investors who are not specified shareholders, if they bought their shares within 12 months of the date the listing application was submitted and paid less than the issue price offered to the general public.
Sponsorship period
Daniel’s relationship with his Sponsor does not end at listing. Because his start-up already earns revenue, he would generally need to keep a Sponsor for at least 3 full financial years after listing.
The company must keep a Sponsor for at least 3 full financial years after listing, or for at least 1 full financial year after it starts generating operating revenue, whichever is later. The Sponsor that submitted the listing application must stay on as Sponsor for at least 1 full financial year after listing.
Conflicts of interest and outstanding debts
The company must resolve, eliminate or reduce all conflicts of interest. The Sponsor must not submit a listing application if any conflict of interest has not been properly dealt with. The Sponsor must also ensure that, before listing, interested persons fully settle all non-trade debts they owe the company or its subsidiaries, and all trade debts that are overdue beyond the normal credit period.
Bumiputera Equity Requirement
This is something Daniel will need to plan for later rather than at listing.
Generally, there is no Bumiputera equity requirement when a company first lists on the ACE Market. However, ACE Market companies must later set aside 12.5% of their enlarged number of issued shares for Bumiputera investors approved or recognised by the Ministry of Investment, Trade and Industry, or by the Ministry of Finance for licensed financial institutions. This must be done within 1 year of meeting the Main Market profit requirements or within 5 years of listing on the ACE Market, whichever is earlier. Where shares are offered to the Malaysian public through balloting, at least 50% of those shares must be made available to Bumiputera public investors.
Conclusion
For Daniel, the ACE Market opens the door to public investors before his start-up turns a profit, but it comes with its own commitments. He will need a Sponsor before and after listing, independent directors on his board, enough working capital for at least 12 months and, in time, a plan for the Bumiputera equity requirement. Companies considering an ACE Market listing should bring in a Sponsor early and work with their advisers to confirm which requirements apply to them.
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