Companies ready to make the LEAP to ACE

TheEdge Mon, Nov 20, 2023 02:00pm - 3 months View Original


This article first appeared in Capital, The Edge Malaysia Weekly on November 13, 2023 - November 19, 2023

INTEREST in migrating to the ACE Market has already picked up seven months after Bursa Malaysia introduced a transfer framework for companies on the Leading Entrepreneur Accelerator Platform, or LEAP Market.

The long-awaited framework, which was announced on March 31 and made effective on April 1, offers LEAP Market-listed companies a streamlined and cost-effective avenue to transfer to the ACE Market.

For perspective, of the 51 LEAP Market-listed companies on Bursa, at least six have announced plans to make the move to the ACE Market. Lim Seong Hai Capital Bhd (LSH Capital), SL Innovation Capital Bhd (SLIC), Steel Hawk Bhd, Supreme Consolidated Resources Bhd, Metro Healthcare Bhd and Carlo Rino Group Bhd are the first batch of companies to do so.

LSH Capital’s Keng Cheng: The status of being an ACE Market-listed company will also instil confidence in the government and private sector to entrust us with high-impact projects (Photo by theedgemalaysia.com)

LSH Capital non-executive chairman and major shareholder Tan Sri Lim Keng Cheng is of the opinion that access to capital and debt markets will be key for the group to secure and undertake larger projects.

“We believe in the fundamental strength of our group and hope this will be the main consideration by investors upon our company’s listing [on the ACE Market]. The status of being an ACE Market-listed company will also instil confidence in the government and private sector to entrust us with high-impact projects,” he tells The Edge.

LSH Capital, which was listed on the LEAP Market in July 2021, is a construction firm and property developer controlled by Keng Cheng and his siblings Datuk Lim Keng Guan, Jaclyn Lim Pak Lian and Alex Lim Keng Hun. It is the largest company on the LEAP Market with a market capitalisation of RM621 million. On Oct 12, it announced its intention to transfer to the ACE Market.

“Upon listing on the LEAP Market, we undertook a few corporate exercises to further enhance and bolster the profile and capability of the group to prepare us for the next stage of growth and eventual transfer of listing to the ACE Market,” says Keng Cheng.

Even quicker off the mark was SLIC, previously known as SL Information Bhd. A local end-to-end enterprise business solutions and IT solutions provider that listed on the LEAP Market on May 21, 2018, it proposed in June to undertake a transfer of its listing to the ACE Market.

SLIC’s Sim: The move to the ACE Market will provide us with access to a bigger fundraising platform to support our expansion plan to realise our long-term growth potential (Photo by SL Innovation Capital)

SLIC executive director Sim Boon Ker says the group is currently undertaking the necessary requirements for the proposed transfer, but he is unable to provide an estimated time frame at this juncture.

“With the announcement of the transfer framework in April, we are very excited, and I trust the same goes for all the other companies listed on the LEAP Market. The move to the ACE Market will provide us with access to a bigger fundraising platform to support our expansion plan to realise our long-term growth potential,” he tells The Edge.

Meanwhile, it is learnt that several companies, including ICT Zone Asia Bhd and Fibromat (M) Bhd, have actively engaged with their advisers to assess the feasibility of transferring to the ACE Market.

According to ICT Zone managing director and CEO Tommy Lim Kok Kwang, the company has been exploring the possibility of being listed on the ACE Market.

“We are in the midst of consulting professionals to understand the process, procedures, requirements and compliance under the listing requirements of both the LEAP Market and ACE Market.

“This encompasses aspects such as the price discovery mechanism, undertaking an issue of shares to the general public, prospectus requirements, request for a withdrawal of listing from the LEAP Market and so on,” he tells The Edge.

ICT Zone’s Kok Kwang: We are in the midst of consulting professionals to understand the process, procedures, requirements and compliance under the listing requirements of both the LEAP Market and ACE Market (Photo by ICT Zone)

“No concrete plan has been finalised at this juncture as the transfer of listing is still considered in the preliminary stage. Upon reaching a conclusive decision, we will make the necessary announcement to Bursa Securities accordingly.”

ICT Zone is a home-grown information and communications technology (ICT) solutions provider co-founded by Kok Kwang and non-executive chairman Datuk Seri Ng Thien Phing, who is better known as the founder and executive chairman of Main Market-listed property group SkyWorld Development Bhd. With a market capitalisation of about RM100.5 million, ICT Zone floated its shares on the LEAP Market on Dec 15, 2020.

Fibromat is another company making plans to transfer its listing, according to managing director and CEO Danny Ng Kian Boon.

“We are in the process of forming our transfer listing due diligence working group. According to the advice of our appointed listing adviser, the estimated time frame will take about one year or less,” he tells The Edge.

Fibromat is a manufacturer and supplier of soil erosion control products. Ng joined the company as a general manager in 1999 and acquired it in 2001. He spent two decades expanding Fibromat before finally listing it on the LEAP Market in May 2019.

Old versus new regime

So far, only two companies — Cosmos Technology International Bhd and TT Vision Holdings Bhd — have gone from the LEAP Market to the ACE Market. They made the move before the transfer framework was implemented in April.

Cosmos, an integrated water technology solutions provider, was listed on the LEAP Market in March 2020. It subsequently withdrew its listing before being listed on the ACE Market in October 2022. Automated test equipment manufacturer TT Vision was listed on the LEAP Market in May 2019. It made the move to the ACE Market in January 2023.

Fibromat’s Ng: Honestly speaking, we regret getting listed on the LEAP Market too early. We experienced a longer-than-expected waiting period with no transfer framework being introduced over the past few years. (Photo by Fibromat)

It should be pointed out that the two companies had to undergo the hassle of delisting from the LEAP Market before submitting a fresh application to be listed on the ACE Market due to the absence of a transfer framework at the time.

Some quarters argued that this cumbersome process not only contradicted the initial purpose of establishing the LEAP Market but also posed financial challenges for the companies, forcing them to incur advisory fees twice.

But to give credit where it is due, the LEAP Market — an alternative capital-raising platform for small and medium enterprises (SMEs) — was launched at Invest Malaysia 2017 in Kuala Lumpur. In doing so, the country became the first in Asean to implement such a platform for underserved companies to raise much-needed capital and realise their true potential.

Despite the LEAP Market being seen as a stepping stone for SMEs, industry players had complained over the years about the lack of a transfer framework that could facilitate the migration of companies to the ACE Market. In fact, given the limitation that the shares can only be traded by sophisticated investors, the LEAP Market frequently experiences low trading volumes and, consequently, has limited ability to establish robust price discovery.

This dynamic has prompted at least five companies — Polymer Link Holdings Bhd, JM Education Group Bhd, Zenworld Holdings Bhd (formerly known as MyKris International Bhd), as well as Cosmos and TT Vision — to withdraw their listing from the LEAP Market since 2020.

The wait for a transfer framework was finally over when Bursa implemented it in April this year. According to the regulator, a public-listed company (PLC) must be listed on the LEAP Market for at least two years to qualify for a transfer of listing. The companies must be assessed and considered suitable for listing on the ACE Market by a sponsor and subsequently undertake a public issue of shares.

An important thing to note is that under the transfer framework, an applicant is only delisted from the LEAP Market upon its successful transfer and listing on the ACE Market. Previously, the LEAP Market-listed company needed to withdraw its listing first, putting it at risk of being an unlisted company should it fail to list on the ACE Market.

With the transfer framework, companies no longer face the uncertainty and potential drawback of delisting from the LEAP Market without the assurance of a successful transfer to the ACE Market. The process has now been streamlined into a straightforward one-step procedure, whereby the application for transfer to the ACE Market and the withdrawal of listing from the LEAP Market occurs concurrently. Simply put, if a LEAP Market company fails to migrate to the ACE Market, it will remain a listed entity on Bursa’s third board.

Regrets, some have had a few

The LEAP Market has drawn its fair share of criticism, including for its lack of liquidity and vibrancy. That is because Bursa’s third market is accessible to only sophisticated investors as prescribed under the Capital Markets and Services Act (CMSA) 2007. In other words, only a handful of investors can participate in the LEAP Market and these are mainly accredited investors.

Fibromat’s Ng observes that there is “no significant economic benefit” that the group can gain from being listed on the LEAP Market.

“There has been no change to our company’s share price since the IPO (initial public offering). Nonetheless, the listing status does help us gain better confidence among our customers and suppliers while we are conducting our business as a transparent listed entity,” he says.

Ng points out that since listing in May 2019, Fibromat had waited for almost four years before the transfer framework was implemented in April this year.

“Honestly speaking, we regret getting listed on the LEAP Market too early. We experienced a longer-than-expected waiting period with no transfer framework being introduced over the past few years,” he says.

“However, we do need to turn our regret into positive energy now without looking at the past indefinitely. From now on, we need to focus on embarking on our new journey to obtain all the necessary approvals for getting listed on the ACE Market.”

Since Fibromat is equally obliged to fulfil the LEAP Market’s listing requirements as a public-listed company, Ng hopes the application for transfer of listing to the ACE Market will be less scrutinised and better supported by all the approving authorities.

LSH Capital’s Keng Cheng says the group has no regrets when it comes to being listed on the LEAP Market, as the “transition period” will make the process to list on the ACE Market much easier.

“It gives us ample time to further strengthen governance and address the environmental, social and corporate governance-related matters, which is crucial to being a respected listed company. However, we still believe that the transfer of listing process should be more simplified compared with the current requirements,” he stresses.

ICT Zone’s Kok Kwang describes the company’s LEAP Market journey as both challenging and rewarding. “In the early days, ICT Zone was a private limited company struggling with limited funds for expansion, particularly because of our involvement in capital-intensive businesses, as we had to make substantial purchases of ICT equipment to be leased or traded. We had limited funds to expand our business. As such, we ventured into the capital market via the listing of our company on the LEAP Market to further fund our growth.”

Going forward, with the opportunity to access a wider pool of investors, including retail investors, Kok Kwang expects the ACE Market to offer a more robust listing environment with relatively greater vibrancy, more liquidity and better price discovery for its shares. “We are thrilled about the prospects of listing on the ACE Market. Should we subsequently list on the ACE Market, we anticipate that our company will gain enhanced credibility, prestige and reputation, ultimately garnering greater recognition and acceptance among investors.”

SLIC’s Sim says the shares of LEAP Market companies are generally illiquid as these are accessible to only sophisticated investors. Still, a company needs to meet higher compliance and corporate governance standards when compared with pre-listing. “There is no doubt that the introduction of the LEAP Market has provided a new fundraising avenue, enhancing [the] company profile, visibility and credibility. Therefore, we have no regrets listing on the LEAP Market.”

Sim believes the ACE Market listing will increase the liquidity and marketability of the company’s shares with the larger number of investors allowed to engage in the trading of its shares. “The migration will mark another major milestone in the achievements of our company.”

Exit offer and free float requirement

While the transfer framework addresses most of the long-standing concerns of industry stakeholders, the process is not totally seamless. It is important to note that a transfer applicant must still apply to withdraw its listing from the LEAP Market and accord its shareholders an exit offer, or any other alternative exit mechanism, that is equitable to them.

Meanwhile, pursuant to the ACE Market listing requirements, a company must have a public spread of at least 25%, with a minimum of 200 public shareholders holding not fewer than 100 shares each.

While it is not immediately required upon listing, the company also needs to allocate 50% of the public spread, which means 12.5% of the enlarged share base, to bumiputera investors five years after being listed on the ACE Market, or within a year after achieving a Main Market profit track record.

Moreover, the company has to undertake an issuance of shares to the general public, comprising at least 5% of the enlarged number of shares issued to facilitate the transfer listing process.

LSH Capital currently has more than 50 shareholders. Keng Cheng says the group intends to seek an exemption from the exit offer as this will allow the listing process to be completed earlier.

“We believe our minority shareholders will remain with us throughout this journey. Being a responsible corporate citizen, we will adhere to the policies and will endeavour to meet the [public spread] requirements,” he adds.

“We are still finalising the listing structure with our advisers but we believe that a combination of new shares issuance and an offer for sale is being evaluated at the moment. Ultimately, we have to see the level of future cash requirement for investments and projects to be made and to be prepared for this.”

SLIC has 14 shareholders at the moment and similarly, the group is seeking an exemption from making an exit offer.

“The company intends to issue new shares pursuant to the proposed transfer to comply with the public spread requirement. We do not intend to undertake an offer for sale for the purpose of the proposed transfer,” says Sim.

ICT Zone has about 400 public shareholders and it may not be practical for the company to seek an exemption from extending an exit offer. As such, it will likely be required to undertake an exit offer of cash to facilitate the transfer of listing should the company proceed with it, says Kok Kwang.

On the bumiputera equity requirement, ICT Zone will explore various options, including seeking an exemption based on its existing approved bumiputera investors.

“If this is not feasible, we may need to undertake an offer for sale or public issue to meet the requirement of allocating 12.5% of the enlarged number of issued shares to bumiputera investors. We will ensure the company complies with all rules and requirements related to share allocation and shareholding should we proceed with the transfer of listing,” he says.

Fibromat has only 16 shareholders. According to Ng, the company will seek an exemption from its shareholders as it is understood that all the shareholders are agreeable to transfer from the LEAP Market to the ACE Market.

“In short, no exit offer will be offered to all the shareholders. However, we do need to seek all the shareholders’ consent to withdraw Fibromat’s listing from the LEAP Market and apply for transfer to the ACE Market via an EGM (extraordinary general meeting) as part of our transfer listing process,” he explains.

Ng says that since Fibromat is likely to pass Bursa’s profitability test, the group will be obliged to offer 12.5% of either the company’s existing or the enlarged issued share capital to bumiputera investors.

“We have not decided our ultimate shareholding structure at this moment. It could be a combination of issuing new IPO shares and an offer for sale of existing shares from major shareholders to Ministry of Investment, Trade and Industry-approved bumiputera investors simultaneously,” he adds.

 

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