This article first appeared in The Edge Malaysia Weekly on July 27, 2020 - August 2, 2020

LAST Tuesday, the Securities Commission Malaysia announced an enhanced initial public offering (IPO) framework for listings on the Main Market of Bursa Malaysia that is expected to create a more seamless and efficient IPO process for all parties, particularly as problems will be flagged earlier.

The initiative is understood to be the result of the regulator’s engagement with industry players over the past few years over issues faced in the IPO process.

“If you look at the number of IPOs in Malaysia over the past 10 to 15 years, it has been on a decline, especially for the Main Market ones, which are the larger companies. This is because some Malaysian companies have chosen to list in places like Singapore and Hong Kong, despite it being costlier to do so,” an investment banker tells The Edge.

“One of the reasons given for this is a shorter turnaround time for listing in developed markets. The longer time-to-market in Malaysia was a dampener for some companies seeking to list here,” he notes.

“With this enhanced framework, it looks like there is a more streamlined process that should theoretically result in a shorter time to market for listing in Malaysia, which is welcome.”

What the framework entails

The new framework, which takes effect on Jan 1, 2021, is also applicable for reverse takeover (RTO) submissions. One of its key features is the introduction of a mandatory pre-submission holistic consultation between the SC and key stakeholders, including the applicant, principal advisers, lawyers, reporting accountants and valuers.

This, according to the SC, is to facilitate discussions of any material issues and concerns prior to the submission of the IPO application.

The Malaysian Investment Banking Association (MIBA), in an email response to The Edge, says the holistic consultation would promote a dynamic due diligence process for IPOs and provide better engagement to understand the issues and weaknesses of the cases.

The association notes that there were instances in the past where cases were rejected or delayed because of issues that could have been better addressed from a holistic consultation basis.

“It (holistic consultation) will ensure a seamless application process as the pertinent issues can be flagged early so that all parties, including the applicant, are aware of these issues and steps, if any, can be taken to address them. The expectations of stakeholders can then be managed, leading to a smoother outcome,” says MIBA.

Astramina Advisory Sdn Bhd managing director Datin Wong Muh Rong concurs. She says the holistic consultation framework is a game changer for the IPO process.

“It allows stakeholders to have an interactive discussion of issues in a transparent manner in assessing upfront the suitability of listing with the authorities, prior to the submission of the exposure draft,” she tells The Edge.

The new framework will also provide for a longer exposure period of the draft prospectus until the date of registration of the prospectus, instead of the current 15-day market exposure period. This is to enable greater public participation in providing feedback on the draft prospectus.

Minority Shareholders Watch Group CEO Devanesan Evanson agrees that the 15-day market exposure period should be extended, but not for too long a period.

“All things being equal, a longer exposure period of the draft prospectus will provide more time for feedback and comments from the public. However, too long a period may be counter-productive to the timeliness of the whole IPO process,” he says.

The approved principal adviser and qualified senior personnel regime will also be liberalised under the new framework to allow a larger pool of qualified professionals to be involved in the submission of IPO or RTO applications to the SC.

To operationalise the framework, the SC has revised the Licensing Handbook and incorporated the eligibility criteria of principal adviser and qualified person, and requirements for recognition as a recognised principal adviser.

For example, under the current regime, the minimum criteria for qualified senior personnel working on an IPO is seven years of corporate finance experience and completion of three IPOs or RTOs in the last five years in a substantial role. The SC’s approval is also required for the appointment of any person as qualified senior personnel.

Under the new Licensing Handbook, a qualified person will still require seven years of corporate finance experience, but would only need to have completed one IPO or RTO in the last five years. The appointment of the qualified person will no longer require the SC’s approval, as the principal adviser has discretion to appoint any person.

MIBA approves of the looser requirements.

“Liberalisation of the approved principal adviser and qualified senior personnel regime is the right step to address the shortage of talent pool in the capital market and, at the same time, allow for a larger pool of qualified professionals to be involved in the IPO or RTO application to the SC.

“Under the new framework, principal advisers are also accorded more autonomy and responsibility to ensure the quality of their work,” says MIBA.

Could this lead to more IPOs?

Lee Kok Wai, Head of Audit at Crowe Malaysia PLT, opines that the enhanced IPO framework will encourage more companies to list on Bursa, “especially with the mandatory pre-consultation, which in our view is a positive step in encouraging new IPO candidates, since this process will offer greater clarity to companies on their suitability for listing”.

“In the bigger picture, this will lead to greater efficiency in the IPO process, and hopefully attract companies that are of better quality, which can derive more value for investors,” he says.

“With this enhanced framework, we hope to be on a par with other capital markets, particularly in this environment where we are competing for capital, and to attract [our companies] to list locally rather than overseas.”

Meanwhile, the SC is also looking into reforming the regulatory framework for the ACE Market. Discussions are currently being held on the potential migration of the entire ACE Market framework, including the registration of prospectus, to Bursa in the first half of 2021.

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