Unlisted & Unlimited: Where have all the listings gone?

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IN THE 1990s, Bursa Malaysia (then known as the Kuala Lumpur Stock Exchange) experienced a boom in listings. The decade saw 543 corporate listings — 207 on the Main Board and 336 on the Second Board, or an average of 20 and 33 listings a year respectively.

In contrast, these are few and far between today. Last year, only 15 companies were listed. Three of these were on the ACE Market, an alternative market for emerging companies of all sizes and sectors, which replaced the Mesdaq in 2009.

The question resounds — where have all the emerging companies gone and why has Bursa lost its allure?

Well, some of them have gone overseas.

Take AdvanceTC Ltd, which specialises in the design, development and commercialisation of high-tech mobile wireless computing and telecommunications devices and operates development facilities in Malaysia. It was listed on the National Stock Exchange of Australia (NSX), the country’s second largest listing market, in September last year. On its debut, it was the biggest R&D technology company to list on the NSX, with a market capitalisation of A$165 million (RM477.4 million).

AdvanceTC is an R&D phase company with huge ambitions to manufacture and take to market a three-in-one laptop, tablet and phone device called the MAGIC Zlate. Its CEO Loi Cheng Peng told The Edge in a previous interview following the listing, “We did consider listing on Bursa but being a start-up, we faced a lot of complications such as costs and [listing] scheduling uncertainties.”

Nanopac Innovation Ltd is a Malaysian nanotechnology company that undertook a dual listing on the Frankfurt Stock Exchange and the NSX. Its CEO Datuk Dr Cheng Kok Leong also says he considered Bursa but in the end, decided to go overseas for several reasons.

“By going overseas, it is better for us in terms of branding, especially in gaining investor confidence. It also helps to attract good investors from all over the world. Also, listing costs are lower and the process much simpler, especially for dual listings,” he tells The Edge.

Cheng says listing abroad allows for better valuations as the market capitalisation is larger. “For example, the Frankfurt Stock Exchange is the 10th largest in the world by market capitalisation.”

In addition, he thinks the listing in Frankfurt gives the company sufficient credibility to attract European investors. “These investors are looking at the future and potential of the company, and its technology or intellectual property is their main basis for investing, rather than the company’s historical earnings.”

He also thought these markets would be more stable and the companies listed on them would be less affected by currency depreciation or political impact closer to home.

Nanopac specialises in the development and manufacture of nanotechnology-based products. “We have managed to combine nanotechnology and photocatalyst technology to create a variety of nano solutions that can be applied to any product or surface in highly diversified industries to kill bacteria, germs and viruses, as well as to rid the environment of biological toxic gases and the effects of pollution,” Cheng says.

Nanopac has also made inroads into the renewable energy industry through its nano-based solar cell technology. “Our latest creation is a new generation of solar cells, which come in the form of glass panels that are suitable to be used as windows. They harness solar and artificial light energy to produce electricity,” he explains.

Chong Wee Chong is CEO of Southasia Advisory Sdn Bhd, a nominated adviser for the NSX. He helped facilitate both listings. He says it is ironic that Malaysian companies face less difficulty listing on overseas markets, where the rules are more transparent and the costs are fixed, than in their home market.

“If you submit an application, for instance, you don’t know when you are going to get a reply. Overseas, there are standard operating procedures, so you know that if you submit an application, you will hear back in say, 48 hours — yes or no. And if it is a submission for approval, and there are queries, these will come within a month. Within six weeks, you will know whether you can be listed. The rules and the process are clear,” he explains.

Because the process has been set out, companies know exactly what they are going to incur in terms of listing expenses. “You know how much you will have to pay upfront. There are no hidden costs. And if everything is okay, the whole process can take as short as nine months. Over here, it usually takes 18 months to two years.

“I think that is a bit lengthy. A listing eats up an enormous amount of resources. For instance, you have to hire a lawyer, and this is incredibly expensive. The longer it takes, the more you pay until it costs too much and no longer makes any sense. A listing is, after all, a capital-raising exercise. Why would you do it if it eats up all your capital?” Chong says.

He sees a lot of Malaysian companies looking to list overseas. Other favoured markets include the Singapore Exchange (SGX), the Hong Kong Stock Exchange and the London Stock Exchange’s Alternative Investment Market. Many of these exchanges are actively wooing Malaysian SMEs.

If Bursa is to stop this outflow, Chong says, it should set out standard operating procedures, such as time-to-respond, and stick to it. Also, it has to minimise human interference, as this is where the cracks show.

The stock exchange regulator is not unaware of the problem. Last November, it called for public feedback on various enhancements to the listing requirements. It said it aims to promote a more transparent framework, one with greater clarity on the admission criteria. The public consultation paper is also to ensure that the ACE Market remains an atttractive and competitive listing and investment platform.

Bursa proposed that new applicants be required to have an independent market research report supporting their listing application. The regulator also intends to liberalise the moratorium requirements for eligible promoters and shorten the moratorium period for promoters of listed corporations, which are eligible to list on the Main Market.

The deadline for comments and feedback from the investing community, practitioners and market participants on the proposed enhancements was Dec 22.

When contacted about the drop in listings, however, Bursa declined to comment.

SMEs with potential for listing

What about the companies out there with the potential for listing? Where have they set their sights?

Embedded Wireless Labs Sdn Bhd chief operating officer G U Renukanand admits that being a technology company, it has considered the ACE Market, which was set up for that purpose. The company has positioned itself firmly in the connected health sector in the Internet of Things market — one of the major growth areas identified by the government. It already has a market in the US and is steadily building one in Singapore.

“Yes, we have considered the option to list in Malaysia as the company is in a growth phase to expand to newer markets, such as the US, Singapore and other Asean countries. We have also considered the Australian Stock Exchange (ASX) and SGX,” he says.

Why the ACE Market? “This market was set up for investments in technology and high-growth companies. This, I believe, was to mimic the Nasdaq in the US where technology companies from all over the world come to list. The valuations of technology and high-growth companies have always attracted innovation capital to Silicon Valley.”

What about the Australian and Singapore bourses? “We have considered these stock exchanges as they are more investor-friendly and have investors of diverse backgrounds. Valuations of the company are better on the ASX and SGX compared with Bursa.

“Malaysia has some sophisticated investors, but most of them invest in traditional companies such as banks, real estate companies, insurance-related companies, FMCG (fast moving consumer goods) companies and those related to manufacturing and infrastruture. That is why technology companies usually go elsewhere,” he says, citing MOL Global Inc, which listed on the Nasdaq, as a recent example.

What does he think are the challenges of listing in Malaysia? “Well for starters, the listing rules are very onerous for technology-based companies. The amount of money raised, relative to the amount of paper work that needs to be done, makes it sometimes not worth the effort.”

Valuations in Malaysia also tend to be lower than in other markets because fund managers here are more familiar with traditional companies, rather than high-risk, high-return technology companies.

“The Silicon Valley model is built on investment in high-risk companies which, in some cases, turn out to be mega stars. Some companies may not make the cut. But the investment community is aware of these risks and are willing to take a chance,” Renukanand says.

While many Malaysian companies are looking to list abroad, one Singaporean company listed on the ACE Market last year. Enterprise data management specialist Kronologi Asia Bhd was listed on Dec 15.

Kronologi Asia executive chairman Piti Pramotedham says the company chose Malaysia because it is its second largest market and offers a favourable capital market structure.

Malaysia Entrepreneurs’ Development Association president Datuk Tony Looi says the poor showing in terms of new listings is not always Bursa’s fault. Some SMEs choose not to list out of sheer conservatism.

“They, especially the older generation of business owners, see it as an unnecessary risk and fear losing control,” he adds.

Also, he says, many of these companies are stymied by the accounting procedures they would have to go through. And some of them think being transparent about how much they earn will get them taxed more heavily.

Looi is CEO of the Ban Lee Hin Group of Companies, which makes 70% of its revenue from civil engineering works and steel manufacturing. He plans to list his company on Bursa in three to five years.

“To me, it doesn’t make much difference whether I list my company in Malaysia or overseas. Yes, it is easier for local companies to be listed in Singapore, Hong Kong, Taiwan or even Shanghai these days. But I think Malaysia is stable and has enough talent, and this is good enough for me,” he says.

Advanced materials company Penchem Technologies Sdn Bhd CEO Dr Ng Chee Mang echoes this sentiment, as he too plans to list on Bursa. “We need to support our own country, raise sufficient funds for the next level of technology advancement and business expansion, and reward employees who have stayed and worked hard.”

This article first appeared in Unlisted & Unlimited, The Edge Malaysia on January 12 - 18 , 2015.