The Overview Of Regulatory Requirements

Published Date: 02 Nov 2017

Listing on the Main Market of Bursa Malaysia ("Main Market") is for established companies with a track record.

1.0 Regulatory Background

1.1 Overview of Regulatory Requirements

The main requirements for listing on the Main Market are found in the Capital Markets and Services Act 2007 ("CMSA") and the Main Market Listing Requirements.

1.2 Regulatory Entities

The Securities Commission ("SC") and Bursa Malaysia are the regulatory bodies for companies wishing to list on the Main Market.

1.3 Required Approvals

Companies seeking to list on the Main Market, must be approved by the (I) and SC (II) of Bursa Malaysia. In a review of SC proposals for listing on the main board in accordance with section 212 members of the CMEA. In connection with this announcement SC considers proposals to ensure compliance with the guidelines of capital and other factors, such as corporate governance and the potential conflict of interest. If the applicant is operating a manufacturing company in Malaysia, the approval of the Ministry of International Trade and Industry is also required.

2. Listing Criteria

2.1 Suitability/Eligibility of Listing Applicant

Any company seeking to list on the Main Market must comply with the relevant admission procedures and requirements established by the SC and Bursa Malaysia. A person whose main business is not the infrastructure project must meet the test of either profits or test market capitalization. The applicant, whose main activity is the fact that the infrastructure of the project, the applicant must meet the corporate infrastructure project of the test.

2.2 Track Record Requirement

Profit Test

The applicant (or at the level of a corporation or group) must have a continuous profit 4:57 fiscal year based on the audited financial statements before submission SC, with an aggregate after-tax profit of at least RM20 million and profit after tax of at least RM6 million . The last financial year. Where the list of the corporation sought is based on the strength of the group, at least one corporation (which is a qualifying Corporation) within the group should be able to fulfil the requirements of profit. If no corporation is unable to fulfil the requirements of profit, the list is based on the strength of pre-formed group accounts may be considered provided that the corporation within the group, which jointly provide income requirements are involved in the same core business and have the general management of the shareholders for the period track record profits. The applicant or qualifying corporation must be turned on and operating in the same core business for the period track record profit before submitting SC. Where ad is sought based on the strength of pre-bills, the corporation that is the largest contributor to the profit after tax by the weighted average of the last three completed financial years shall meet the requirements of the operating history.

Market Capitalisation Test

Ordinary shares of the applicant shall be the total market capitalization of at least RM500 million based on the issue or offer price as stated in the listing prospectus and enlarged issued and paid-up share capital in the listing. Where a group of corporations seeking the list based on the strength of the group corporation within the group must have common controlling shareholders, at least one full fiscal year prior to the submission of SC.

The applicant or corporation within the group, which represents the core business, must have been turned on and has been generating operating income for at least one full fiscal year prior to the submission SC.

Infrastructure Project Corporation Test

The applicant, either directly or through its subsidiary company shall have the right to build and operate the infrastructure project, whether it is in Malaysia or outside Malaysia with a project cost of at least RM500 million and for which the concession or license was awarded a government or public body or outside Malaysia, with the remaining concession or license term of 15 years from the date of receipt in SC.SC may consider listing proposal of the applicant with a shorter remaining period of the concession or license from the date of submission to the SC if the applicant meets the requirements of profit under the profit test.

2.3 Sufficiency of Working Capital

The applicant must not have a healthy financial position, with sufficient working capital for at least 12 months from the date of the prospectus, a positive cash flow from operations (If the list is searched by the test of profit and market capitalization of the test), and no accumulated losses on its recent audited balance sheet at the time of the SC (If the list is sought under the profit test).

3. Overseas Companies

Foreign joint stock companies can be listed on Bursa Malaysia by (I) a primary listing or (II), a secondary listing on the main market.

The applicant must establish a share transfer or share registration office in Malaysia. If the operations of a foreign corporation are wholly or predominantly Malaysian-based, it must have a majority of the directors, the principal or only place of residence is in Malaysia. If its activities are entirely or predominantly foreign-based, it must have at least one director, principal or only place of residence is in Malaysia.

Foreign corporations with a primary listing must immediately declare Bursa Malaysia any change in the interest or the interests of the majority shareholder's voting shares after notice from the main shareholder. Foreign corporations should be given the name of the shareholder and full particulars of the changes, including the date of the change, the number of shares involved and causes the change occurred.

The foreign company must appoint an agent or representative in Malaysia, in charge of relations with Bursa Malaysia on behalf of the company.

All information and documents submitted, presented or disclosed in accordance with the basic requirements of the market, a list should be in English.

Secondary offering may only major market. Foreign companies must have a primary listing on the main market of a foreign stock exchange, which is a member of the World Federation of Exchanges.

ADVANTAGES OF GOING PUBLIC

The primary advantage a small business stands to gain through an initial public stock offering is access to capital. In addition, the capital does not have to be repaid and does not involve an interest charge. The only reward that IPO investors seek is an appreciation of their investment and possibly dividends. Besides the immediate infusion of capital provided by an IPO, a small business that goes public may also find it easier to obtain capital for future needs through new stock offerings or public debt offerings. A related advantage of an IPO is that it provides the small business's founders and venture capitalists with an opportunity to cash out on their early investment. Those shares of equity can be sold as part of the IPO, in a special offering, or on the open market some time after the IPO. However, it is important to avoid the perception that the owners are seeking to bail out of a sinking ship, or the IPO is unlikely to be a success.

Another advantage IPOs hold for small businesses is increased public awareness, which may lead to new opportunities and new customers. As part of the IPO process, information about the company is printed in newspapers across the country. The excitement surrounding an IPO may also generate increased attention in the business press. There are a number of laws covering the disclosure of information during the IPO process, however, so small business owners must be careful not to get carried away with the publicity. A related advantage is that the public company may have enhanced credibility with its suppliers, customers, and lenders, which may lead to improved credit terms.

Yet another advantage of going public involves the ability to use stock in creative incentive packages for management and employees. Offering shares of stock and stock options as part of compensation may enable a small business to attract better management talent, and to provide them with an incentive to perform well. Employees who become part-owners through a stock plan may be motivated by sharing in the company's success. Finally, an initial public offering provides a public valuation of a small business. This means that it will be easier for the company to enter into mergers and acquisitions, because it can offer stock rather than cash.

DISADVANTAGES OF GOING PUBLIC

The biggest disadvantages involved in going public are the costs and time involved. Experts note that a company's management is likely to be occupied with little else during the entire IPO process, which may last as long as two years. The small business owner and other top managers must prepare registration statements for the SEC, consult with investment bankers, attorneys, and accountants, and take part in the personal marketing of the stock. Many people find this to be an exhaustive process and would prefer to simply run their company.

Another disadvantage is that an IPO is extremely expensive. In fact, it is not unusual for a small business to pay between $50,000 and $250,000 to prepare and publicize an offering. In his article for  The Portable MBA in Finance and Accounting, Paul G. Joubert noted that a small business owner should not be surprised if the cost of an IPO claims between 15 and 20 percent of the proceeds of the sale of stock. Some of the major costs include the lead underwriter's commission; out-of-pocket expenses for legal services, accounting services, printing costs, and the personal marketing "road show" by managers; .02 percent filing costs with the SEC; fees for public relations to bolster the company's image; plus ongoing legal, accounting, filing, and mailing expenses. Despite such expense, it is always possible that an unforeseen problem will derail the IPO before the sale of stock takes place. Even when the sale does take place, most underwriters offer IPO shares at a discounted price in order to ensure an upward movement in the stock during the period immediately following the offering. The effect of this discount is to transfer wealth from the initial investors to new shareholders.

Other disadvantages involve the public company's loss of confidentiality, flexibility, and control. SEC regulations require public companies to release all operating details to the public, including sensitive information about their markets, profit margins, and future plans. An untold number of problems and conflicts may arise when everyone from competitors to employees know all about the inner workings of the company. By diluting the holdings of the company's original owners, going public also gives management less control over day-to-day operations. Large shareholders may seek representation on the board and a say in how the company is run. If enough shareholders become disgruntled with the company's stock value or future plans, they can stage a takeover and oust management. The dilution of ownership also reduces management's flexibility. It is not possible to make decisions as quickly and efficiently when the board must approve all decisions. In addition, SEC regulations restrict the ability of a public company's management to trade their stock and to discuss company business with outsiders.

Public entities also face added pressure to show strong short-term performance. Earnings are reported quarterly, and shareholders and financial markets always want to see good results. Unfortunately, long-term strategic investment decisions may tend to have a lower priority than making current numbers look good. The additional reporting requirements for public companies also add expense, as the small business will likely need to improve accounting systems and add staff. Public entities also encounter added costs associated with handling shareholder relations.

IMPROVING THE PROSPECTS FOR A SUCCESSFUL IPO

For most small businesses, the decision to go public is made gradually over time as changes in the company's performance and capital needs make an IPO seem more desirable and necessary. But many companies still fail to bring their plans to sell stock to completion due to a lack of planning. In an article for Entrepreneur, David R. Evanson outlined a number of steps small business owners can take to improve the prospects of an IPO long before their company formally considers going public. One step involves assessing and taking action to improve the company's image, which will be scrutinized by investors when the time comes for an IPO. It is also necessary to reorganize as a corporation and begin keeping detailed financial records.

Another step small business owners can take in advance to prepare their companies to go public is to supplement management with experienced professionals. Investors like to see a management team that generates confidence and respect within the industry, and that can be a source of innovative ideas for future growth. Forming this sort of management team may require a small business owner to hire outside of his or her own local network of business associates. It may also involve setting up lucrative benefit plans to help attract and retain top talent. Similarly, the small business owner should set about building a solid board of directors that will be able to help the company maximize shareholder value once it has become a public entity. It is also helpful for the small business owner to begin making contacts with investment banks, attorneys, and accountants in advance of planning an IPO. Evanson recommended using a Big Six accounting firm, since they have earned the trust of investors nationwide.

Finally, Evanson recommended that small businesses interested in eventually going public begin acting like a large corporation in their relationships with customers, suppliers, employees, and the government. Although many deals involving small businesses are sealed with an informal handshake, investors like to see formal, professional contracts with customers, suppliers, and independent contractors. They also favour formal human resource programs, including hiring procedures, performance reviews, and benefit plans. It is also important for small businesses to protect their unique products and ideas by applying for patents and trademarks as needed. All of these steps, when taken in advance, can help to smooth a small business's passage to becoming a public entity.

The pace of IPOs reached a new peak in 1999, when a record 509 companies went public, raising an unprecedented $66 billion. IPO fever was fuelled by "dotcoms," or new Internet-based companies, which accounted for 290 of the initial public stock offerings that year. These fledgling companies went public to take advantage of a unique climate in the stock market, as giddy investors trying to catch the next Internet fad did not demand much in terms of profitability. New Internet-based companies with limited track records were able to use the public markets as a form of venture capital. In fact, new issues of stock in dotcoms jumped an average of 70 percent on their first day of trading in 1999. By mid-2000, however, drops in the tech-heavy Nasdaq made investors more cautious and dramatically changed the situation for Internet IPOs. Studies showed that 40 percent of high-tech IPOs were trading below their original offering price by that time. As a result, 52 companies decided to cancel or postpone their IPOs in the first six months of 2000. The crash of Internet IPOs demonstrates the need for small business owners to keep a close eye on market conditions and make sure their companies are well positioned and show a strong chance of long-term viability before engaging in an IPO.