This article first appeared in Capital, The Edge Malaysia Weekly on June 20, 2022 - June 26, 2022
THE Leading Entrepreneur Accelerator Platform Market — better known as LEAP Market — has received much criticism and mixed reviews from investors, who claim it has not been living up to its main purpose in recent years. Criticism seems to vary from its lack of liquidity to not having a proper transfer listing framework, but one thing is clear: Small and medium-sized enterprises (SMEs) still chose to make the leap to its platform.
Over the past five years, the LEAP Market has attracted 48 companies in total — raising about RM250 million from their listing exercises — although five have been delisted between 2020 and now (see chart). The 43 LEAP companies have a combined market capitalisation of RM4.7 billion.
The adviser-driven LEAP Market was launched by Bursa Securities at Invest Malaysia Kuala Lumpur 2017, as a complementary marketplace to the Main and ACE Markets and an alternative platform for emerging companies, particularly SMEs, to raise capital.
There is no minimum operating track record or profit requirement for companies to list on the LEAP Market, but it is worth noting that only six companies are loss-making, suggesting that most of them are of good quality with a potential for growth.
Indeed, corporate observers opine that six out of 43 is a much better ratio as compared with companies listed on the Main and ACE Markets.
Still, the LEAP Market has drawn its fair share of criticism, including its lack of liquidity and vibrancy. This is because Bursa Malaysia’s third market is accessible only to sophisticated investors as prescribed under the Capital Markets and Services Act (CMSA) 2007.
In terms of market activity, only 10% of a LEAP-listed company is tradable. In other words, only a handful of investors can participate in the LEAP Market and these are mainly accredited investors.
Critics also point to the lack of a transfer listing framework to define a process of graduation from the LEAP Market to the ACE or Main Markets. Indeed, for that reason, several LEAP companies had decided to withdraw their listing status as they could no longer wait for the framework to be developed.
Bursa Securities recognises this. “While there may not be a transfer framework in place today, we are already working on developing the transfer framework,” says the stock exchange controller in an email response to The Edge.
Cosmos Technology International Bhd is clearly aware of the LEAP Market’s weaknesses. The integrated water technology solutions provider debuted on the market in March 2020, but took itself private in November 2021.
Managing director Datuk Chong Toh Wee says one of the issues that the company faced was the lack of liquidity in the LEAP Market as it was only applicable to sophisticated investors.
“While there is no regret for us in getting listed on the LEAP Market, we decided to delist the company in order to facilitate a proposed listing on the ACE Market, as we believe it is a bigger fundraising platform to support our expansion plan,” he tells The Edge. Cosmos Technology’s draft prospectus was submitted to Bursa Securities in January and is pending approval.
On how the LEAP Market can be improved, Chong believes that the regulators should quickly finalise the transfer framework. More importantly, he says, the LEAP Market’s limitation to sophisticated investors should be removed.
“It should be accessible to institutional and individual investors,” he says.
The question remains: Why are companies still keen to get listed on the LEAP Market, knowing even now that the platform has unresolved issues?
Bursa Securities highlights that the LEAP Market was created to serve a very specific segment — small companies and start-ups in the very early stages of growth.
“We believe there is a growing awareness that the LEAP Market offers additional benefits apart from fundraising. The LEAP Market is establishing itself as a trusted and reliable platform, providing investors access to potentially high-growth companies with the comfort of investing in a transparent and orderly market,” says Bursa Securities.
It adds that the LEAP Market enables small companies and start-ups to increase their visibility and profile.
“In addition, the exposure to being listed and complying with post-listing obligations, including disclosure requirements, will ultimately contribute to their sustainable growth over the long term and help facilitate an easier path towards listing on the ACE Market.”
Astramina Advisory Sdn Bhd founder and managing director Datin Wong Muh Rong believes many LEAP Market-listed companies float their shares on the market for profiling reasons, instead of fundraising.
“While a LEAP Market listing may not provide liquidity and a diversity of investors (compared with a listing on the ACE and Main Markets), it is a strong avenue for entrepreneurs seeking credible profiling. This is because the corporate governance, financial disclosure and audit oversight requirements for LEAP companies are very high,” she tells The Edge.
Wong adds that LEAP companies that undergo these compliance requirements have to be of a certain quality, and thus, will be able to attain a certain level of branding.
Thinkat Advisory Sdn Bhd managing director Karl Fredericks is of the view that the LEAP Market’s image can be improved.
“Unfortunately, it is often a target of derision, which is wholly undeserved. Given more promotion and support by the regulators, this can be easily improved,” he remarks.
Fredericks believes many LEAP companies have good growth potential to become the blue chips of tomorrow.
“Being a listed firm may just be the right catalyst to spearhead the company to grow and achieve greater milestones.
“It will be easier for the company to improve its image and profile with its stakeholders and widen its options for fundraising, enabling them to execute their expansion plans or tap the potential they see. In some cases, as we have seen, they can also use their shares as a commodity, such as issuing shares in lieu of cash in acquisition exercises,” he says.
Minority Shareholders Watch Group (MSWG) CEO Devanesan Evanson concurs, noting that being listed brings an appeal of its own as there is price discovery when valuing the shares.
“With greater liquidity, the price discovery will be more representative of demand and supply. The spreads will be narrowed. Perhaps the companies aspiring to be listed on the LEAP Market are also hoping that a framework for promotion to the ACE Market is in the offing and will be released soon. That could be a motivation for the aspirants,” he says.
Being listed on the LEAP Market also brings about some transparency as far as the company is concerned and increases the trust of stakeholders, especially the suppliers and customers of a company, he says.
These are expected to reduce the cost of funds when these companies seek funding, says Devanesan.
However, he acknowledges that the LEAP Market is still very much a work in progress, as there is no transfer framework for these companies to migrate to the ACE Market.
“The LEAP Market has served its purpose. There are aspirants who want to list there. But the LEAP Market can go to greater heights with a robust transitioning framework and greater liquidity,” Devanesan says.
Tradeview Capital Sdn Bhd CEO Ng Zhu Hann agrees that although the intentions of regulators in launching the LEAP Market were good, the implementation is still a work in progress.
“The growth in the venture capital (VC) and private equity (PE) space in recent times has been encouraging for SME founders, be it for exit or growth. However, the LEAP Market provides visibility to the entire business landscape, including banks, financiers and dealmakers that would ordinarily be out of sight,” he says.
Ng points out that the positive effect of getting listed on the LEAP Market is not entirely quantifiable monetarily.
“Owners of LEAP companies could promote themselves to their clients and the public as being a listed entity governed by Bursa, enhancing the public profile which brings along market confidence. All in all, it is a quicker and more lenient way to get listed and raise funds by issuing shares without taking on debt to finance,” he says.
Furthermore, LEAP companies could enjoy lower listing costs as they are only required to issue an information memorandum instead of a full prospectus.
“I believe these reasons are why the LEAP Market regime still has merits to exist today,” he says.
Since 2019, many LEAP companies have been urging the regulators to formulate a clear and smooth board transfer framework. Three years have gone by and a proper transfer framework has yet to emerge.
Since 2020, five companies — Polymer Link Holdings Bhd, JM Education Group Bhd, Cosmos Technology, Zenworld Holdings Bhd (formerly known as MyKris International Bhd) and TT Vision Holdings Bhd — have been delisted from the LEAP Market.
JM Education, an education counselling and student placement services provider, made its LEAP Market debut in February 2018 and was the third company to list on the third board. But in January last year, JM Education became the second company to delist from the platform, following Polymer Link.
For JM Education managing director Teh Cheong Hua, the illiquid nature of the LEAP Market is a major concern among investors. Secondly, the lack of a straightforward transfer mechanism to the ACE Market is another letdown.
“I would say the listing (on the LEAP Market) was a good experience for us. We do not discount the possibility of an ACE Market listing in the future, but we are not looking at it in the immediate term,” he says.
More recently, on June 10, Aurora Italia International Bhd had proposed the withdrawal of listing from the LEAP Market to facilitate its listing on the ACE Market.
Still, some quarters say it makes a mockery of the LEAP Market if a LEAP company needs to be delisted before going to the ACE or Main Market.
Bursa Securities says it is continually looking at ways and means to improve and enhance the initial public offering (IPO) framework. However, it notes that these initiatives typically require rule changes as they would impact not only issuers, but also investors and other market participants. Hence, refining these initiatives takes time as it requires much thought and a thorough process.
“That said, we have made significant progress in developing a transfer framework and will be issuing a public consultation soon as part of the process of formalising the same. In essence, the transfer framework is meant to give an avenue for current LEAP Market-listed companies to apply for a transfer to the ACE Market while still being listed on the LEAP Market,” the regulator says.
It adds that as these LEAP companies grow and arrive at the desired level of maturity, they may then graduate to a higher market and offer more shares to the public or the retail sector and reach a wider investor audience.
Astramina’s Wong says there needs to be clarity in terms of when these LEAP companies can transfer.
“We need that transfer framework. The existing requirement for disclosure for the LEAP companies is almost on par with Main Market-listed companies. This is quite a burden for the smaller companies. So, under these cumbersome rules, they should be given the option to know how they can transfer out,” she urges.
Thinkat’s Fredericks says the transfer framework is of utmost urgency and importance as it represents the “missing link” in the regulatory framework.
“The LEAP Market was always meant to be a growth platform for small companies and not a final destination for companies to list — after all, the acronym says it all. The game plan is to raise money, grow the company and then graduate to a full-fledged listing status. This (transfer framework) remains an oft-asked question and lingering point for owners considering a listing of their companies on LEAP,” he adds.
MSWG’s Devanesan also agrees that the transition framework should be in place sooner rather than later.
“The LEAP companies are not strangers to the regulators as the regulators would have done some due diligence before allowing these companies to be listed on the LEAP Market. As such, regulators do not have to start from scratch when considering their transition. The sooner a framework is in place, the more popular the LEAP Market will be,” he says.
Tradeview’s Ng thinks it is imperative to have a seamless transfer framework, citing a recent change in policy where the Securities Commission Malaysia is no longer required to approve companies’ transfer listing status from the ACE Market to the Main Market.
“Without a transfer framework, LEAP companies are stuck in limbo without potential for progression. Based on what I have gathered, regulators have been working on this, but I believe the recent shake-up in top leadership in the SC has affected the progress. As for Bursa Securities, as it is a business entity that also acts as a frontline regulator, there is a need to balance profit and investor protection,” he notes.
The finance ministry recently appointed Datuk Awang Adek Hussin as the new executive chairman of the SC from June 1, replacing Datuk Syed Zaid Syed Jaffar Albar. It also appointed Yew Yee Tee and Shamsul Bahriah Shamsudin as general counsel and director, respectively, effective July 1.
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