This article first appeared in The Edge Malaysia Weekly on March 13, 2023 - March 19, 2023
ALLOWING listed companies to issue dual-class shares is an encouraging start, market players say, but they stress that a much wider range of pro-business initiatives are needed to attract high-growth companies.
Last week, Prime Minister Datuk Seri Anwar Ibrahim, in officiating Invest Malaysia 2023, reiterated that listed companies would be allowed to issue dual-class shares.
At the same time, Bursa Malaysia and the Securities Commission Malaysia will introduce the LEAP Market Transfer Framework for companies to migrate from the LEAP Market to the ACE Market. And to expand the pool of advisers for the ACE Market, a new recognised approved adviser framework will be introduced.
Dual-class shares, also referred to as weighted voting rights (WVR), involve the issuance of two classes of shares, one of which could have superior voting rights, often allowing founders or top executives to have control over the company even with a smaller stake.
The move — to encourage the listing of high-growth technology companies in Malaysia — is to ensure that management retains control of the company to execute long-term plans, without disruption from minority shareholders.
The debate on dual-class shares is not new, having been raised a few years ago when Hong Kong and Singapore allowed the listing of dual-class shares to cater for market needs as it offered companies greater flexibility.
Minority Shareholders Watch Group (MSWG) CEO Devanesan Evanson tells The Edge that while making the framework available as an offering, the exchange should implement a model that is suitable for the local environment.
“For dual-class shares, there are many models available in other jurisdictions. Given the Asian context, there will be a bias towards the features of the Singapore and Hong Kong frameworks.”
Although dual-class shares offer another avenue for companies to raise funds on the local stock exchange, Devanesan says shareholders must understand their peculiarities. “Education, especially risk appreciation, should be the order of the day. The regulators are in a better position to determine how the rules framework should pan out.”
Stating “anytime is good timing to allow dual-class shares”, Areca Capital Sdn Bhd CEO Danny Wong stresses that the regulators have to take further steps to implement more pro-business strategies, with the removal of protectionism.
Although Malaysia is opening the door to attract innovative companies and unicorns to the country, or even to discourage local companies from leaving, Wong believes there is a need to follow up on a lot of things.
“There is no point in just taking one step and stopping there. When you want to attract good companies to list in Malaysia, you need to protect their founders or promoters, who have put in a lot of effort and ideas in promoting certain businesses. With dual-class shares, it could avoid some kind of hostile takeover, of which we have seen quite a fair bit in Malaysia … This kind of tussle is not welcome in the corporate world, because it disturbs the long-term development of a company,” he observes.
Citing the issuance of dual-class shares by Grab Holdings Ltd as an example, Wong notes that its founders could execute their ideas and run the company while raising funds for their business operations.
“When investors come in, their intention is to ‘buy’ the expertise of the founders and ride on the company’s growth,” he points out.
Missing out on the listing of Grab has been a loss for Malaysia. Headquartered in Singapore, the unicorn company was co-founded by two Malaysians — Anthony Tan and Tan Hooi Ling — and successfully listed in the US in December 2021.
William Ng, chief investment officer of LeInves PLT, is more ambivalent about the measure, as he does not see the advantage of having a dual-class share structure if the corresponding structures are not in place.
“It is just one of the factors in decision-making by foreign entities. There are other issues to consider, such as the political situation, banking system, labour law, taxation and business environment.”
He does not think the timing is right for dual-class shares because corporate governance remains unsatisfactory on the whole.
“There are many speculative activities in the small caps. If dual-class shares are allowed here, it won’t benefit minority shareholders. It’s okay to implement this for big corporations because they are professionally managed,” he argues.
Ng would prefer that the dual-class shares measure be confined for now to companies that meet specific criteria, with the emphasis on management policy and corporate governance.
In Hong Kong, for instance, only innovative companies are allowed to adopt the WVR structure for listings. Furthermore, they must have a minimum market capitalisation threshold of either HK$40 billion (RM23 billion) or, if they have at least HK$1 billion in revenue, HK$10 billion. Having said that, applications will be reviewed on a case-by-case basis to safeguard investor interest.
According to Ng, awareness of shareholder rights must be enhanced too, judging from the fact that even some fund houses are not exercising their rights at annual general meetings (AGMs) and extraordinary general meetings.
He says: “Besides MSWG, there are no other organisations that can protect the minority shareholders … There are many fund companies in Malaysia, but they don’t come out to vote. So, often, we have to make sure that fund managers must participate in AGM voting to reflect shareholders’ rights in decision-making.”
On the matter of fast-track migration from the LEAP Market to the ACE Market, Wong proposes that it be accelerated to beef up the vibrancy of the local bourse.
“We have seen some delisting from the LEAP Market, followed by relisting on the ACE Market, but that involves cost and time. The fast track must be there to attract start-ups and businesses to list.”
Ng points out that a major stumbling block for companies to transfer to the ACE Market from the LEAP Market is the public shareholding requirement. According to Bursa’s listing requirements, an ACE Market-listed company must have a minimum of 200 public shareholders holding at least 100 shares each.
“You must be a sophisticated investor if you want to invest in LEAP companies. If the regulator can relax the shareholder rules, then we can expect more trading activity on the LEAP Market,” says.
Nonetheless, Wong believes the sophisticated investors ruling for the LEAP Market remains relevant, as it provides protection to the general public that may not be mature enough to invest in these kinds of businesses.
“LEAP companies require sophisticated investors that are very knowledgeable or wealthy, until they are eligible to go to the next stage.”
A major criterion to qualify as a sophisticated investor is having an annual income of more than RM300,000. These investors are deemed to have better knowledge of the potential risks and returns of the market.
Launched in 2017, the LEAP Market is an alternative and efficient capital-raising platform for underserved small and medium enterprises. It is a stepping stone for these companies to transfer to the ACE Market or even the Main Market in the future.
Ng says the LEAP Market is a good platform for the marketing and profiling purposes of retailers and fast-moving consumer goods players.
In August 2022, Bursa had issued a consultation paper seeking feedback on proposals to facilitate the transfer of LEAP Market listees to the ACE Market. Among the issues raised were: a LEAP transfer applicant must have been listed for at least two years and have successfully completed its business plan and fully utilised the proceeds raised; and the appropriate price discovery mechanism to be used for determining the price of the transfer.
According to Devanesan, the transition should be made as easy as possible, given that the LEAP market companies are not strangers to the regulators.
He says: “The success of the LEAP market is that it enables the raising of funds, and some companies have gravitated to it. But the continued success of the LEAP market also depends on how easy it is for companies to transition to the more prestigious ACE market — they must see the proverbial light at the end of the tunnel.”
So far, six companies have withdrawn their listing on the LEAP Market, of which only two — Cosmos Technology International Bhd and TT Vision Holdings Bhd — were relisted on the ACE Market.
Under the current framework, LEAP Market-listed companies have to be delisted before migrating to the ACE Market, which means they have to go through a similar IPO assessment process as faced by other non-listed companies.
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