SECURITIES COMMISSION ANNUAL REPORT 2005
PROMOTING QUALITY COMPANIES – REVISED MESDAQ MARKET ENTRY REQUIREMENTS
Historical Background
The MESDAQ Market, which was launched on
6 October 1997 as the Malaysian Exchange of Securities
Dealing and Automated Quotation (MESDAQ),
originated as an idea in the 7th Malaysia Plan and
germinated in the Securities Commission Concept
Paper presented to the Ministry of Finance in May
1996. It received endorsement in Budget 1997 and its
framework was announced officially to the public in
February 1997. MESDAQ was conceived as a strategy
towards the achievement of Vision 2020 by bringing
together investors and growth companies. In essence,
MESDAQ was to provide a suitable avenue for capital
raising by quality and high growth technology-based
issuers in Malaysia.
In March 2002, as part of the consolidation process
of the exchanges, MESDAQ was merged with the
KLSE, now known as Bursa Malaysia Securities Bhd
(Bursa). The merger between MESDAQ and Bursa
sparked renewed interest in MESDAQ, resulting in a
tremendous resurgence in activity in the renamed
MESDAQ Market.
technology-based, high growth companies easier access
to public funds from the capital market, thus providing
an invaluable alternative to bank loans as a source of
funding.
The MESDAQ Market today remains true to its principal
objective, as encapsulated in the framework for its
establishment.
Recent Developments
With effect from 1 January 2005, the consideration and
approval for listings and corporate proposals on the
MESDAQ Market are undertaken by the Commission,
while Bursa continues to approve admission to the
Official List and quotation for trading of securities on
the MESDAQ Market. Under this new arrangement,
approval for MESDAQ Market corporate proposals
need only be sought from one authority, under section
32 of the SCA, which is in line with the approval process
for Main and Second Board companies.
The MESDAQ IPO Guidelines
The consolidation of the two equity exchanges was a
significant step towards not only the creation of a single
Malaysian exchange as recommended in the CMP but
also the development of a more efficient financing base
for emerging high growth and technology-based issuers
in Malaysia. Since the merger, the number of listings on
the MESDAQ Market grew from five to over 100
companies as at end-2005, raising over RM1.6 billion
through IPOs. In 2005 alone, the MESDAQ Market
recorded 46 new listings, surpassing both the Second and
Main Boards of Bursa, which collectively recorded 33 new
listings. Proceeds raised from IPO were mainly applied
towards business expansion and research and development
initiatives. This attests to the fact that the MESDAQ
Market continued to fulfil its objective in providing
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Objective
Since assuming the role of sole approving authority, the
Commission embarked on a review of the existing entry
requirements set out in the listing requirements of Bursa
for the MESDAQ Market and, on 29 November 2005,
introduced the Guidelines for Initial Public Offerings
and Listings on the MESDAQ Market of Bursa Malaysia
Securities Berhad (MESDAQ IPO Guidelines), which
sets out the requirements relating to IPOs and listings on
the MESDAQ Market. The MESDAQ IPO Guidelines
was formulated to ensure that while the MESDAQ
Market’s objectives are upheld, the MESDAQ Market
will remain resilient, in light of the consolidation of the
SECURITIES COMMISSION ANNUAL REPORT 2005
global technology sector which has seen the closure of
several alternative markets for technology and high
growth companies globally. The thrust of the MESDAQ
IPO Guidelines is to promote quality companies on
the MESDAQ Market and to continue to leverage on
the uniqueness of the MESDAQ Market as a fund-raising
platform with a “technology” focus.
The release of the MESDAQ IPO Guidelines represents
the Commission’s continuous efforts to further enhance
the efficiency of fund-raising, and at the same time
promote a strong, vibrant and credible securities
market, facilitate an orderly development of the capital
market and ensure adequate investor protection.
by the Commission in determining whether companies
are suitable for listing on the MESDAQ Market. This
enables such companies and their advisers to have greater
certainty in making their own assessment of the
companies’ eligibility to be listed on the MESDAQ
Market, before submitting applications to the Commission.
The enhanced requirements in the MESDAQ IPO
Guidelines are aimed at improving the investibility of
the MESDAQ Market companies and focus on the
following:
•
Qualitative attributes to be demonstrated by the
potential issuers. The MESDAQ IPO Guidelines
places great emphasis on issuers’ justifications of their
suitability for listing by demonstrating certain
qualitative attributes pertinent to the nature of their
business activities and growth prospects;
•
Price-discovery process and method of distribution of
securities. The MESDAQ IPO Guidelines
encourages offerings via book-building, while
introducing enhanced requirements for offerings
made via placements;
•
Corporate governance, commitment and accountability
of directors and promoters. The MESDAQ IPO
Guidelines aims to enhance the reliability of financial
forecasts and business plans submitted for the
Commission’s consideration by requiring reporting
accountants to review the profit and cash flow
forecasts submitted to the Commission. Applicants
are also required to submit follow-up questionnaires,
which report on the progress of implementation of
the business development plan over the entire
business plan period and the achievement of financial
forecasts; and
•
Enhanced role of advisers as quality controllers.
Principal advisers are now required to act as lead
underwriter and placement agent, and provide an
Approach
Since the MESDAQ Market is intended as a fundraising platform that caters to young and dynamic
companies with high growth potential but typically
lacking an established profit track record, the MESDAQ
IPO Guidelines focuses on qualitative factors, such as
robust business model and plans, growth prospects,
management strength and integrity, corporate governance
and risk management which can indicate long-term
business viability as well as quality and sustainability
of earnings. Adopting this approach, the Commission
views proposals beyond mere compliance with
quantitative requirements, as these cannot ensure a
company’s suitability for listing and its investibility over
the long term. Advisers are expected to justify to and
convince the Commission on the suitability of the issuers
for listing, supported where necessary by expert reports/
opinions.
Rationale for Its Introduction
The MESDAQ IPO Guidelines makes available clear,
transparent and predictable criteria that will be applied
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opinion on the adequacy of the applicant’s
procedures, systems and controls, as well as the
competency of the applicant’s management.
With greater transparency in the requirements provided
by the MESDAQ IPO Guidelines, applications for IPOs
and listings are envisaged to be more comprehensive and
complete, and should translate into a shorter review and
approval process. The advent of the MESDAQ IPO
Guidelines is also expected to usher in better quality
companies for listing on the MESDAQ Market.
The MESDAQ IPO Guidelines also emphasises the roles
expected of the various stakeholders in a corporate exercise.
In addition to delivering the promises made in the listing
application and business plans, directors and promoters
of the issuer are expected to understand and perform their
fiduciary duties and responsibilities in managing the
issuer as a PLC, complying with laws, regulations and
rules applicable to the issuer’s business and listing, and
safeguarding the rights and interests of shareholders,
including the minority shareholders. In this regard,
advisers as sponsors, are also expected to play a greater
role in nurturing the issuer and ensuring that the directors
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and promoters understand their duties and accountabilities
during the sponsorship period before and after listing.
Moving Forward
The Commission is currently in the process of developing
guidelines governing post-listing transactions and
fund-raising proposals. The publication of the second
instalment of guidelines for the MESDAQ Market will
provide a complete set of comprehensive requirements
for MESDAQ Market aspirants and listed companies
to raise funds from the capital market and embark on a
myriad of corporate proposals.
The MESDAQ Market is intended to be an exchange
for smaller high growth companies and hence, its
regulatory regime should be relatively more flexible and
facilitative than that for the main market. As a public
exchange, it is accessible to all types of investors, retail
and institutional alike. Thus, a delicate balance must be
struck between ensuring a facilitative regulatory regime
that is sufficiently attractive for targeted companies, and
yet ensuring that investors are adequately protected.