Initial LEAP listings unlikely to test rule limits of new market yet

PETALING JAYA: The Leading Entrepreneur Accelerator Platform (LEAP), which is set to see its first listing next Tuesday, is unlikely to see initial listings testing the complaisant nature of the new market’s rules yet, as one industry player pointed out, bridled by the nature of current small and medium enterprises and investors mindset.

The listing requirements for the LEAP market are less stringent than for the other two markets in terms of company track record, focusing more on the future prospects of the enterprise.

A case in point is the market’s first listing, Cloudaron, which under its founder Ong Chang Jeh has been around since 2010. It has a presence in Singapore, Indonesia and Malaysia and has total assets of RM58 million. For the financial year ended March 31, 2017, the company made a net profit of RM5.2 million, 3,818.2% higher than the RM126,000 made for the same period in financial year 2016.

A senior capital market player who spoke to SunBiz on condition of anonymity said while the requirements on paper for the LEAP market are very lenient, ideally companies opting for listing are those which already have a track record, and are in the “toddler” stage of growth rather than at infancy level.

“Some of the companies we look through, they are very much new startups. The guideline doesn’t say you must have been in operation for three to five years like (that for) the ACE Market. But it doesn’t mean you have a business venture that you started but you have not even generated sales or profits, you are ready for the LEAP market because this is not innovative SMEs like Silicon Valley,” he said.

"We usually look at historical business revenue to show that you (companies) have already commercialised your products. You’ve already manufactured your products and have a bit of profitability to show you can grow with (capital) injection,” he added.

He opined that Malaysian investors are also not used to investing in “real” startups compared to investors in the Silicon Valley, which is also the reason why Multimedia Super Corridor-status (MSC-status) companies have struggled to raise money in the past – hence the need for a track record.

The banker said evaluating a LEAP market listee is, however, easier compared to the ACE and the Main markets, as most SMEs only have a single core business but the former two may have four or five core businesses.

The size of the company, the industry it is functioning in and the experience and history of the individual manning the business are among the areas of scrutiny.

DWA Advisory Sdn Bhd managing principal Datuk Wan Asmadi Wan Ahmad, however, said even startups or ventures which are on the drawing board level can list, as long as they possess growth prospects and have the ability to sustain themselves.

“In terms of eligibility of listing of SMEs on Bursa Securities, we would need to look at numerous things. Among them, we would be looking at sustainability of the businesses,” he added.

Unlike the ACE and the Main markets where established businesses are listed, the LEAP market looks at businesses that have the potential to grow but have not charted their growth story yet.

“For example, if the company is involved in a certain business that we know that there would be a good market for that type of product/service/business and that the market is still relatively untapped, then there would be a possibility that this specific company could actually grow regionally rather quickly – but may have some funding requirements that it would need to address first,” he added.

Adding on, senior principal Farid Rahman said companies should have the intention to grow as the LEAP market is seen as a gateway to accessing more capital.

He added that it is important for companies to have a vision to eventually graduate to the other two boards instead of remaining in their comfort zone.

Wan Asmadi opined that institutional investors should treat the LEAP market as a pre-initial public offering (IPO) and look to participate more in it. He noted that the participation of institutional investors is limited in the ACE Market as well.

“At this moment, while it is still rather preliminary, we foresee more participation from private investors as we have been made to understand that various fund managers and government-linked investment companies/agencies currently do not have blanket mandates for equity investments into this class of assets,” he said.

“As we progress, we hope institutional investors would have an allocation to invest in LEAP market companies and would see LEAP market companies as pre-IPO companies for investment and as an asset class, where the investors will get the upside upon their migration to the ACE and Main markets," he added.

According to Wan Asmadi, the LEAP market serves as a “feeder” or interim market which could possibly enable companies to skip the ACE Market and head directly to the Main Market.