This article first appeared in Capital, The Edge Malaysia Weekly on December 18, 2023 – December 24, 2023

SETTING the requirement of RM1 billion in market capitalisation for at least a six-month period and a profit track record is a fair move under the newly unveiled accelerated listing transfer framework for ACE Market-listed players seeking a move to the Main Market of Bursa Malaysia, according to market players. This compares with at least RM500 million in market cap under the existing listing transfer framework.

Astramina Advisory Sdn Bhd founder and managing director Datin Wong Muh Rong is pleased with the Securities Commission Malaysia’s (SC) move to further relax the rules for listing transfer, especially when the listed companies are of a certain size in terms of market cap and profits.

“If companies can have a RM1 billion market cap for six months, it means these companies, in the eyes of the capital market, have reached the standard of the Main Market, so they should be automatically invited to transfer to the next level. While not all, but typically, companies that have reached a certain size in terms of their market cap and profits, will attract higher quality shareholders. Thus, these companies pay more attention to governance issues, whether or not the authorities impose it,” she tells The Edge.

Financially, an ACE Market-listed firm is required to achieve an aggregate audited profit after tax (PAT) of at least RM20 million for three to five financial years and a PAT of at least RM6 million in the most recent financial year. At the same time, it has to achieve a sufficient level of working capital for at least 12 months, positive cash flow from operating activities and no accumulated losses, as well as a public shareholding spread requirement of at least 25%.

The applicant must have been listed on the ACE Market for at least a year and have been operating the same core business for the three most recent financial years.

According to the revised equity guidelines, in considering a transfer of listing proposal via the market capitalisation test and the accelerated transfer process, the SC will take into account any past record of unusual market activities or other events which may have adversely affected the fair and orderly trading of the listed securities, including any designation or trading restrictions imposed by Bursa Securities up to the past one year prior to submission to the SC.

Ong Eu Jin, a partner at Rosli Dahlan Saravana Partnership who advises companies on initial public offerings (IPOs), is of the view that the RM1 billion market cap threshold is reasonable given that the share price performance is correlated with the company’s fundamentals. Although the simplified listing transfer framework may speed up the entire process, he cautions that there are qualitative assessments in the application such as the level of corporate governance.

Genetec Technology Bhd, for example, had to enhance its corporate governance by raising the number of independent directors on its board to more than 50% and women directors to 30% before being granted approval to transfer its listing to the Main Market.

Companies seeking a transfer of listing from the ACE Market to the Main Market recently include Cnergenz Bhd, UMediC Group Bhd and Hextar Industries Bhd (formerly known as SCH Group Bhd). With their stellar financial performance, Cnergenz and UMediC made their listing transfer application slightly more than a year after being listed on the ACE Market.

In a statement last week, the SC said the faster path to the transfer of listing beginning in January 2024 is part of a slew of capital market measures to improve stock market vibrancy and reduce market friction. It is believed that more ACE Market-listed companies will make the effort to improve their corporate values and achieve sustainable growth for shareholders.

SC chairman Datuk Seri Dr Awang Adek Hussin noted that the transfer to the Main Market was for greater visibility and access to a larger pool of investors, including foreign and institutional investors.

Areca Capital Sdn Bhd CEO Danny Wong says a company’s financial profile is more important for institutional investors, regardless of where a company is listed. “Most investors, especially institutional funds, will look at the liquidity and prospects of each company, rather than whether they are on the ACE or Main Market. Their earnings performance is more important.”

Having said that, he expects that the SC’s latest move will help encourage companies to kick-start their journey to the ACE Market.

“I know some companies don’t want to go to the ACE Market because there is a perception that they’re not as good as companies listed on the Main Market. But now, they may want to list on the ACE Market while waiting to be qualified for the Main Market,” he adds.

Meanwhile, Astramina Advisory’s Muh Rong is calling for the regulators to consider implementing the accelerated process for transfer of listing from the Leading Entrepreneur Accelerator Platform (LEAP) to the ACE Market. “Companies that have reached a certain size, especially in terms of profits, should be considered for an accelerated transfer to the ACE Market,” she opines.

Note that the LEAP-to-ACE transfer framework came into effect on April 1. Prior to that, LEAP Market-listed companies had to delist before they could submit an application for a listing on the ACE Market.

“Good quality companies will definitely be of interest to investors, not just sophisticated investors. By allowing the accelerated market transfer, this will not just encourage more listings, whether on the LEAP Market or ACE Market, but also spur all companies to do better,” she says.

“This is because they know that their better performance will be rewarded with a higher status — an accelerated market transfer. This is a low cost but extremely effective way to bring more vibrancy to Bursa. This encourages more listings and, at the same time, liquidity also improves because we have better quality companies.”