CHAPTER 1 INTRODUCTION
2.2. Initial Public Offerings (IPO)
2.2.2. Listing Process
Before a private company can enter the public market, it is a general step to go through due diligence which is a necessary step in order to analyze the value of the company. Due
diligence is done by registered and licensed accountancy firms and their task is to review the company’s financial statements, business operations, and every other aspect of the company.
After due diligence is conducted, the company is valued and the number of shares is also resolved. Additionally, the company will need help from an underwriter to go through the process of underwriting the IPO stocks. Underwriting is a contractual agreement between the company and the underwriter where the underwriter commits to promote and sell the IPO shares once the company is publicly listed. In return, the underwriter receives a commission from the stock sold in the market.
Other specific steps in the process of going public may vary in different stock exchanges, as discussed in the following sections.
2.2.2.1. Singapore Exchange
There are two listing categories in the Singapore Exchange (SGX), namely the Mainboard and Catalist listing options. According to the SGX website, the Mainboard listing caters to established enterprises and gives them admission to an established market place where a wide range of potential investors is available. Meanwhile, the Catalist listing caters to fast-growing enterprises and requires authorized sponsors to publicly list them in the market through the issuance of IPOs and reverse take-over.
According to Gay, Zhuang, and Zhaoqi (2016), before a company can apply for a listing on the SGX Mainboard, it has certain quantitative qualifications to meet. Meanwhile, companies that wish to apply on the SGX Catalist board do not have such quantitative qualifications to meet but are rather required to have an approved full sponsor that will list them on the board.
First of the quantitative qualifications for issuers seeking a Mainboard listing is that they must have a minimum one-year track record, which will be used to undergo the three test requirements. In order for the company to be qualified for a listing application, it must pass at
least one of the profitability or market capitalization tests. The corresponding test to be used is dependent on the company’s profits and/or market capitalization. It was also specified that REITs and Business Trusts that can meet the SGD300 million market capitalization test but have no record of historical financial information can still apply considering that they are able to demonstrate an operating revenue immediately upon listing.
As stated in the Singapore Exchange website (n.d.), the IPO listing process in SGX is as follows: (1) Evaluation and planning stage, (2) Preparation stage, (3) Execution stage, and (4) Realization stage. The evaluation and planning stage includes the assessment of financial performance and business plan, market conditions and available options for the company, requirements, resources, and meeting up with other professionals who can assist in the whole process of going public. After this stage is the preparation stage where official management and finance teams are put together by the company to strategize and plan corporate restructuring along the process, collate financial information, and establish an IPO timetable. The execution stage involves due diligence, prospectus preparation, completion of corporate reorganization and financial information, recruitment of non-executive board members and audit committee, discussion of shares pricing and company valuations with designated advisers, and management of the brand and market positioning with designated advisers as well. Finally, the realization stage involves the submission of the prospectus to Singapore authorities and regulators, addressing concerns and follow-up inquiries, conducting IPO roadshows, and once everything is approved and finalized, the IPO is then launched to the public market.
2.2.2.2. Bursa Malaysia
There are three listing markets in Bursa Malaysia: the Main Market, ACE Market, and the LEAP market. The Main Market caters to established companies that meet the standards in terms of size, quality, and operations. Companies that wish to list in this market must meet a
required minimum profit track record or minimum size of market capitalization, which will be discussed in this section. ACE Market caters to companies with growth prospects and requires sponsors who will assess the suitability of the issuers and review business qualities. Meanwhile, the LEAP Market is an adviser-driven market that caters to both small- and medium-sized enterprises, aimed to provide greater fundraising access and visibility through the capital market. This market has limited access to sophisticated investors as stated under the Capital Markets and Services Act of 2007 (Bursa Malaysia, n.d.a).
As stated in Bursa Malaysia’s website (n.d.a), companies that wish to be listed in Bursa Malaysia’s Main Market must meet certain quantitative criteria. The first test is called the Profit Test, which declares that a company must have made use of one core business over at least the profit performance history preceding the submission. Aside from this, a company must also have an undisturbed collection of profit for at least three to five financial years with an aggregate after-tax profit of at least RM 20 million or about USD4.7 million and have an after-tax profit of at least RM6 million or about USD1.4 million in the latest financial year. The second test is the Market Capitalization Test, which requires a company to meet at least a total of RM500 million or USD119.6 million market capitalization consequent to its listing application and must have incorporated an operating revenue for at least one full financial year prior to submission. Lastly, the Infrastructure Project Corporation Test, which states that a company must have the right, given by the government, to establish an infrastructure project in or outside the country, with a forecasted cost of not less than RM 500 million or USD119.6 million. Additionally, a company must have a working permit of at least 15 years from submission.
According to the Practical Guide to Listing on Bursa Malaysia found on Bursa Malaysia’s website (n.d.b), the general listing process is as follows: (1) Submission process, (2) Approval process, (3) Post-approval process, and (4) Admission process. There are 11 steps mentioned
in the guide. The first step is appointing professionals as principal advisers who will assist you through the process of going public. The second step is implementing organizational changes, composing the company Board of Directors, and other control frameworks in the company. The third step is appointing independent directors to the Board of Directors which is a special requirement under the Bursa Malaysia stock exchange. According to Bursa Malaysia requirements, there must be at least two independent directors or ⅓ of the total Board members. The fourth step approaches the method of listing and company valuation with the principal advisers, underwriters, and other officers assigned for this task. The fifth step is preparing the documents for submission. This is where all documents, such as the prospectus and application documents, are finalized and compiled. The sixth step is submission and review by the authorities and will go through a public exposure period of 15 days to get public feedback. During this step, the authorities may have concerns and questions regarding the listing request that the company management will have to attend to. The seventh step is the approvals done through the issuance of a letter of approval by the Securities Commissioner.
The eighth step is the registration of the prospectus, which includes the application of necessary revisions and updates on the documents, finalization of the underwriting agreement with the underwriter, scheduling of final legal verification for the prospectus, and public distribution of the Prospectus. The ninth step is investor briefings on the offering period of the IPO and this is also when campaigning and roadshow activities are employed. The tenth step is the balloting of the applications will begin. This is when a company shares will be assigned to successful investor applicants. Finally, the eleventh step is the IPO listing that is marked by a listing ceremony at Bursa Malaysia’s official website.