'Prospects' - a New Product providing access to Malta Finance for SMEs

SME Listing on Malta Stock Exchange

Dr. Maria Chetcuti Cauchi | Published on 17 Feb 2016

SME Alternative Listing

Today the Malta Stock Exchange launched ‘Prospects’, a new product aimed at facilitating access to Malta finance through a new capital market to be utilised by Small to Medium Sized Companies (SMEs). This new product will provide SMEs an opportunity to seek access to Malta finance in a different and separate mode from the traditional finance sought through banks or other financial institutions.

In a presentation delivered at Le Meridien Hotel, St Julians, the finance Minister Professor Edward Scicluna; Mr Joseph Portelli, Chairman of Malta Stock Exchange; Ms Eileen Muscat, CEO of the Malta Stock Exchange; Mr Cliff Pace, Business and Product Development Manager at the Malta Stock Exchange gave a thorough presentation on what this new capital market has to offer. The presenters explained the concept, benefits, operations, and requirements that are of relevance to this product and how SMEs and stakeholders can participate therein.

Although SMEs can currently access capital markets through the Main Market and the Alternative Companies List, the MSE believes that there is room for a more flexible and cost-effective market that provides more desirable solution while ensuring transparency and good corporate governance, a benefit to the investor.

Background

It is a fact that SMEs are the backbone of most economies and when the latter need access to finance to expand their operations and continue to generate jobs, they usually faced with a financing gap due to a lack of providers of risk capital. Today’s SMEs are overly dependent upon banks, family finance and retained earnings which limit the economic multiplier. Surveys have consistently reported that Maltese SMEs have difficulty accessing sources of finance. 99.9% of Maltese companies are classed as SMEs with 4.8% as being small to medium sized and 95.1% being micro organisations. Most SMEs are family-run businesses.

With this background in mind, the MSE presented a new capital market solution that addresses the needs of the above organisations. There may many reasons why SMEs might not fully benefit from access to the main, traditional capital market for the issue of equity and bonds. The reasons may vary from matters related to costs, compliance and marketing levels and level of control to be released.

Prospects – New Access to Malta Finance

‘Prospects’, as a new market targeted at SMEs is intended to address access to Malta finance for amounts between €1 million and €5 million. This new market also does not intend to set a minimum threshold of equities in public hands, so SMEs would be able to raise equity capital without relinquishing a significant percentage of their shareholding. ‘Prospects’ will also cater for the issue of corporate bonds and other types of instruments.

‘Prospects’ is MIFID compliant, with the capital market using a multi-trading facility (MTF) structure. Admission of the company to the Malta Stock Exchange will be granted with the involvement of a corporate advisor who will be lead advisor for admission and will be retained post admission. Access to ‘Prospects’ will be done through a relatively simple process that will require a business plan and appropriate corporate structure and compliance procedures.

This new product will not only give SMEs access to Malta finance in an alternative manner but will also brand the relevant company through a robust infrastructure for admission on the MSE hence ensuring. This would build up investor confidence in the products available and will enhance the listed company’s reputability and standing within the community.

The Role of the Corporate Advisory Firm

‘Prospects’ presents the new role of the Corporate Services Provider who has the responsibility of ensuring that the company achieves the right levels of corporate governance and transparency. In contrast to the role of the sponsor during a main market IPO, the corporate adviser is to be retained post-IPO stage. This role is intended to bring the SMEs’ corporate governance structure up to scratch and ensure robust due diligence, hence safeguarding investor protection and promoting transparency.

The Future of Malta's SME Market

In a previous interview, Mr Cliff Pace commented that “This new market would be a very important tool in succession planning, particularly for family businesses. Companies in the second or third generation stage often have family members who want to sell part or all of their shareholding, but at the moment they have limited avenues … The problem becomes particularly acute by the time you get to the third generation as the shareholding by then has become much more diluted. Prospects would create the opportunity to sell that share-holding on the market, as they can be freely traded on the Exchange, particularly if the shares are put on to the market by the second generation, creating a market ready for the next one”.

The above, coupled to the fact that there is plenty of evidence to show that listed companies outperform non-listed ones, in terms of turnover, employment and profitability, places ‘Prospects’ in a very favourable position as a forward-looking solution for companies seeking access to Malta finance.

The launch event was closed off with an invitation by the Honourable Finance Minister and MSE representatives for comments, suggestions and feedback from the floor and all stakeholders involved in the launching of ‘Prospects’ and ensuring its success.

The Malta Stock Exchange has, in the last year, implemented a plan to expand its horizons and provide more solutions to a vast array of organisations. Prospects is another of such initiatives. As was previously pointed out by Mr Pace, “This initiative will be a new opportunity for SMEs to access the capital markets in order to grow, and will allow investors the opportunity to participate and benefit from their growth to the extent that they are comfortable with.”

Chetcuti Cauchi's Capital Markets Practice

Chetcuti Cauchi Advocates' capital markets practice acts as a point of reference for small businesses seeking to expand their operations. Through Prospecta, we shall be acting as a licensed and recognised corporate advisor. Our role will ensure that our client companies will set up an efficient corporate governance system which is fully transparent throughout the entire admission process and after this has been completed.

Press Release by the Ministry of Finance: Malta Finance Minister inaugurates Corporate Advisory Firm for SME Listings on Malta Stock Exchange

 



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