The Malta Stock Exchange (MSE) will soon be rolling out Prospects, a new capital markets platform geared towards offering a cost-effective admissions solution to small and medium size enterprises (SMEs) looking to raise between €3-5 million in capital.
Ninety-nine per cent of all companies in Europe are categorised as SMEs employing some 65 per cent of Europe’s private sector work force. Small and medium size companies employ less than 250 people; in most cases they employ less than 10. Almost all companies in Malta fall within this category and are found in all industry sectors.
One of the challenges facing most SMEs is the difficulty in attracting capital. Although Malta has its fair share of smart and industrious entrepreneurs, their capacity to grow, either through merger and acquisition or intrinsically, is very often curtailed due to limited access to cost-effective capital. Banks, the traditional source of finance to businesses, very often utilise stringent credit screening processes, and when a loan is finally approved it is often tied to onerous collateral requirements. Because of these factors, many entrepreneurs, particularly those with limited assets, have their only opportunity to grow through accumulating and reinvesting profits, through family finance or seeking capital from private investors, usually at very high costs.
However, it is anticipated that within a month, the MSE will open Malta’s capital market to small businesses, allowing for a major paradigm shift in how local companies attract capital enabling them to grow, create jobs and to bolster our economy.
SMEs have always faced significant barriers to raising capital, primarily due to high costs. For example, the largest companies trading on the Malta Stock Exchange are subject to annual listing fees of over €115,000 and many of these companies raise capital in excess of tens of millions of euros. For an SME with much smaller financing requirements, the new Prospects SME market can be the perfect venue to raise capital. The annual listing costs associated with this type of capital raising is very affordable, and is dependent on the company’s market capitalisation. These costs are significantly more affordable than traditional listing options.
Prospects will be major paradigm shift in how local companies attract capital
One of the issues that many of Malta’s 30,000 active small businesses face is the lack of corporate governance culture and expertise in regards to maintaining proper governance and compliance processes. Once a company offers shares or bonds to the public, they have serious legal and governance obligations to investors. To ensure the rights of these investors are upheld, not only is a board of directors required, but a corporate advisor sanctioned by the Malta Stock Exchange must ensure that proper compliance, transparency and accounting protocols are adhered to.
SMEs will have an extensive list of Exchange-approved corporate advisors from which to choose. To be selected as a corporate advisor, a person must demonstrate to the MSE authorising committee that they possess the competence and experience to counsel on matters relating to law, audit, accounting, governance and compliance. It is the advisors’ responsibility to ensure these small companies, many of which may lack a history of sound corporate governance practices, comply with industry best practices.
Besides Prospect’s cost-effectiveness, the time to market will be significantly shorter than traditional means to market, primarily because the SME Exchange will be self-regulating. Considering that the application process will be online, approval by Prospect’s admissions committee can be granted in less than a month.
Prospects is a trading system that facilitates the exchange of financial products between parties and is not regulated by the MFSA but supervised by the Malta Stock Exchange. Although the Exchange will screen thoroughly all companies applying for admission, investors should tread cautiously and consult a competent advisor prior to investing in these higher risk investments.
The Exchange will officially roll out Prospects to the public on February 17 at the Le Meridien Hotel, St Julian’s at 9am. If you desire to become an Exchange-sanctioned corporate advisor or would like to learn more about Prospects e-mail events@borzamalta.com to reserve your place.
Joseph Portelli is the chairman of the Malta Stock Exchange.