The first corporate adviser has been approved by the Malta Stock Exchange for its new SME listing product, Prospects, with another four at various stages of the application procedure.

Prospects was launched last February to offer a cost-effective alternative source of financing to SMEs who need between €1 million and €5 million.

“The corporate adviser has a very critical role and is a make or break for this particular product,” Cliff Pace, the business development head at the MSE, explained.

“They are the ones who will ensure we have the right companies coming on board, with the right levels of corporate governance and due diligence.”

The MSE has received five applications, three of which have already been accepted, of which only the first – Medfinco – has completed the two-week gestation period. Grant Thornton has been accepted and should get final approval this week, while the third, Demetra, was accepted last week.

Two other applications are being processed and a few more have already expressed interest in applying.

Mr Pace is particularly encouraged about Demetra as it is an Italian corporate adviser, which is very well networked within Italy as well as in Romania, Hungary and Turkey. He has already travelled to Italy, Spain and Istanbul, speaking to various entities, mostly multipliers who might be interested in becoming corporate advisers.

“They are very keen as they have a client base of SMEs who find it very difficult to get to market because of bureaucracy and cost.

The corporate adviser is duty-bound to inform the MSE when the [Prospects] company is doing something that it should not do or is not doing something it should do

“To list on AIM – the closest thing to Prospects – in Milan, they would have to pay €400,000, which is not affordable when a company is only seeking to raise a few million. In fact, AIM in Milan has been open for three to four years but has only 68 companies listed.”

The MSE is suggesting that the cost to come to market should be around €50,000 to €60,000, keeping its own fees between €5,000 and €15,000. The idea is that each corporate adviser would have multiple clients to spread their costs.

Although the corporate advisers are a crucial first step, the MSE is also seeking SMEs willing to take up the product and Mr Pace said that there were already 25 local companies interested and keen to take it forward.

“Some of them are interested in equity but will not move on this until the tax position is clarified. As it stands, they would have to pay tax in the normal manner but we are talking to the Commissioner of Inland Revenue to clarify this issue and see if and how we could introduce fiscal benefits – which would make Prospects much more attractive.

“But many of them are interested in bonds – which are not subject to capital gains tax, the same situation as on the main market.”

As a domestic product, the MSE is not allowed to sell Prospects abroad. However, foreign companies could find investors, come to Malta and list the bond, and make an agreement with a broker here who would then deal with the investors, he explained.

Until now, the only option for local SMEs wishing to raise money outside the main market was through private placement bonds, whose issue are authorised by the Malta Financial Services Authority, but which are then sold privately (see story on page 1).

Mr Pace sees Prospects as an important alternative for investors, particularly because the corporate adviser would be there to ensure that the SME complies with requirements in terms of corporate governance, transparency, market information etc.

“When a Prospects company comes to market, it does so on the basis of a business plan. The corporate adviser is duty-bound to inform the MSE when the company is doing something that it should not do or is not doing something that it should do. In that event, as the regulator, we would come in, look at the gravity of the situation and take the necessary action.

“Investors always remain responsible for the decisions they have taken ­­but the MSE as the regulator and the corporate adviser is there to ensure the necessary information to offer a level of protection for the investor,” he said.

www.smeprospects.com