We follow up on our client alert from March 2016, in which we considered the consultation process initiated by the Securities Commission of Malaysia (the Securities Commission) with respect to its proposed policy changes on the listing of mineral, oil and gas (MOG) corporations, with a look at the Securities Commission's new framework for the listing of MOG corporations, which will come into effect on 20 March 2017.
In March 2016 we produced a client alert in which we considered the consultation process initiated by the Securities Commission of Malaysia (the Securities Commission) with respect to its proposed policy changes on the listing of mineral, oil and gas (MOG) corporations on the main market of Bursa Malaysia Securities Berhad (Bursa Malaysia).
Following on from the consultation process, the Securities Commission has produced a new framework (the New Framework) for the listing of MOG corporations which will come into effect on 20 March 2017.
MOG corporations seeking to list on Bursa Malaysia's main market previously encountered a somewhat opaque process as there were no clear guidelines in relation to eligibility, and decisions were made on a case-by-case basis. Consequently, the New Framework is a welcome development and it is hoped that it will lead to increased certainty for MOG corporations considering a listing and, ultimately, an increase in the number of MOG corporations listed on Bursa Malaysia.
In developing the New Framework, as well as utilising the consultation process which we discussed in our previous client alert, the Securities Commission carried out a thorough review including jurisdictional benchmarking and engagements with investors and industry experts. Below, we consider the New Framework and its implications going forward.
Aim of the New Framework
The aim of the New Framework is to provide clarity on the types of MOG corporations which the Securities Commission will consider as suitable for listing on the main market of Bursa Malaysia. The New Framework covers initial public offerings and also extends to acquisitions of MOG corporations by listed companies and special purpose vehicles.
In its announcement on the launch of the New Framework, the Securities Commission stated that "these new regulatory measures would enable investors to make better informed decisions on the merits and risks of investing in MOG businesses, which is in line with the Securities Commission's mandate of ensuring a fair and orderly capital market".
The Securities Commission also stated that "the new guidelines would provide additional fundraising avenues for MOG corporations and in turn broaden investment options for investors".
The New Framework will be implemented by way of amendments to the equity guidelines (this is where the majority of changes have taken place), prospectus guidelines and asset valuation guidelines comprised in the listing rules.
Key additions/amendments
The key additions/amendments resulting from the New Framework are as follows:
- As proposed in the Consultation, where a company (the Applicant) is seeking to list, its primary activity will be considered to be MOG when its MOG activities represent 50 per cent or more of any one of its group total assets, revenue, operating expenses or after-tax profit
- The Applicant must be able to demonstrate that it will have acceptable levels of working capital for at least 18 months from the date of the prospectus.
- The external auditor and, where required, reporting accountant appointed by the Applicant must have relevant MOG experience or extraction industry expertise
- The Applicant must be in possession of the relevant legal rights for exploration or extraction activities in respect of the MOG assets.
- The Applicant must have at least one independent director with the appropriate MOG exploration or extraction experience or expertise at the point of listing.
Comment
It was previously unclear to those engaged in the exploration and extraction of MOG resources exactly when the Securities Commission would consider their corporation ready for listing. The introduction of the New Framework provides additional clarity in this regard and Applicants should now have clear guidelines to work towards. Furthermore, the changes should also reduce the amount of time and cost that can potentially be wasted by Applicants who are rejected for reasons that the listing rules were silent on.
Those elements of the New Framework which focus on minimum working capital requirements, advisor expertise and certainty of ownership are also to be welcomed as they should help to promote quality and credibility among Applicants and thereby protect investors.
However, whether the roll out of the New Framework will result in an increase in the number of MOG corporations listed on Bursa Malaysia still remains to be seen. As highlighted in our previous alert, there needs to be a parallel investment in relevant expertise across the capital markets sector in Malaysia so that MOG corporations are better understood by sponsors, brokers, analysts, legal and accounting advisors and, ultimately, investors. Such an ecosystem requires time and a build-up of capital investment and it is hoped that in developing the New Framework the Securities Commission has given market participants the encouragement to do so.
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