the IPO (Initial Public Offering) listing process in Malaysia
Malaysia has been seeing a positive uptrend in the Initial Public Offering (IPO) market, with 29 companies listed in 2021 and 31 successful IPOs in 2022.
The massive success of such companies is encouraging other business owners and entrepreneurs to explore IPO options and learn the specific IPO listing process in Malaysia.
As a number of things are involved in an IPO, companies often have to go through extensive IPO readiness assessment with the help of pre-IPO advisory services to ensure the company is ready to become public.
What is an IPO?
An IPO is the process by which a private corporation goes public and starts sharing shares with the public through new stock issuance. It is typically done to raise equity funds.
In Malaysia, you have to deal with three platforms in the securities market: the main market, the ACE Market, and the LEAP Market of Bursa Securities Malaysia Berhad. These are collectively known as the Markets.
The rules, regulations, and requirements related to IPOs are discussed in the standards set by specific Markets as well as the Capital Markets and Services Act 2007.
5 Steps of the IPO Listing Process
Following are the five major steps that a private company has to take to go public through an IPO process:
1. Choose an Investment Bank
A very important step in the IPO process is to select a suitable investment bank that provides guidance to the company about its IPO and offers thorough services to deal with the complexities involved in and after the IPO.
Some of the major qualities that you should look for in your investment bank are:
- Good Reputation
- Known for great research
- Vast knowledge, experience, and expertise in dealing with public companies
- The capability of the bank to issue securities to institutional investors.
Generally, if you have hired professional pre-IPO advisory services, you should have no problem selecting a suitable bank as per your requirements because these experts, the pre-IPO advisory service provider, will be guiding you throughout the process.
2. Legal Filings
In order to assist the company in selling its initial batch of shares, an investment bank (the underwriter) acts as a broker between the organization and the investing public.
Public offerings could be managed solely by one underwriter or by a number of managers. One investment bank is chosen to serve as the primary or book-running manager when there are many managers.
In such a contract, the lead investment bank establishes strategic partnerships with other banks to create a group of underwriters, each of which sells a portion of the initial public offering (IPO). Such a contract is necessary when the main investment bank wishes to spread out the IPO risk among other banks.
The corporation has to focus on the following underwriting options:
3. Firm Commitment
According to this arrangement, the underwriter buys the entire offer and then resells the shares to the buying public. The business is certain that a specific amount of money will be raised due to the firm commitment underwriting structure.
4. Best Efforts Agreement
The underwriter is not required to guarantee the amount they will raise for the issuing business under such an arrangement. Only on behalf of the corporation does it sell the securities.
5. Underwriting Agreement
The letter of intent is valid up to the securities’ price, at which point the underwriting agreement is signed. After that period, the underwriter is legally required to buy the issue from the corporation at a given price.
6. Registration Statement
The registration statement includes details about the initial public offering (IPO), the company’s financial statements, the management’s experience, insider holdings, any legal issues the company may have encountered, and the ticker symbol the issuing company will use when it lists on the stock exchange. Once the specifics of the offering have been agreed upon, the SEC mandates that the issuing business and its underwriters file a registration statement.
The effective date is established upon the SEC’s approval of the IPO. The issuing company and the underwriter choose the offer price (i.e., the price at which the shares will be offered by the issuing company) and the specific number of shares to be sold on the day before the effective date.
Pricing must be set with due diligence because it affects the overall success of the IPO and the future progress of the company in achieving its goal.
Generally, it is set as per the research obtained during the pre-IPO advisory stage.
The underwriter is responsible for offering analyst recommendations, post-market stabilization, and building a market for the issue’s stock after it has been released to the public. In the event of order imbalances, the underwriter performs after-market stabilization by acquiring shares at the offering price or below it.
9. Transitioning to Market Competition
Transitioning to market competition is the final stage of the IPO process. It typically starts after 25 days of the IPO. This is the stage in which investors transition from relying on standards to specific market forces to gather information about their shares.
In a Nutshell
The success of an IPO is dependent on many different factors. While there are many successful IPOs, there are also many companies that fail to make the cut and become public.
This is the reason why relying on professional pre-IPO advisory services and comprehensive IPO readiness assessment is important to ensure a smooth and successful IPO.