PROSPECTS – a new tool for SMEs to access capital markets

Small and medium-sized enterprises (SMEs) represent a substantial percentage of the total businesses in Malta.  In the EU the percentage is as high as 99% of all the businesses, so it is crucial that measures are undertaken to support their growth and innovation. However, one of the most important issues facing SMEs all over the European Union is their difficulty to access finance.

As from 2016, Maltese SME’s can access the capital markets through ‘Prospects’ - a platform operated by the Malta Stock Exchange (MSE) which is specifically designed for SMEs. ‘Prospects’ offers a cost-effective opportunity for entities looking to raise from €1 million up to €5 million per issue. ‘Prospects’ opens up new capital market opportunities, create economies of scale and will help businesses become more competitive and sustainable.

‘Prospects creates an opportunity for SMEs to access capital markets in a relatively easy and efficient way and to benefit from the advantages which so far, have been available only to much larger companies.

Maltese businesses mainly consist of family businesses and such businesses have passed on from one generation to another for a number of years.  However, it is a well known fact, that on average, most businesses do not manage to make it past the third generation.  The reason being that such family owned businesses will not manage to grow further due to the limited access to finance and cost effective capital.

Furthermore, Maltese family owned businesses are reluctant to allow third parties to invest in their business, fearing that they will not manage to retain control over what they have built over the years.  On the other hand, they also fear the fact that their descendants might not have the knowledge, the expertise, the ability and the finance to continue growing their business.  Succession planning  is an important part of a business strategy to grow and to ensure continued growth.

For such Maltese SME’s, ‘Prospects’ can be the perfect opportunity to raise capital either by issuing new equity or bonds. ‘Prospects’ aims at facilitating access to fund raising, potentially offering a more cost-effective and easier-to-access alternative to other traditional means, such as bank loans. Moreover, admission to ‘Prospects’ opens up the opportunity of eventual listing on the main market.

Costs and time

The application fee for admission to ‘Prospects’ is €5,000 whilst annual fees applicable for companies with a market capitalisation of up to €5 million, is €5,000 per annum. Consequently, admission fees as well as annual listing costs are significantly less when compared to the costs incurred by companies whose stocks and shares are traded on the main market of the Malta Stock Exchange.

Besides costs, the time to list the equity or bonds is another important factor.  It is expected that the listing time on ‘Prospects’ will be between four to twelve weeks, taking into account the compliance requirements, preparation and submission to the MSE of the application and supporting documentation and discussions with the MSE amongst other things.

The Corporate Advisor

For a company to list on ‘Prospects’, it must appoint a corporate advisor who would have already been approved by the MSE.  The role of such a corporate advisor is to draft and submit the Company Admission Document, prepare all the required relevant documents, as well as carry out the necessary due diligence checks on the applicant SME.  The corporate advisor must ensure that the SME company will at all times have proper compliance procedures in place, it is transparent and all accounting, legal, corporate and regulatory rules are adhered to.

Foreign Companies

‘Prospects’ is not only available to Maltese companies, but is also available for foreign companies seeking alternative finance.  Malta has a number of advantages which attract other foreign SMEs.  These include a tax efficient system, a leading global financial centre, a good education and health system, a stable Government, EU membership and a member of the Euro zone, an English speaking work force, reasonable costs and fees, a good pool of professional people in the legal, tax and finance sectors together with a sound banking system amongst other factors.  Malta is the ideal choice for foreign SMEs to relocate their business and workforce to.

Conditions

  1. The company must be an SME as defined by the European Union

  2. The Initial Public Offering shall not exceed €5 million

  3. The issue is to be subscribed from less than 150 investors from any single jurisdiction

  4. A Company Admission Document, together with the other supporting documentation including a business plan must be submitted

  5. The applicant for ‘Prospects’ must have a minimum issued share capital of €46,587

How can we help?

ACT Prospects Limited, a company which forms part of the ACT group of companies has been approved by the Malta Stock Exchange to act as a Corporate Advisor on its ‘Prospects’ platform.

ACT is able to offer to a one stop shop to advise and assist SME’s in listing their bonds and shares and obtain new financing by means of ‘Prospects’.  We will be able to follow through the whole process and then assist in the various compliance requirements.  Through its in-house expertise, ACT also offers accountancy, tax, corporate, business advisory services and other subsequent ongoing compliance services so as to be able to adhere to the ‘Prospects’ rules.

For further information, please contact the firm’s tax and corporate services partner Stephen Balzan on sbalzan@act.com.mt

Apart from its offices in St. Julian’s Malta, ACT operates from a second office in Gozo, which is situated in the capital city of Victoria.  For an appointment in our Gozo office, please call on 00356 21378672 or send us an email on info@act.com.mt.

Disclaimer  

This article contains general information only and is not intended to address the circumstances of any particular individual or entity. ACT, by means of this article is not rendering any accounting, business, financial, investment, legal, tax, or other professional advice or service. This article is not a substitute for such professional advice, nor should it be used as a basis for any decision or action that may affect your finances or your business. Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. Before making any decisions or before taking any action that may affect your finances or your business, you should consult a qualified professional adviser. ACT shall not be responsible for any loss whatsoever sustained by any person who relies on this article.  

29th March 2017

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