Malta Stock Exchange: European Capital raising now easier for SMEs
While larger enterprises often steal the limelight, small and medium-sized enterprises (SMEs), very often being family businesses, make up the very backbone of most economies, with SMEs constituting most companies within the EU.
In Malta, 99.9% of Maltese companies are classified as SMEs, with 4.8% classified as small to medium enterprises and 95.1% classified as micro organisations.
Despite making up a considerable part of our economic and employment growth, SMEs still struggle to find opportunities for investment. Such lack of finance options, needed to expand a company’s operations and generate more jobs, has resulted in SMEs becoming more dependent on banks, family finance and retained earnings. In fact, the more traditional types of financing sources that have been utilised on average by SMEs during their life cycle include internal equity finance, represented by owner-manager personal savings; venture capital; external equity, including business angels; debt financing; trade credit and bank funding. In today’s economic environment such dependence on the above has limited SMEs’ economic multiplier effect.
Recognising the crucial role that capital markets could play in this regard, and the problems faced by SMEs in listing on traditional main lists, the Malta Stock Exchange (MSE) has created a new product that facilitates access to risk capital for SMEs.
Prospects is a new capital market that is in line with the MSE’s commitment to open new opportunities, create economies of scale, and afford businesses more competitiveness and sustainability. Prospects is fully compliant with the Markets in Financial Instruments Directive (MiFID).
The product paves the way for SMEs to access finance of between €1 to €5 million. While SMEs could, and did, access capital markets through the MSE Main Market and the MSE Alternative Companies List, companies have often stalled this process due to the fear of losing ownership and control, relatively high regulatory costs, and inexperience with capital markets.
Prospects has sought to address all this, by providing a more accessible and easier alternative. It has created a more flexible and cost-effective market, and has bestowed on the company the benefit of the MSE brand based on a robust process for admission. While soundly regulated, companies can access Prospects through a relatively simple process that requires the company to adhere to a predetermined business plan and the appropriate corporate structure and compliance procedures.
In order to satisfy a number of eligibility requirements, enterprises considering Prospects need to appoint a corporate advisor, draft and present a business plan, be an incorporated company with a minimum share capital of €46,588, have a Memorandum and Articles of Association aligned with Prospects rules, and issue equity or bonds up to a maximum of €5 million.
To better guide SMEs throughout the process, the role of a Corporate Advisor was introduced. The Corporate Advisor ensures that the company maintains good levels of corporate governance and transparency, thus building up investors’ confidence in any Prospect listed company. Following the Initial Public Offer (IPO) stage, the Corporate Advisor is also retained, ensuring that strong due diligence and corporate governance processes are maintained, hence safeguarding investor protection and promoting transparency.
Besides access to alternative capital (through equity or bonds), Prospects grants applicants several additional benefits including: increased corporate brand awareness, good quality corporate governance, long term succession planning, and potential eventual migration to an MSE regulated market listing.
In the case of a bond issue, it is likely that companies would secure capital at a more competitive coupon rate than in traditional finance scenarios. Other benefits include no requirements for collateral, no financial history, and no minimum float percentages being imposed.
Even though Prospects is a Maltese market, overseas companies seeking a cash injection can also avail themselves of this platform. Malta vaunts a well-qualified, English-speaking workforce; a sound banking system, and a high-quality ICT infrastructure. All this, coupled with this new, easy, and fast-track finance platform, increases the reputation of the country as a leading global financial services provider, that now offers high quality credit solutions to local and foreign small and medium-sized companies.
Dr Maria Chetcuti Cauchi
Co-founding partner - Corporate law & Regulated Business Units
This article appeared in the FinanceMalta Insight newsletter. Subscribe to the newsletter here.