Twitter Logo Youtube Circle Icon LinkedIn Icon

Publishing firms

Legal Developments worldwide

Malta Stock Exchange: European capital raising now easier for SMEs

March 2017 - Finance. Legal Developments by Chetcuti Cauchi Advocates.

More articles by this firm.

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 the vast majority of 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 such 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 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 up 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).

In essence, the product paves the way for SME’s to access finance of between €1 and €5 million. While before SMEs could and did access capital markets through the MSE Main Market and the MSE Alternative Companies List, still such companies have many times 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. It has provided a more accessible and easy alternative. Not only has it created a more flexible and cost-effective market, but it bestowed on the company the benefit of the MSE brand based on a robust process for admission. Whilst soundly regulated, companies can access Prospects through a relatively simple process that will require 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.

In order to better guide SMEs throughout the process, the role of a Corporate Advisor was introduced. Corporate Advisor need to ensure 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. This ensures 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 a number of 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 very 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, yet 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 to this new, easy and fast-track finance platform, increase the reputation of the country as a leading global financial services provider,  that can now offer high quality credit solutions to local and foreign small and medium sized companies.

Dr Maria Chetcuti Cauchi

Co-founding partner, Maria is the partner in charge of the Corporate law & Regulated Business Units of the Firm.

On a day to day basis, Maria’s team advises an array of clients on regulatory issues, compliance matters, commercial and finance transactions and corporate governance issues in general. Maria has vast experience of start-ups, corporate restructurings, takeovers, mergers, privatisations, and equity and debt financing structures. Maria’s team regularly handholds banks and financial services companies on the procedure to set up in Malta, the compliance and regulatory aspects of their business including client intake and due diligence, ongoing compliance procedures, reporting and general regulatory observance matters.

Maria’s pet subject centres around the application of traditional notions of Intellectual Property and Financial Services Law to the online world, as well as the conversion of brick and mortar notions to cyberspace. These mostly include projects with a fusion of technology law and investment/finance law, such as payment gateways, gaming operations, e-money institutions and ICT online operators.

For additional information about SMEs in Malta, we kindly invite you to read the following:

Prospects

'Prospects' - a New Product providing access to Malta Finance for SMEs