Sunday, June 19, 2011

Aces & Kings

Starbiz had a detailed coverage of ACE/Mesdaq companies on Saturday. Here are my thoughts:

a) We need the ACE market. We need it to be vibrant, with their share of heroes and villians. Do not over react when investors throw brickbats, or just bricks and bats - just part of the process.

b) ACE is important as it allows for exciting companies seeking capital for further expansion. They may or may not have a profitable track record but herein lies the attraction and risk.

c) The most important factor for having a vibrant ACE market is in the recycling of capital. If invested capital gets "realised" or have more avenues for risks to be shared and enjoyed, then you will more velocity in "invested capital" willing to fund entrepreneurial activities.

d) ACE market is not mean to give excellent IPOs every single time. In hindsight, after mulling over the last 2 weeks, I think the regulatory bodies such as SC and Bursa, may have their hands tied when it comes to companies coming on board, they just work with the parameters. The guys mostly responsible for bringing the good and bad hats onto the ACE market has to be the investment bankers.

e) I have arrived at the conclusion that its the investment bankers that bring the really bad apples to ACE. I mean, ACE market companies need not be making profits but their business models must be sound and the industry or business must be "ladened with prospects". Without naming the companies, we can already see for ourselves that some of the dismal companies coming on board have less than attractive platform for anything.

f) I do agree that sentiment may be against new listings as the chart shows for other alternative exchanges, that aside, we should be more vigilant in the kind of companies we are bringing on board. We have to to strealine a "penalty system" for investment bankers that bring shoddy IPOs to the market place. I mean, just look at the performers and non-performers ... and the put them side by side with the investment bankers. You know which houses can be relied on and which are crap.

g) In the same vein, SC and Bursa should "reprimand" or penalise the investment banks that continues to fail to meet the acceptable mark. There has to be some sort of reassessment of the process of approval to ensure "decent/quality companies get through". I do not think regulations should be more stringent, its stringent enough for an alternative exchange.

h) One of the main sore points is the way some IPO companies announce the quarterly losses just days after being listed. There was no warning, nothing to indicate that in the prospectus something untoward was happening. Maybe the authorities can make it a requirement for the sponsoring investment bank and company management to alert potential investors prior to subscription period IF there were any significant deviations in the current quarter's results compared to last quarter's results (significant deviations could be in the 25% range). At least, that way no one will be surprised just a couple of weeks after successfully balloting the thing.

i) Why I say investment banks must shoulder the bulk of the blame, look at the fees they get. They are the ones who decide whether to bring certain companies through the process. They know all the parameters for qualifications - they also know how to "get the companies to meet those requirements" to get through the process. To qualify is the easy part, what an exchange cannot legislate is the "management's mindset, quality, ability to deliver". That assessment is critical in deciding whether to bring a decent company on board or reject a wishy-washy one.


clk said...

For such alternative listings, do away with the intermediaries who are out to cream the public; just lawyers and accountants would do. If anything wrong happens, directors and these 2 experts should be hanged.

Create new legislations (if present ones are insufficient) to make the directors fully responsible for misleading or inaccurate disclosures.

Time both companies and investors grew up!

clearwater said...

Just lawyers and accountants, eh? No other intermediaries. Are law/accountancy firms going to act as underwriters, placement agents, market makers and the like? Or don't even bother, just go to market naked. That would be fun.

clk said...

yes, only these 2, the others like underwriters, placement agents, mkt makers are merely "brokers". furthermore,they usually wash their hands clean shortly after IPO. they're usually less privy to what happens inside a company compared to the directors and these 2 experts who usually stick with the Co after IPO. that's why I say pass the responsibilities to these three parties especially directors. hang them if you will if they breach their duties. what we have now is every party getting a piece of the action without any one party responsible. however like many other laws in this country, it's only as good as the enforcement. my 2 sen view!

clearwater said...

clk ; If you put very onerous responsibilities on all directors, especially "independent" directors, you'll be hard put to find any willing to serve on the board of small companies. The pathetic fees just do not justify the risks. The controlling shareholders in executive positions are the ones you want to go for.

And if you have worked with lawyers and accountants, you'll find many to be very risk adverse people not willing to put their commercial necks on the line. They too do not have the placement network to market new share issues.

All in all, despite the shortcomings of the financial intermediaries, you cannot do without them. Investment Banks are aware most times certain small companies are not likely to make it in public life, but certain IBs still take on the job because of competitive pressures. The long and the short of it still is, caveat emptor, for the investor. Do your homework. A fool and his money are soon parted.

clk said...

Clearwater, you hit the nail when you said the non-executive directors are paid peanuts to do nothing. In the first place why are they there? Directorship is not a place for ex-civil servants retiree; directors carry the responsibility of a Company and if they can't shoulder it they should not be there.

As for intermediaries, what I'm suggesting is that they should not be there to carry the Co's obligations in an IPO. Yes, they certainly have a role to play, but less onerous than the Directors and the 2 experts.

I do understand that the 2 experts are conservative/ play safe..but that's how it should be, but ultimately I believe the Directors should bear the final burden. If they are not comfortable, what else with the investing public who even knows less.

Anyway my 2 sen and good exchange of ideas with you.