“Prospects” is Launched: The New Capital Market Platform for SMEs

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On February 17, 2016, Malta’s Minister of Finance, together with the Malta Stock Exchange, launched Prospects, the new capital market platform which offers Small & Medium Enterprises (‘SMEs’) access to the capital market and systems to address succession planning issues.

SMEs are main contributors to an economy’s growth. Most companies within the European Union are SMEs. These enterprises, which are normally family-run, typically employ less than 10 people and have a turnover or balance sheet value of less than €2 million. SMEs have a difficulty in accessing finance to sustain their growth. This in turn has a negative effect on the economy, since the growth experienced by SMEs would be reflected in economic growth. These enterprises do not have access to risk capital, which is challenging when competing with larger businesses that do. SMEs also face succession difficulties and in fact most do not succeed in making the transition from the third generation to the next.

Almost half of the organizations on the Malta Stock Exchange are SMEs, and they heavily outperform the organizations that are unlisted when it comes to turnover, employment and profitability. The traditional route to access capital markets has been through the regulated markets which is subject to a number of criteria such as minimum share capital requirements and minimum market value requirements.

The Malta Stock Exchange’s intention of creating new capital market opportunities has led to the launch of Prospects. This initiative will give SMEs access to benefits, that were only available to larger entities, in an easy and efficient manner. This will also benefit the demand for IPOs, and SMEs will now have the opportunity of raising capital by issuing bonds and new shares or selling existing shares to a bigger investor pool.

Companies that wish to apply to Prospects will require the services of a Corporate Advisor who will ensure transparency and corporate governance efficiencies. The advisor will also be responsible for carrying out due diligence on the owners and management of the applicant. The Corporate Advisor will be involved from the Pre-Application Phase to the Post-Application Phase. For organizations to be eligible, they need to satisfy the EU definition of a Micro, Small, or Medium enterprise, and must be a public limited company with a minimum issued and fully paid up share capital of €46,588.

As for investors that are interested in SMEs, they may invest in a Prospects company at the IPO Stage, when the company issues instruments for sale, or through the secondary market. Access to the latter will require approval by the Malta Stock Exchange.

For more information about this initiative, kindly contact Dr. Jonathan De Giovanni, Partner for Legal and International Tax.