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