The Beginning of the New Market: A Brief Regulatory Comparison of LiVEx, SET and mai
Live Exchange, also called LiVEx, is a newly established secondary market under the cooperation of the Securities and Exchange Commission (the “SEC”) and the Stock Exchange of Thailand (the “SET”), with the purpose to provide small and medium-size enterprises (“SMEs”) and startups the platform to raise funds via public offerings; similar to the SET and Market for Alternative Investment (“mai”) for large and medium-size businesses. Both prospective and listed SMEs are offered financial and legal education within the platform through a digital medium. Registrations for listing on LiVEx began at the end of March 2022 and although the market still remains in its formative stages, is expected to pick up steam throughout the latter half of the year.
With the recent enactment of the various LiVEx regulations from the SEC and the SET in the first quarter of 2022, it is now possible to compare and analyse the differences, advantages and drawbacks of this new secondary market compared to the existing SET and mai markets when selecting the platform most suitable for each business. As such, this article will go over the significant regulatory differences between LiVEx and the other secondary markets in Thailand, which may be taken into consideration when planning your business’s fund-raising scheme and selecting the appropriate listing platform.
The first and arguably the most significant difference between LiVEx, SET and mai are the qualifications of the issuer. Even though issuers in all of these platforms are required to be a public limited company when engaging in a public offering, however the expected business size of the issuers varies greatly between platforms. To list securities on the SET, the issuer is required to have a minimum paid-up capital of Baht 300 million, while mai requires a minimum paid-up capital of Baht 50 million. In contrast, LiVEx puts no restriction on the minimum paid-up capital, meaning that a business unable to satisfy the minimum paid-up capital requirement of the SET and mai may still be eligible to raise funds through a public offering on LiVEx. For businesses which can already satisfy the SET or mai’s requirement, this factor is negligible.
In addition to the aforementioned minimum capital requirements, the SET and mai also require that the issuer satisfies their track record standards in order to list its securities on the platform. For example, listing on the SET may require the issuer to have operated for at least three years and have a net profit from the latest two - three years of at least Baht 50 million, with a net profit of Baht 30 million in the year prior to application (i.e. the profit test). Listing on mai requires a slightly lower standard but also follows a similar concept. For LiVEx, such track record standard is entirely absent in its listing requirements. Instead, it is only required that the issuer: (1) falls under the definition of a “medium-sized enterprise” as defined under the law on the promotion of SMEs1 , or is larger; or (2) is a startup in which a venture capital or private equity firm invested prior to the initial public offering. Some other listing requirements on the SET and mai are also not present in the LiVEx, such as the requirements on the distribution of minority shareholdings (free float) or the financial status and liquidity of the issuer.
With these differences, it is apparent that the requirements imposed on the issuer were designed to be considerably more lenient when listing on LiVEx as compared to the SET and mai, and thus may seem more appealing to businesses of any size (it should be noted that there are no qualifications which bar larger businesses from listing on LiVEx). However, businesses may have to factor in the second major differences as discussed below: the qualified investors.
Unlike normal public offerings on the SET and mai, the SEC limits the type of investors available for the offering on LiVEx as follows:
- (1) institutional investors, e.g. commercial bank or securities company;
- (2) venture capitalists and private equity firms;
- (3) persons having experience and expertise in investment, e.g. fund manager or SEC-approved investment analysist;
- (4) persons having the prescribed relationship with the issuer, e.g. directors, executives or major shareholders; and
- (5) high net worth investors or ultra-high net worth investors, with the prescribed knowledge or experience and financial status, e.g. investors with sufficient knowledge in the invested securities and having not less than Baht 8 million in direct investment in the case of a natural person or Baht 15 million in the case of a juristic entity.
Therefore, businesses that also qualify for listing on the SET or mai will have to carefully consider their target investors when choosing their listing platform because this restriction may limit the businesses’ potential fund raisings from public offering. For small businesses that cannot satisfy the relatively high listing requirements of the SET and mai, this may not be as important a factor, however.
Finally, the process for obtaining approval for public offering under the rules of the SEC may be considered as being more lenient in the case of offering on the LiVEx when compared to the normal process applicable for the SET and mai. Public offering on LiVEx is deemed to be approved by the SEC, provided that all the qualifications are satisfied, i.e. (1) the issuer is qualified; (2) the offering is made to the prescribed investors; and (3) the offering value is not less than Baht 10 million and not more than Baht 500 million. This is in contrast to the more rigid approval process of a normal offering, where the issuer must apply and enter into the approval process with the SEC in order to obtain the offering approval. Moreover, unlike the normal offering process, no licensed financial advisor is required for the offering process on LiVEx; thus, this additional cost is alleviated for the issuer.
Nevertheless, the issuer in LiVEx is still required to submit the prescribed registration statement and draft prospectus in order to initiate the public offering; similar to the normal public offering process.
From the above, we can see that the differences between listing and offering on LiVEx as opposed to the SET and mai may yield varying degrees of advantages and drawbacks depending on the circumstances of each business. Thus, they may have to be carefully considered when choosing the appropriate listing platform. In any case, it is undeniable that the formation of LiVEx has opened up new possibilities for SMEs in Thailand, where SMEs’ public offerings would have never been possible under the old regulatory regime.
This is intended merely to provide a regulatory overview and not to be comprehensive, nor to provide legal advice. Should you have any questions on this or on other areas of law, please contact any of the authors.
Jirapong Sriwat, Apinya Sarntikasem, Pruk Chaweekulrath
1 Under the Ministerial Regulations on the Designation of Characteristics of Small and Medium-Sized Enterprise B.E. 2562 (2019), a medium-sized enterprise means an enterprise with the following characteristics:
(1) an enterprise operating a manufacturing business with more than 50 employees but not more than 200 employees, and with an annual income of more than Baht 100 million but not more than Baht 500 million;
(2) an enterprise operating service, wholesale or retail business with more than 30 employees but not more than 100 employees, and with an annual income of more than Baht 50 million but not more than Baht 300 million.
He advises on a wide range of merger-and-acquisition transactions, joint ventures, foreign direct investments, general corporate, international corporate finance, and restructurings. His expertise is advising, structuring and leading complex transactions both within and outside of Thailand. He regularly represents, among others, Japanese, Thai and international investors, international investment banks, international private equity investors, hedge funds and international corporations and financial institutions. His main areas of practice include public and private mergers and acquisitions (takeover rules), legal due diligence, joint ventures, fund raising, listings, block trades, stock exchange and securities exchange related laws, restructuring of shareholdings and general corporate advice. His additional areas of practice also cover banking and finance, renewable energy in Japan and Thailand, exchange control law, labor law, and debt restructurings. Before setting up the Bangkok office of Nishimura & Asahi in 2013, he worked with Linklaters for almost a decade. He is also a registered arbitrator of the Thai Arbitration Institute (TAI) with the areas of expertise in corporate M&A, joint venture, banking and finance, capital markets, debt restructurings and energy.