Why Do Companies List On The Stock Market?

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Last week, news broke that local video games publisher CIB Development Bhd is looking to list on Bursa Malaysia’s ACE Market, having filed its draft prospectus.

Acquired by former Intel engineer Ku Foo Keong and his partners back in 2005, CIB had a single massively multiplayer online role-playing game (MMORPG) title at the time – Fairyland Online.

Their portfolio has since expanded to include major titles like Moxiang, Tian Long Ba Bu, Xin Wu Lin, and the first-person shooter Mission Against Terror (MAT).

Some of our readers might be thinking, “Hah? The company is being reported in the news, they’re registered with SSM, is that not public enough?”

Well…

What Does It Actually Mean To Go Public?

Think of a company like a cake. When it goes public through an IPO, that cake gets sliced into millions of tiny, equal pieces.

At the moment, CIB is a private company, meaning it’s owned by a small group of founders and private investors.

Going public – specifically through an Initial Public Offering (IPO) – means the company is slicing up its ownership into hundreds of thousands or millions of tiny pieces (shares) and offering them for sale to the general public on an exchange like Bursa Malaysia.

Once listed, anyone from institutional funds to regular Malaysians like you and I can buy a piece of the company. That’s when we become “shareholders”.

Many Companies Choose To Go Public To Raise Funds

Credit: Bursa Malaysia

According to CIB’s draft prospectus, the publisher wants to use the money raised from this IPO to drive marketing, secure new titles, and expand its footprint across Singapore, Thailand, Indonesia, Vietnam, and the Philippines.

This brings us to arguably the main reason companies go public – to raise funds.

When a company needs a LOT of money to do stuff, like expand or R&D, it generally has three options of financing: take out a loan with a bank, appeal to private investors, or go public.

Financing options for companies is a rabbithole on its own, so we’re not going to go super granular on the pros and cons of each option, but know this – many companies choose to IPO because the money raised from public shareholders never has to be paid back like a bank loan.

And because ownership of the company is spread out across thousands of minor public investors, the founders often retain operational control of the company’s vision.

“Cashing Out” & Publicity Are Also Major Reasons To IPO

Credit: Unsplash

While fundraising could be a major trigger, there are other advantages of an IPO that other financing routes might not be able to match.

Liquidity: Early investors and founders who contributed to the company can finally sell some or all of their shares and cash out. Bit like rewarding yourself after perhaps decades of hard work.

Marketing & Prestige: Becoming a publicly traded entity acts as a massive stamp of credibility. It signals to international partners, suppliers, and customers that the company operates at a high standard of financial transparency.

Currency for Mergers: Publicly traded shares act like corporate currency. If an company’s stock performs well down the line, the company can buy out competitors by offering its own shares as payment, rather than draining its bank accounts.

And in CIB’s case, you can more or less see these elements come into play, especially the part where the existing shareholders are putting some of their shares up for sale.

Only time will tell if investors are ready to buy into the gaming world, but if you’re curious about the company’s finances, how they do things, who their stakeholders are, you can find their draft prospectus here.

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Why Do Companies List On The Stock Market?
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