BY Risen Jayaseelan - October 3, 2018
Can public companies do ICOs?
The idea of a listed company conducting an ICO is interesting for a number of reasons.
For one, it gives the impression that the ICO is more legitimate, considering a listed company is a regulated entity that has to uphold high standards of governance and disclosures as required by existing securities related laws.
But it also boggles the mind because listed companies are part of a regulated capital market, whose fund-raising structures are being disrupted by ICOs.
So why would a regulator allow a listed company to conduct an ICO?
And yet a handful of public companies in Southeast Asia are pursuing their ICOs. Could they spark a trend that will see thousands of listed companies in this region follow suit?
Catalist-listed Y Ventures Group Ltd says it is the first Singapore-listed company that has launched its own utility token through an ICO.
Y Ventures’ subsidiary, Luminore 8, had launched an ICO of its AORA coins this July to raise up to US$50mil. The ICO will run until November 30.
The AORA platform seeks to become the world’s first blockchain-enabled global buying platform that allows consumers to purchase real-world products from any online store and marketplace using cryptocurrencies.
But here is an important notice that Y Ventures has also issued: “…there is no certainty or assurance that the ICO will be completed or that no changes will be made to the terms thereof, as the same may be subject to ongoing regulatory clearance and compliance, if applicable. In the event that the ICO does not proceed for whatsoever reason, the company’s subsidiary, Luminore 8, will refund any monies collected from the sale and distribution of the AORA coins….”
That simply means that the regulators in Singapore are still studying the application by Y Ventures’ to conduct its ICO.
Just across the border, the first Malaysian-listed company to attempt to officially jump on the ICO bandwagon is Country Heights Holdings Bhd. The loss-making property developer said it is looking to get shareholders approval to issue its own cryptocurrency called the Horse token.
It claims the Horse token will be an asset-backed cryptocurrency that will be used as a utility token. It will also be a reward token to facilitate the group’s loyalty programmes in the usage of its services such as hotel stays, golf memberships and even private jet trips.
The company is also looking at allowing the token to be used as legal tender in purchasing and leasing the group’s unique property schemes.
Aside from these, the Philippines has also seen a few listed companies seeking to launch ICOs via subsidiaries.
This means the Philippines Securities and Exchange Commission (SEC) also has to rule on whether to allow these ICOs.
The listed Philippine companies include Xurpas Inc, whose unit, ODX, is planning one of the region’s largest ICOs to build a decentralised data marketplace to solve the problem of Internet access in emerging markets.
Another is Elmer Francisco Industries, in the transport sector, which is seeking the approval of the SEC to launch its EFI coins to build a new fleet of electric-powered jeepneys.
How will Southeast Asia’s regulators respond to these applications?
At the point of writing, none of the regulators in the region have come out to state clearly if those listed companies mentioned will be allowed to do their ICOs.
Regulators are likely to study and rule on each of these cases individually.
To be noted, regulators like Malaysia’s Securities Commission (SC) have not shied away from shutting down ICOs which they deem were breaking the law.
Indeed, it is likely due to the SC’s strict stance on ICOs that Country Heights had made additional filing to the stock exchange to assure its shareholders that it would be taking “very patient and prudent steps” in its plan to conduct the ICO.
“As this is a very new field in the country, and with Country Heights being the first public listed company to come up with such an initiative, this may be very sensitive to those who do not understand blockchain technology and are confused about too many cryptocurrencies,” it said.
Regulators have the option of determining if the tokens concerned can be deemed as securities and are therefore subject to existing securities laws. If tokens are considered securities, it would essentially close the door on listed companies trying to conduct ICOs. It would also mean that the regulating body has stuck its neck out to create a new precedent for the market to follow.
The concern is, would this inhibit the growth of the blockchain ecosystem in that particular market?
Also to be noted is that a number of jurisdictions are in the process of drawing up their crypto guidelines and so they are most likely to request the listed companies concerned to wait for those rules to come out before conducting their ICOs.
However in some cases, the listed company may seek to structure the ICO so that it falls out of ambit of the regulator.
That was the case with German fintech company, Naga Group AG, which is likely to become a big case study for regulators in figuring out the nexus between listed companies and ICOs.
Soon after doing its own IPO on the Frankfurt Stock Exchange, Naga Group launched an ICO.
However it did so via an entity called Naga Development Association, which it deemed as a partner and associate company. Secondly, it stated that none of the ICO proceeds would go directly into the books of the listed company. And thirdly, it conducted the ICO entirely offshore in the tax haven of Belize, which presumably means they are not offering the tokens to German citizens.
There is no indication that Naga had received any sanctions from the German regulator.
Today though, the Naga token is making news for the massive depletion in its value. Investors who bought into the Naga ICO have lost much of their value. This illustrates just one additional reason why regulators have a big task at hand — green lighting any ICOs by a public company would also put them in the firing line of unhappy investors.