Question

3. Briefly explain the main advantage of a public listed firm (Berhad) compared to a private limited firm (Sendirian Berhad) in relation to capital raising.

Answer 1

Please see the comparative table below:

Sl. no.	Parameter	Listed Company	Unlisted Company
1.	Access to large capital pool and larger capital	A listed company has a larger or more diverse investor base and hence have access to larger capital pool. And hence, they can raise larger aggregate capital.	An unlisted company will have limited number of shareholders. The investor base will be lower and hence the capital that can be accessed is also lower
2	Ease of raising capital	A listed company has many convenient modes of raising capital such as follow on public offer, rights issue to existing shareholders. The shares of the company are listed and hence very liquid. The company enjoys a brand visibility in the eyes of investment community.	An unlisted company has illiquid shares. Fund raising options are limited to existing shareholders, select private equity funds, venture capital funds and pension funds
3.	Cost of funds	A listed company has higher transparency, corporate governance and liquid shares which are traded in capital markets. A listed company is therefore perceived to be less riskier and hence cost of capital is relatively lower. Hence, fresh funds can be raised at relatively lower costs.	An unlisted firm generally has a higher cost of capital due to illiquid stocks, lower degree of corporate governance and poorer transparency
4.	Ease of raising debt	A listed company usually has higher equity base and equity capitalization. A lender is comfortable lending to such a firm as the leverage ratios are within the prescribed norms. Also due to bargaining power, a listed firm can negotiate better interest rate with banks and lenders on its loans.	An unlisted firm has lower bargaining power. At times, it's thinly capitalized by means of equity and hence the leverage ratios are usually very high. This adds to the discomfort of a lender. And this also increases the cost of borrowing.