Published May 11, 2009

MALAYSIA INSIGHT
Can reforms clear the bumiputra hurdle?

The worry is that the govt may backtrack on the liberalisation policies announced so far

By S JAYASANKARAN
KL CORRESPONDENT
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Last Friday, Zarinah Anwar the chairman of market regulator the Securities Commission announced a new framework for the local bourse and new guidelines for listings and capital raising exercises. She should be commended for her efforts.

Beginning in August, Malaysia will merge the main and second boards of its stock market, Ms Zarinah told reporters last Friday.

The revamp was first sounded out in March last year by the then-Prime Minister Abdullah Ahmad Badawi and is aimed at allowing more efficient access to capital.

Malaysia's two boards currently have a combined market capitalisation of around RM740 billion (S$311 billion) which is among the highest in South-east Asia.

Ms Zarinah said that the changes will bring Malaysia's equity guidelines more in line with those of regional bourses,

Companies currently listed on the main and second boards will be migrated to the new unified board known as the 'Main Market'. And companies currently listed the Malaysian Exchange of Securities Dealing and Automated Quotation (Mesdaq) will be subsumed into a new market to be called the ACE Market, now capitalised at around RM4.75 billion.



Under the new rules, applications for private placements and rights offerings will no longer require the commission's approval. Less is more and this will remove yet another bureaucratic impediment that used to make capital-raising exercises tedious processes.

In any case, the requirement for 30 per cent bumiputra shareholding to be maintained in rights offerings was removed a year ago so there is no reason for the commission to play any kind of supervisory role here.

In addition, the new framework will permit local or foreign companies with at least 50 per cent of their earnings earned abroad to list without meeting the 30 per cent bumiputra shareholding requirement.

This is good stuff and could go some way to making the local bourse more attractive to foreign companies. For long, there has been moaning that even local companies have been leery of listing here because of the bumiputra requirements and have been increasingly looking at other destinations such as London, Hong Kong or Singapore, where they allegedly receive better valuations.

Prime Minister Najib Razak has been chipping away at some of the more odious requirements of the New Economic Policy (NEP) and he must be commended for his political bravery because some commentators in the ethnic Malay media have begun griping about the liberalisations.

First, Mr Najib freed 27 service sub-sectors from NEP requirements and then he followed that up with the liberalisation of the financial services sector. And now we have minor reforms of the stock exchange.

Critics who complain that the opening up of the local bourse could attract less-than-desirable companies that are unable to list anywhere else should take their complaints elsewhere. The onus will be on the investment banks that bring these companies here and it would be in their interests to do due diligence if they want to carry on doing business.

The worry is that the government could backtrack especially in the case of very good companies that might suddenly want to list. Take for example, Powertek.

Powertek is the power division of Tanjong plc which is a well-managed power, gaming and entertainment company controlled by T Ananda Krishnan. Tanjong is listed but Powertek isn't and at least half of its earnings come from power plants in the Middle East and elsewhere. That means that Powertek theoretically should be able to list without meeting bumiputra requirements.

But would the powerful bumiputra business community allow this? Indeed, even when Mr Krishnan took Maxis, his telecommunications company, private in 2007, there was criticism that he was taking one of the bourse's best companies away from investors.

Would they allow Powertek to be listed without letting anyone take a bite at the cherry before listing?