Published July 1, 2009

Najib chips away at market sacred cow

Sweeping capital and property market measures include changes to 30% bumiputra equity rule

By PAULINE NG
IN KUALA LUMPUR

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MALAYSIA is making radical policy changes to its capital and property markets that include tinkering with a cornerstone of public policy enshrined in the 30 per cent bumiputra equity rule.

With the change, businesses seeking to list on the stock exchange will no longer need to abide by the 30 per cent bumiputra quota, previously required under the guidelines of the Foreign Investment Committee (FIC).

They will now only need to offer bumiputras half of the shares set aside to meet a 25 per cent public spread requirement, in other words 12.5 per cent.

Outstanding listings including Singapore's CapitaLand retail Reit, postponed because of the global financial crisis, will come under the new rules.

However, existing foreign equity conditions will remain unchanged for certain sectors such as telecommunications and finance. In telecoms, for instance, foreigners can only own up to 49 per cent, and for commercial banking, only 30 per cent.

A second plank of yesterday's radical changes, aimed at enhancing Malaysia's competitiveness and to better position it for the global recovery, relate to the FIC, a panel that vets investment proposals.

With the change, FIC's approval will no longer be required for the proposed acquisition of equity stakes, mergers and takeovers, nor for proposed property transactions except where they involve properties above RM20 million (S$8.24 million) and the dilution of bumiputra or government interests.

Describing the changes as transformational, Prime Minister Najib Razak said yesterday that the measures are expected to make the economy 'more vibrant and dynamic, and place the country high up on the radar of equity and long-term investors'.

The enormity of the measures was not lost on Mr Najib, for they chip away at a cornerstone of the over-three-decade-old New Economic Policy which has as one of its main objectives the goal of ensuring 30 per cent bumiputra corporate equity.

'I felt my hair standing on end,' the Malaysian leader was said to have remarked later of his maiden address at an annual investors conference in Kuala Lumpur where he announced the policy changes.

Even so, Mr Najib may see a backlash from the bumiputra community which forms about 60-65 per cent of the population.

'It's a difficult balancing act, but do-able,' Mr Najib later said when asked if he expected any repercussions. He is expected to remain steadfast in holding that the FIC in its current form does not promote growth nor facilitate equity participation for bumiputras, but hinders investments instead.

'It is not the time for sentiments or half-measures. Pragmatism requires a focus on substance, not form,' he observed, noting that liberalisation and change were inevitable in a fast-changing landscape.

With Malaysia aspiring to be a higher-income economy, analysts see the moves as a measured response to new challenges.

While the 'time pressure' from within the country to reform the economy following the heavy losses sustained by the National Front, which Mr Najib heads, in the general election last year might have played a part, AirAsia founder Tony Fernandes pointed out to conference participants that the time pressure from without was even greater.

Minister in the prime minister's department, Nor Mohamed Yakcop, also stressed that more market-friendly policies have become necessary in the light of regional neighbours China, India and Vietnam now fully embracing foreign investments.

As part of the shift in focus to 'effective participation' by the bumiputras rather than equity ownership, a new RM500 million government-funded institution called Ekuiti Nasional or Ekuinos would be established to nurture capable bumiputra entrepreneurs. A scalable fund of up to RM10 billion, it would invest in high-value, high-growth companies on a 'merit basis'.

Additional measures to stimulate the financial sector will include allowing full foreign ownership in the wholesale segment of the fund management industry, and an increase in the retail segment to 70 per cent from 49 per cent. Foreign investors can also own 70 per cent of stockbroking firms.