Revived IPO Interest in Malaysia
Early last year in 2020 saw the world spiraling into chaos, partly due to the disruptions brought to our daily lives by the COVID-19 pandemic that has affected many aspects of society’s normalcy – including the economy and the financial market. The whole world scrambled to respond to the unprecedented challenges of the pandemic, both to public health and the meltdown in economies arising from lockdowns imposed in many parts of the world. It is therefore heartening to note that, despite all the upheavals, there was some sense of order that prevailed by the 2nd half of 2020. Although there was greater volatility in the capital markets, nevertheless, the markets managed to quickly regain their footing even when the pandemic continued to rage unabated. The global IPO markets seemed to buck the trend and had shone with resilience. Not surprisingly, the buoyant global IPO markets extend closer to home – with Malaysia picking up the pace amidst the pandemic in 2020 and continuing to resonate well into this year.
This article was first published in the The Malaysian Accountant (November - December 2021) by MICPA.
Current IPO Scene in Malaysia
The number of new listings with 3 more months to the end of 2021 (at the time of writing) stood at 241 listings, already surpassing last year’s total 19 listings. Nonetheless, it seems that much more remains to be done to achieve the projected 30 IPOs as expected by the Securities Commission Malaysia (“SC”) during the chairman Datuk Syed Zaid Syed Jaffar Albar’s virtual press conference on the SC’s 2020 Annual Report early March this year. For perspective, if one were to backtrack historically in the last 10 years, the all-time high in a decade was 30 IPOs as recorded in year 2019.
From the 24 companies listed, 5 are on the Main Market, 10 on the ACE Market and 9 on the LEAP Market. This year also saw the first Australian Securities Exchange (ASX) public listed company with a secondary listing on Bursa Malaysia – OM Holdings Limited, a mining and trading of raw ores company.
In terms of proceeds raised from IPOs, the period for the year-to-date 2021 raised RM1.3 billion as compared to year 2020 of RM1.6 billion. The darlings of IPO for the past 2 years - Mr. DIY raising RM1.5 billion out of the total RM1.6 billion last year and credit reporting agency, CTOS raising RM1.2 billion this year dominated the Malaysia’s IPO scene. Although the proceeds were not as significantly impressive as past mega IPOs on Bursa Malaysia with the likes of Felda Global Ventures and Petronas Chemicals that raised over RM10 billion, they created a buzz for recent IPOs of any real size in Malaysia’s market since Lotte Chemical Titan in 2017 with over RM3 billion.
Drawing close to the end of 2021, there are also other upcoming companies that could get themselves listed by this year:
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Company |
Nature of Business |
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MTT Shipping & Logistics Berhad |
Container liner shipping and logistics |
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Senheng New Retail Berhad |
Retailer of consumer electrical and electronic products |
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Farm Fresh Berhad |
Dairy farming, manufacturing and distribution |
The IPO performance has also shown an encouraging result with an average gain of 47.7%1 on the first day of IPO closing price against the listing price. Companies listed on the ACE Market clearly led the pack recording an average gain of 61.6%1 whilst the Main Market registered an average gain of a mere 4.4%1. On the other hand, the LEAP Market which is only available to Sophisticated Investors, is sandwiched in between Main Market and ACE Market and recorded an average gain of 51.6%1 on first day of IPO closing price vs. listing price.
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Who are the Sophisticated Investors?
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The Surge in IPO Interest
The SC has reported that year 2020 registered an increase in retail participation on Bursa Malaysia that helped to create a healthy and vibrant marketplace. Local retail investors made up 32.4% of the total value traded, which is significantly higher than the 5-year average of 21.4%. That year also marked net buying in the local equity market by retail investors surpassing the net buying by local institutional investors.
From the perspective of retail investors, the pandemic seems to steer the ordinary investors’ money-at-hand to the equity market and IPOs emerged as the new trend that piqued their interest. This year the Main Market and the ACE Market’s new listings have seen oversubscription rates of between 17 times to 155 times, an indication of the rise of interest amongst the retail investors in IPOs.
Despite the continued uncertainty over the economic recovery from the COVID-19 pandemic, what could be the cause of the surge in IPO interest in Malaysia?
Since March 2020 with the onset of the first Movement Control Order which brought the whole country to a halt, the Malaysian Government has introduced numerous stimulus packages to steer the country into recovery from the impact of the pandemic. One of such measures is the early withdrawal facility from the Employees Provident Fund (EPF) that allow contributors to withdraw their EPF savings prematurely (with certain eligible criteria) to cushion the temporal effects of the pandemic.
According to Bank Negara Malaysia deputy governor, Datuk Abdul Rasheed Ghaffour, the scheme is seen to have a positive immediate impact on the real economy – either being consumed or invested. Further, industry experts noted that the blanket 6-month loan moratorium allowed from April 2020 saw it as an infusion of spare monies for those who are not directly impacted by the pandemic – which also contributed to the rise in the retail participation trend in the equity market.
The current low interest rate environment with BNM slashing the overnight policy rate four times in year 2020 itself also encouraged the boosting of investments and private consumption – an environment that is supportive of the equity market. The trend in the past 10 months’ IPOs had shown that IPOs do perform fairly well beyond their IPO issue prices for a majority of new listings which further fueled the participation of retail investors in a bid to ride on the wave of a higher return opportunity.
What about the attractiveness of IPO from the perspective of companies or businesses?
The relief measures to curtail the damage from the pandemic introduced by the Malaysian Government such as granting of a 12-month waiver on listing fees coupled with the SC’s swift response in continuously establishing a wide array of regulatory initiatives, flexibilities as well as relief measures provided capital market participants with confidence towards market stability and continuity amidst the pandemic.
Low interest rates also meant lower borrowing costs for borrowers but banks generally have been cautious over loan approvals, in particular, for businesses due to the lack of long-term visibility of business conditions and the rate of recovery from the pandemic. IPOs therefore would present an opportunity to attract companies that would widen its ability to raise funds more efficiently. The capital market is still a key source of financing and IPOs allow firms to raise funds for expansion and improve their corporate standing.
Will the current IPO hype continue, or will it eventually tone down? No one will be able to predict the future and time the market accurately – as the saying by Abraham Lincoln goes “The best way to predict the future is by creating it”.
The process of an IPO is a long one and could be an arduous journey for companies wanting to go for listing. Nonetheless, forward-thinking companies contemplating an IPO should consider their intentions and readiness to take up the challenge in harnessing growth by being a public listed company.
IPO Motivation for Forward-Thinking Companies
Companies get themselves listed for many reasons - more often than not, companies would want the opportunity to grow their businesses, wealth and further success. The IPO presents an opportunity for companies to steer towards that success to gain a competitive edge by being a public listed company (“PLC”), with the typical advantages being:-
- Access to capital
Capital is the fuel for expanding business operations or making acquisitions. Ease of access to capital supply is the dream of every business. Capital especially does not come easy because lenders and shareholders are concerned with risk, returns and repayment.
A successful listing could help companies unlock access to financing in meeting expansion plans and goals. Apart from funds raised from an IPO, a listing provides the PLC with an avenue to continuously tap the capital market for future fund-raising activities such as rights issues, private placements, etc.
Creditworthiness to the lender is usually higher if a company is large, stable, profitable and has a good track record – which would lead to easier access to loans from banks.
- Deployment of shares as currency to undertake acquisitions
Many large companies have grown through acquisitions, be it for availability of new products, service offerings, wider market, or acquisition of greater talent.
Being a PLC will allow it the capability to offer shares as a currency to facilitate acquisitions and growth strategies.
- Enhance profile, visibility and credibility
A PLC would generally receive greater media coverage which would be beneficial for the company in raising awareness of its products and services.
A listing also brings transparency and efficiency in the overall operations of the company with the requirement to comply with various disclosure and compliance rules under an established regulatory structure. Hence, a PLC is perceived to have a higher level of transparency and corporate governance that would improve the reputation of the business and brand with customers, suppliers and employees.
- Deployment of shares as incentives for attracting and retaining employees
It is often said that men follow men. Men do not follow companies. Men especially follow good leaders whom they trust who will bring them to a new level of success.
Capable men need good incentives to attain their personal goals. They need to know the potential of the company and how they can work to realize their potential and the potential of their employers. To this end, stock options can be issued as a powerful tool to align the interest of employees with the goals of the company.
- Enhance liquidity
Listing stimulates liquidity, giving shareholders the opportunity to realize the value of their investments. It allows shareholders to transact the shares of the company, sharing risks as well as benefitting from any increase in the organizational value.
Listed shares are also easily tradable and could be accepted by lenders as collateral, further enhancing the ability of the company to raise funds efficiently.
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Question to Ponder ► Is IPO the right next step for your company? |
All things considered, bear in mind that a listing is not just a bed of roses that brings many advantages. One should also consider the drawbacks and to mirror these against the company’s and shareholders’ objectives for an IPO.
Nonetheless, perhaps one could view an IPO from the perspective of treating the listing as an investment in a long-term asset which has a value – as intrinsic value due its potential for future growth on account of its listing status.
1Year 2021 up to 1 October 2021 data.