Sunday, November 8, 2009

Abolition of Foreign Investment Guidelines in Malaysia

This is a re-cap from the liberalisation of Malaysian investment policies earlier in 2009. This is extracted from Maybank Investment:

Market-friendly Initiatives on corporate equity ownership. PM Najib’s abolition of FIC guidelines and other directives for GLCs, and capital raisings will mark him as one of the most market-friendly Malaysian prime ministers. We believe the changes would benefit commercial REITs, potentially raise interest in Sime and a handful of other stocks, and in the long-term, attract foreign direct investments.

The abolition of Foreign Investment Committee (FIC) rules for all corporate equity transactions and most property transactions could become a hallmark of Najib’s premiership. Foreign REIT managers would now have greater reason to enter and eventually list REITS on Bursa, while a major shareholder who had wanted to raise his shareholding may now do so more easily. Foreign ownership restrictions imposed by ministries / regulators remain in key sectors such as telecoms, water, energy, media.

GLCs to be further transformed. PM Najib has also instructed Government-linked companies (GLC) on two market-friendly moves: (i) government shareholdings in GLCs to be reduced to aid market liquidity and free-float, (ii) GLCs to dispose non-core assets. Both moves will render GLCs more attractive investments although it could initially dampen appetite for their shares. The moves would also benefit the investment banking community with more corporate deals.

Property, by comparison, was a sideshow. The FIC guideline changes to corporate equity ownership and equity raisings, and potential GLC activity, may well have a greater impact on the capital market than on physical property. In particular, individuals states may continue to impose conditions or require consent for foreign property ownership, frustrating foreign investements.

Table 1: Summary of Reforms

Reforms Key measures
FIC deregulation
  • FIC guidelines on acquisition of interests, mergers and takeovers repeated with immediate effect
  • FIC will no longer process share transactions nor impose equity conditions on such transactions
FIC approval on acquisition of properties
  • FIC will only process transactions involving dilution of Bumiputera and Government interests. Even then, FIC approval is only required for properties > RM20m
  • All other transactions (e.g. transactions between foreigners and non-Bumiputeras) no longer require FIC approval
Corporate equity ownership
  • 30% Bumiputera equity requirement during IPO is removed*
  • SC, as sector regulator, will continue to impose at least 25% public spread requirement
  • Bumiputera allocation of IPO shares to be 50% of public spread requirement
  • No equity condition imposed on equity raisings post IPO except for RTOs and backdoor listings
Ownership in services industry
  • Wholesale segment of the fund management industry fully liberalized to allow 100% ownership
  • Foreign shareholding limits for retail unit trust management companies and existing stock broking companies raised to 70% from current level of 49%
  • BNM and SC will review all visa applications for the financial services industry and capital market respectively

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