BT: Wilmar deal a wake-up call to KL regulators (10 Jan 2007)

Wilmar deal a wake-up call to KL regulators

M'sian firms will list abroad if it fits their business model, analysts warn

By S JAYASANKARAN
IN KUALA LUMPUR

SINGAPORE-LISTED Wilmar International's US$4.3 billion buyout of the agribusiness activities of Malaysian tycoon Robert Kuok - including KL-listed PPB Oil Palms - is the clearest indication yet that Malaysian companies will list abroad if it fits their business model.

'It's a wake-up call to the regulators,' said a senior banker. 'It's a globalised world out there.'

According to several merchant bankers, the Wilmar proposal came as a shock to the authorities as it not only proposed a monetisation of Malaysian assets in Singapore, it also signalled that the Malaysian bourse wasn't as attractive a listing destination as Singapore.

If the deal goes through it will also rub out over RM6 billion (S$2.6 billion) of Bursa Malaysia's capitalisation as the deal envisages the privatisation of PPB Oil Palms.

Indeed, Bursa Malaysia, the former Kuala Lumpur stock exchange, may be shrinking because of such privatisations. Last year, the market saw an estimated RM90 billion worth of mergers and acquisitions being proposed: fully RM19 billion involved privatisations. The current market capitalisation of the Malaysian bourse is slightly more than RM860 billion.

Most companies were taken private earlier in 2006 when Bursa lagged behind their regional peers. Frustrated with poor valuations or perhaps just looking for an outright exit, owners began taking companies private or selling them outright.

Examples: the RM9.3 billion privatisation of power operator Malakoff by Syed Mokhtar Al-Bukhary's MMC Corporation and the RM7.6 billion takeover of Quek Leng Chan's Hong Leong-controlled OYL Industries by Japan's Daikin Industries.

It's the exit exemplified by PPB Oils that worries Kuala Lumpur. Wilmar, the company that eventually bid for Mr Kuok's Malaysian agribusiness assets, is controlled by the tycoon's nephew and was originally courted for a Kuala Lumpur listing.

After consideration, however, it chose to list in Singapore in July last year despite its mainly Malaysian and Indonesian assets.

Five months later, it proposed to buy over Mr Kuok's agribusinesses in Malaysia and Indonesia and privatising PPB Oils in the process. As analysts noted, it could have been the other way around, that is PPB Oils taking over Wilmar.

Why didn't that happen? Bankers say it's mainly due to the fact that businessmen today are spoilt for choice with regional bourses competing to woo companies. Moreover, there are no prohibitions against Malaysians listing their local assets abroad, according to a spokesperson from the Securities Commission, Malaysia's markets' regulator.

But there could also be other reasons. Merchant bankers say Malaysia is perceived negatively because of less attractive valuations, more red tape and more stringent shareholding requirements.

Valuations can be a compelling factor for certain companies.

'Private bankers especially from Singapore have approached at least two of my clients and offered them funding to take their listed, but undervalued, firms private subsequent to a listing on the Singapore stock exchange,' a director of a local stockbroking firm told BT. 'It's a no-brainer for my clients if they can get better valuations in Singapore. The competition out there is intensifying.'

Malaysian red tape does not help either. Bankers say that a typical corporate restructuring exercise in Malaysia takes at least 6-12 months to complete because of approvals required from various authorities.

But it's the shareholding requirements that are the real bugbear. Affirmative action policies that favour poorer bumiputras (mainly ethnic Malays) dating back to 1971 stipulate that 30 per cent of the equity of a company going for listing be set aside for bumiputras.

While these exercises were much sought after previously because of steep discounts offered to bumiputras, that no longer holds true: initial public offerings are priced closer to market, making IPOs vulnerable to market risk.

Moreover, while the Securities Commission says that companies that have complied with the 30 per cent requirement at listing no longer have to comply if the bumi investors sell down later, businessmen say that other ministries do not take the same view.

'I have been to a ministry to renew my licence for our mills only to be told that my company does not have 30 per cent bumi equity,' complained an executive from a listed plantation company.

The hassle - even if perceived - could be taking its toll on Bursa Malaysia. Last year, four Malaysian companies listed abroad. The biggest, Mission Biofuels Ltd, listed in Australia and raised A$42 million (S$50.4 million) but did so for more prosaic reasons. 'The Malaysian exchange does not allow for start-ups,' said M Paranthaman, a director of Mission whose 100,000 tonne biodiesel plant in Pahang state will be up and running later this year.

Units of another seven Malaysian companies, including oil and gas counter Scomi, infrastructure firm Ranhill and construction player Ireka have already expressed their intentions to list abroad this year.

For all that, however, the SC remains upbeat. 'Malaysia remains the preferred fund-raising centre for leading Malaysian companies,' a spokesperson said, maintaining that its approval procedures have fallen in line with its peers. 'For example, time-to-market for IPOs has been significantly reduced with approval time frames that are shorter than some of the major regional exchanges.'

Even so, the spokesperson conceded that overseas Malaysian listings were 'inevitable' because of different business models and the active competition among foreign bourses for these companies. 'We believe that the competition that this provides will lead to stronger regional capital markets,' said the spokesperson.

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