Malaysia clears path for IPOS of busi­ness trusts

The Pak Banker - - Front Page -

KUALA LUMPUR

Malaysia will in­tro­duce rules gov­ern­ing ini­tial pub­lic of­fer­ings of busi­ness trusts by next month as it seeks to ex­tend a wave of share sales that saw the coun­try sur­pass Hong Kong and Sin­ga­pore in IPOs this year.

Kuala Lumpur has been home to three of Asia's four big­gest IPOs this year as pro­ceeds more than tripled from 2011 to 21.1 bil­lion ring­git ($6.9 bil­lion), data com­piled by Bloomberg show.

Busi­ness trusts, a struc­ture through which com­pa­nies have raised more than $9 bil­lion in Sin­ga­pore since 2004, may help Malaysia draw more of­fer­ings, ac­cord­ing to Wong.

"There is an ac­tual need and we have to keep the mar­ket cur­rent," Wong said in an in­ter­view. "We have to pro­vide more av­enues of cap­i­tal rais­ing."

Busi­ness trusts pool cash­gen­er­at­ing as­sets and typ­i­cally dis­trib­ute a large por­tion of prof­its as pay­outs, mak­ing them sim­i­lar to real es­tate in­vest­ment trusts. They also com­ply with Is­lamic laws, Wong said.

Shariah-com­pli­ant trusts pro­hibit in­come from in­vest­ments in gam­bling, fi­nan­cial ser­vices based on in­ter­est pay­ments, ho­tels and bars. Wong de­clined to say when he ex­pects Malaysia's first busi­ness trust IPO to take place.

Since in­tro­duc­ing busi­ness trusts in 2004, Sin­ga­pore has drawn 13 such IPOs list­ing as­sets rang­ing from ports to hos­pi­tals that now have a to­tal mar­ket value of about $13 bil­lion, ac­cord­ing to the citys­tate's stock ex­change.

Hong Kong's first busi­ness trust went pub­lic in Novem­ber last year when PCCW Ltd. (8), the city's big­gest phone car­rier, raised HK$9.3 bil­lion ($1.2 bil­lion) in a list­ing of telecom­mu­ni­ca­tions as­sets.

"It makes per­fect sense for Malaysia to try to align it­self with what's hap­pen­ing in Sin­ga­pore," said Philippe Espinasse, for­mer co-head of Asian eq­uity cap­i­tal mar­kets at No­mura Hold­ings Ltd. "South­east Asian ex­changes have been very good with in­no­va­tion.

Whether it is real es­tate in­vest­ment trusts or busi­ness trusts or Is­lamic prod­ucts, they're cer­tainly much more in­no­va­tive than ex­changes in North Asia."

Malaysia rose to promi­nence as an IPO cen­ter this year as palm oil pro­ducer Felda Global Ven­tures Hold­ings Bhd. (FGV) and hospi­tal op­er­a­tor IHH Health­care Bhd. (IHH) raised a com­bined $5.4 bil­lion, with de­mand for both sales ex­ceed­ing sup­ply.

In­vestors were drawn to the of­fer­ings partly on op­ti­mism that Malaysia's econ­omy would continue to weather the ef­fects of Europe's credit con­ta­gion. Gross do­mes­tic prod­uct rose 5.4 per­cent in the three months through June from a year ear­lier, ac­cel­er­at­ing from the pre­vi­ous quar­ter's 4.9 per­cent growth.

While both Felda Global and IHH Health­care have risen from their IPO prices, Astro Malaysia Hold­ings Bhd. has slumped 12 per­cent since com­plet­ing a $1.5 bil­lion IPO last month.

JPMor­gan Chase & Co.'s se­nior coun­try of­fi­cer for Malaysia, Steve Clay­ton, said he ex­pects more bil­lion-dol­lar IPOs in the coun­try with the in­tro­duc­tion of busi­ness trusts, cit­ing a sur­feit of large com­pa­nies with suit­able as­sets such as high­ways, tele­com, util­i­ties and gam­ing firms.

"There's a lot of in­ter­est in these busi­ness trusts at the mo­ment," said Clay­ton. "It means that the mo­men­tum that we've seen in the last six months will continue into the new year." Busi­ness trusts have had a mixed per­for­mance in Sin­ga­pore and Hong Kong. Hutchi­son Port Hold­ings Trust (HPHT), which raised $5.5 bil­lion in South­east Asia's big­gest IPO, has tum­bled 23 per­cent since it started trad­ing in Sin­ga­pore in March 2011. Pa­cific Ship­ping Trust, the first ship­ping trust, was delisted in March this year amid slug­gish trad­ing.

HKT Trust, com­pris­ing the tele­com as­sets sold by PCCW, has gained 60 per­cent in Hong Kong this year.

This year, Reli­gare Health Trust, As­cen­das Hos­pi­tal­ity Trust and Far East Hos­pi­tal­ity Trust listed in Sin­ga­pore. Far East and As­cen­das is­sued so­called sta­pled se­cu­ri­ties that in­clude a busi­ness trust com­po­nent.

Avi­a­tion Cap­i­tal Trust, which will be backed by planes from Gen­eral Elec­tric Co.'s air­craft leas­ing unit, and Ber­jaya Sports Toto are also plan­ning ini­tial share sales in the city-state.

"Bundling cash-gen­er­at­ing as­sets into a trust is one thing; there also needs to be a clear and con­vinc­ing story," said Espinasse, who's the au­thor of "IPO: A Global Guide." "At the end of the day, these are eq­uity se­cu­ri­ties and when it comes to eq­ui­ties, it's all about a story and grow­ing a busi­ness in ad­di­tion to div­i­dend pay­ments."

Malaysia, which started a $444 bil­lion 10-year de­vel­op­ment plan in 2010 to build roads, rail­ways and power plants, pi­o­neered Is­lamic fi­nance 30 years ago.

It has the big­gest global bond mar­ket that com­plies with reli­gious tenets and was also the first to in­tro­duce Shariah-com­pli­ant REITs. The South­east Asian na­tion is also home to Al-Aqar Health­care REIT, the old­est pub­licly traded Shariah prop­erty trust.

Prime Min­is­ter Na­jib Razak an­nounced in his an­nual bud­get speech on Sept. 28 that tax and stamp duty ex­emp­tions will be given to com­pa­nies set­ting up busi­ness trusts as part of ef­forts to de­velop the mar­ket. "Malaysia is an Is­lamic fi­nance hub and busi­ness trusts will fit per­fectly in pro­vid­ing more Shari­ah­based in­vest­ment op­por­tu­ni­ties," Wong said.

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