Unlike the Singapore Exchange S68 (SGX), Bursa Malaysia’s IPO market is thriving. It is on track to meet its goal of 42 new listings this year — with some debuts larger than others.
99 Speed Mart Retail Holdings raised RM2.3 billion ($700 million) on the Main Market in September, turning founder and CEO Lee Thiam Wah into a billionaire. In March, fertility care company Alpha IVF raised RM466.5 million — the largest ever on the bourse’s ACE Market, which stands for “access, certainty and efficiency”. It is an alternative, sponsor-driven market designed for companies with growth prospects, similar in some ways to SGX’s Catalist board.
Aside from keeping costs relatively low, what else has contributed to Bursa Malaysia having one of the best-performing IPO markets in the region this year?
The Edge Singapore asked Bursa Malaysia’s CEO Muhamad Umar Swift this question on the sidelines of Financial Times’ Moral Money Summit Asia 2024 last month. In response, Umar jokingly pointed at himself, suggesting that his leadership has made all the difference.
Turning serious, however, Umar notes that Malaysia introduced a number of government initiatives last year, such as the National Energy Transition Roadmap and the New Industrial Master Plan. The policies materialised this year, with strong economic growth and subsidy rationalisation efforts that — while tough to swallow at first — have been well-received by investors.
According to Umar, the market is also no longer questioning the country’s political stability. He further explains that investor confidence is also supported by domestic liquidity, stable foreign ownership and foreign investments — particularly in the banking sector.
See also: Borneo challenge looms as Anwar marks two years as Malaysian PM
The ringgit’s outperformance is also a source of support, says Umar. “We’re seeing a shift from short-term to medium-term investors, preventing volatility like what occurred with the yen and US dollar carry trade.”
There is also renewed interest in Malaysia from private equity investors, driven by rising valuations and opportunities as the traditional exit markets normalise.
Umar also acknowledges strong retail investor participation in Malaysia. Last year, the average daily value of on-market transactions made by retail investors there stood at RM551.3 million, up from RM519 million in 2022 and above the pre-pandemic average of RM400 million.
See also: Anwar orders Khazanah audit on loss-making venture
Singapore, on the other hand, reported a total market turnover of $228.25 billion for the first nine months of the year.
Transfers and ‘graduations’
Umar says it is encouraging that Bursa Malaysia sees a growing number of mid-caps that are using the market to raise capital for expansion instead of using it to exit. Bursa Malaysia is happy to be part of the capital market that facilitates the growth story, he adds.
The Securities Commission Malaysia (SC) introduced an accelerated transfer process last year, which facilitates the promotion of sizeable and qualified companies listed on the ACE Market to the Main Market.
The enhanced process aims to simplify the transfer, in turn incentivising more ACE Market-listed companies to make continuous efforts to improve their corporate values and achieve sustainable growth for shareholders.
The bourse also amended ACE Market listing requirements in relation to the transfer of listing framework from the Leap Market to the ACE Market, and now provides companies with a simple one-step process. The Leap Market, which stands for Leading Entrepreneur Accelerator Platform, is an adviser-driven market for sophisticated investors.
“As mid-cap companies grow, many will eventually transition to the Main Market, making it a progression or journey for them. Whether a company starts on the Main, ACE or even Leap market, it’s part of this growth trajectory,” says Umar.
To stay ahead of Singapore and the region’s corporate and economic trends, click here for Latest Section
In September, oil and gas services firm Steel Hawk became the first company to transfer from the Leap Market to the ACE Market under the new transfer network. At its ACE Market IPO, the company managed to raise RM13.5 million and its share price doubled in value when it began trading.
This is a good illustration of how liquidity attracts new companies or products as retail investors are particularly drawn to IPOs and thematic investments, says Umar. “As companies progress, we expect to see more ‘graduations’ from the ACE Market to the Main Market, where they can access a broader range of institutional investors. These investors often have guidelines limiting them to mid-cap stocks, making this transition an important step in a company’s journey to higher liquidity and broader market participation,” he adds.
Previously, Malaysian companies would either seek to IPO on SGX or apply for a secondary listing on Singapore’s stock exchange to attract more foreign investment and improve liquidity. Companies that have gone down this path include TSH Resources, IHH Healthcare Q0F and Malaysia Smelting Corporation.
Today, the reverse is taking place — Bursa Malaysia’s allure has attracted Singaporean companies like UMS Holdings
But Umar believes that SGX has its strengths, particularly in its diverse derivatives product line. Although SGX’s equity market is “less strong”, the exchange reflects the need of its economy and there are different ways of raising capital, he adds.
“In Singapore, in essence, we are seeing people turning to funds — like private equity funds. There’s an ebb and flow to these things as well as pricing expectations,” he says.
In September, SGX’s derivatives activity accelerated across multiple asset classes. Derivatives traded volume climbed 34% y-o-y to 28.9 million contracts, while derivatives daily average volume increased 35% y-o-y to 1.45 million contracts — each measure hitting the highest in four-and-a-half years.
Fit for purpose
Bursa Malaysia used to place “a lot of emphasis” on attracting large companies to list, says chairman Abdul Wahid Omar. “You only want to go for those [with] one billion [ringgit] and above.”
Speaking to The Edge Singapore in September on the sidelines of Invest Malaysia, an annual investor conference organised by Bursa Malaysia, Wahid says the exchange then “took a step back” to re-examine its purpose — to be the marketplace where investors and businesses meet, and where businesses can access capital for them to grow.
That means the bourse should make contact with companies “much earlier” when they are small, says Wahid. “That’s why we have the Leap Market, the ACE Market and the Main Market. That’s why we are doing better than others, I think.”
This has, of course, been supported by Malaysia’s economic growth, he adds. Since the Asian Financial Crisis, Malaysia has been growing at an average of 4.5% per annum. In 1H2024, Malaysia’s economy grew by 5%. “Based on the early data, the third quarter will be [an even] better number. So, I think there’s a lot of optimism. When the broader economy is actually growing, it will certainly create more business opportunities and employment opportunities. And therefore, businesses tend to do better. And if they do better, then they become more and more listable.”
The structure of Malaysia and Singapore’s economies are “completely different”, says Wahid. While both are trading nations, Singapore has a “huge” services sector, particularly in financial services.
Malaysia’s economy, however, is more varied, he adds. “The sustainability of growth and business opportunities that are listable — I think there are a lot more in Malaysia compared to Singapore, just because of the diversity of sectors. We have agriculture, manufacturing, services, a bit of construction, then oil and gas. So, all those actually do create a higher number of businesses that will require access to capital, and therefore, they are actually listable.”
According to Wahid, Bursa Malaysia welcomes to its trading floor Malaysian companies and Asean firms that have business in Malaysia. “We perhaps would not be keen on a foreign company that has got very little business in Malaysia. For them to be listed in Malaysia, it doesn’t really serve a purpose.”
Such foreign firms may raise capital in Malaysia, but invest the funds overseas. Wahid warns of such a “liquidity outflow”. “That’s not necessarily meeting Malaysia’s needs as a country, so to speak. Again, you do have to go back to purpose; Bursa Malaysia is the prime destination for Malaysian-based businesses and Asean-based businesses.”
Lessons from Japan, Korea
Market-watchers and leaders of Singapore’s bourse have mentioned possible lessons from the stock exchanges of Japan and South Korea, which started efforts to improve the valuation of their listed issuers in 2022 and 2024, respectively.
According to Tokyo Stock Exchange (TSE) disclosures, 50% of the stocks listed on its Prime Market traded below book value as of Sept 30, 2022. After the start of its “Value Up” programme in 2023, this ratio improved to 36% as at April.
Companies that disclosed plans to increase their dividends, or initiate share buybacks or streamline their non-performing assets, have reportedly performed twice as well as companies that have not.
The Japanese Council of Experts Concerning the Follow-up of Market Restructuring — the body responsible for the programme — held its 17th council meeting on Aug 19. Two points stood out to a team of CGS International analysts, led by William Tng.
Firstly, TSE aims to create a market where it is the norm for listed companies to work on improving corporate value through management that is conscious of cost of capital and stock price. TSE also expects listed issuers to engage in constructive dialogue with investors.
Secondly, TSE expects more listed issuers to privatise and delist as the cost of remaining listed increases. TSE says it will respect these decisions and will not focus on the number of listed companies. Instead, TSE will focus on the quality of companies that remain listed.
However, this remains a work in progress. About 79% of Japanese companies listed on the exchange’s prime section, or the main board, had responded to the bourse’s request as of August. But Nippon Life Insurance, one of Japan’s largest institutional investors, said in September that less than a third of domestic companies had also provided detailed strategies.
“The rest of the companies were just talking with enthusiasm or didn’t have satisfactory disclosures,” said Tomochika Ishii, general manager of equity investment department at Nippon Life, in a Bloomberg report.
Still, Nippon Life credited the TSE’s programme with helping raise awareness among Japanese companies about the need to allocate capital more efficiently. “The TSE’s initiative has had a big impact in changing companies’ mindsets,” Ishii said. “The next step is to make it real and that’s where investors like us have a role to play.”
Meanwhile, South Korea launched on Sept 24 a new corporate value-up index comprising 100 listed issuers with “best practices”. The Korea Exchange (KRX) selected 67 companies listed on the Kospi main bourse and 33 firms on the junior Kosdaq market, based on indicators such as dividends, share buybacks, priceto-book ratio and return on equity.
According to KRX, the index is designed to address the “Korea discount” issue and help investors identify companies with high shareholder value indicators, such as shareholder return rates and capital efficiency.
KRX also plans to launch financial products in November, such as futures and exchange-traded funds (ETFs), based on the new index.
Lessons from London
When The Edge Singapore spoke to Julia Hoggett, chief of the London Stock Exchange (LSE), in April, she mentioned the UK’s Capital Markets Industry Taskforce (CMIT), a group established in August 2022 to help drive the reform of the UK capital markets.
Chaired by Hoggett, its members include GSK’s chairman, Schroders’ CEO and KPMG’s strategy head, among others. CMIT members met monthly from July 2022 and published their meeting minutes online.
CMIT’s agenda — nicknamed “five fingers and a glove” — included plans to reform the UK’s listing rules to merge two segments of the Main Market, boost sell-side research, encourage the deployment of risk capital, improve corporate governance and scale “consequential private companies”.
The UK’s Financial Conduct Authority (FCA) then introduced in July “the most significant market reforms in a generation”, according to LSE. The new rules, which took effect from July 29, include replacing LSE’s premium and standard listing segments of the Main Market into a single segment for equity shares.
According to FCA, this will welcome “smaller and high-growth companies” that may have been previously unable to enter the UK capital markets due to the stringent requirements for a premium listing.
LSE’s AIM, formerly the Alternative Investment Market, remains unaffected by the change.
FCA also relaxed the eligibility criteria for companies seeking to list in the UK, allowing more flexibility for dual-class shares; reducing the free float held by the public at the time of listing from 25% to 10%; and removing a previous premium listing requirement to demonstrate a three-year revenue track record and a clean working capital statement.
The latter allows for a company that has existed for less than three years to still be eligible to list. According to FCA, this simplified approach aims to provide more flexibility for “high-growth and pre-revenue entities”.
Meanwhile, the reduction in free float and any enhanced voting rights will enable founders and early investors to retain “greater control and ownership of the company” even after listing, according to FCA.
Read the full cover story:
