Bursa Malaysia: Main, second boards to unify soon

It has been announced by Prime Minister Abdullah Ahmad Badawi that Bursa Malaysia’s main and second boards will be combined into a unified board. Also, the Mesdaq market will be transformed into a sponsor-driven market.

The two boards would be combined into a unified board for more established companies with strong financial track records. “The unified board will have uniform listing requirements and comprehensive disclosure-based regulations with easy entry and fast removal access,” he said.

As for the Mesdaq market, its streamlining process will allow smaller companies to access the equity market at an earlier stage of their lifecycle. “The listing of emerging companies will be sponsor-driven whereby advisers will play a greater role in bringing listings to the market and maintain on-going supervision.”

The Securities Commission in a statement said the initiatives were “in line with international practices” and would enhance Bursa’s position as a “preferred listed destination” for domestic companies and provide a “competitive listing platform for foreign companies.”

Analysts have long held the view that the second board no longer fulfilled its original objective. Many companies that first listed there have grown and graduated to the main board. And the current trend is that companies in the second board are hurrying to transfer to the main board. The second board no longer appeal to investors because a large number of companies there have very poor or no earnings. Such companies may, in future, even lose their listing status.

The SC said the new regulatory approach for the unified board and Mesdaq will mean that principal advisers and sponsors would bring companies to list on Bursa Malaysia and be responsible for ensuring the quality and suitability of companies for listing. The advisers and sponsors will decide if a company is suitable for a listing. Currently, listings on the main and second boards require the SC’s approval.

The initiatives are in line with practices in some overseas markets, like the London Stock Exchange’s Alternative Investment Market (AIM), where sponsors decide if a company qualifies for a listing. The sponsors would also provide the supervision of companies listed in the Mesdaq.

Here is how The Business Times in Singapore reported it in its edition today:

IN ONE of his first policy speeches since the March 8 general election, Malaysian Prime Minister Abdullah Ahmad Badawi promised wide-ranging reforms and a continuation of pro-business and investment policies.

Speaking at an investors’ conference yesterday, he also announced plans to combine Malaysia’s main and second boards into a ‘unified board’, as well as a revamp of the junior Mesdaq Market to allow emerging companies greater access to capital market funds while making the mechanism more sponsor-driven.

Bond offering approvals are to be further liberalised; Malaysia will allow for a third credit rating agency, with foreign shareholders allowed up to 49 per cent equity. To enhance liquidity in the stock market, a market-making framework is in the pipeline,which could see proprietary traders in commercial and investment banks as well as foreign traders obliged to participate as market makers – but in exchange for incentives such as tax concessions and lower fees.

Mr Abdullah’s address at the annual InvestMalaysia conference had been keenly awaited for signs as to how his administration intended to govern, following the political uncertainties after the massive electoral backlash on March 8 which left his ruling Barisan Nasional (BN) coalition without a two-thirds Parliamentary majority plus the loss of an unprecedented five states.

The market rallied 2.42 per cent yesterday, perhaps in part owing to the PM’s assurances. But Mr Abdullah also conceded that his government had let Malaysians down after a landslide win in 2004.

‘The result of the elections was a strong message that I have not moved fast enough in pushing through with the reforms that I promised to undertake,’ he said. ‘I thank the Malaysian people for this message. Point well made and point taken.’

He said there would be a renewed focus on battling crime and corruption, supporting judicial reforms and ensuring a fair number of places of worship for Malaysians of all religions, noting that ‘these were the major issues that resonated with voters regardless of ethnicity, background, gender or age’.

Mr Abdullah reiterated his commitment to planned economic corridors – even those in the five Opposition-held states – and said he intended to have ‘productive working relationships with all state governments’ to ensure the corridors’ success.

He said there were no plans to cancel any proposed infrastructure projects, but owing to increases in prices of raw materials, there would be some ‘fine tuning’ – for example, the projects might be funded by the private sector rather than be government financed.

With the country already one of the biggest markets for the issue of Islamic bonds, Malaysia’s further liberalisation extends ‘deemed approved’ status to domestic or foreign ringgit-denominated bond offerings rated ‘AAA’ by domestic rating agencies or a minimum ‘BBB’ by international agencies.

These issues will also be exempted from trust deed and trustee requirements, and will be able to use international documentation.

The deemed approved status will also be given for non-ringgit bonds issued by local and foreign issuers but a minimum ‘BBB’ rating by an international agency will be required.

There was no timeframe provided for when the equity boards would be unified, but Mr Abdullah said the combined board would have uniform listing requirements, and be disclosure-based, ‘with easy entry and fast removal’.

Because of the scant interest in the second board, corporate executives were of the view that it made sense to combine both exchanges. But they believe a reasonable timeframe is necessary, given the significant differences in the listing criteria and quality between the companies on the two boards.

High prices had also been a factor in the elections, with the government expected to reduce its hefty oil and gas subsidies after the polls. That is now uncertain although Mr Abdullah yesterday talked about a package of measures to help lower-income earners, ‘as well as limiting the wastage and losses caused by subsidies’. But he declined to disclose details, saying an announcement would be made soon.