In the dynamic world of finance, companies often seek avenues for growth and expansion and one such pivotal milestone is the Initial Public Offering (“IPO”). In Malaysia, the IPO process is a strategic move for private limited companies to tap into the public market and raise capital, transforming themselves into publicly traded entities on Bursa Securities Malaysia Berhad (“Bursa Malaysia”).
B. Opportunities for Companies
(a) Enhanced Public Image and Establishing Legitimacy
Listing on Bursa Malaysia is a pivotal move for private companies transitioning to public status providing improved visibility, credibility and access to diverse funding sources. This process opens doors to a broader investor community, strengthening its presence in the financial markets and instilling confidence through adherence to stringent listing requirements. Amongst other regulators, the exchange establishes a regulated framework for trading of listed shares, ensuring transparency and investor protection, thereby enhancing the overall vibrancy of Malaysia’s capital market.
Interesting Note: In 2021, CTOS Digital Bhd attracted RM1.38 billion for its retail IPO tranche, the largest retail demand for an IPO since 2013. The IPO of the year also garnered 23 cornerstone investors in its book-building exercise, with renowned names such as Employees Provident Fund Board, Permodalan Nasional Bhd, Aberdeen Standard Investment, AIA, Eastspring Investments, FIL Investment Management and JP Morgan Asset Management.1
(b) Dynamic Offerings
In conjunction with the IPO, companies have the flexibility to issue new shares to the market, thereby raising fresh capital for various purposes such as business expansion, asset acquisition, research and development, debt repayment and other strategic initiatives. In addition, in accordance with the rules of the exchange and other applicable laws, existing shareholders including founders and early investors of the companies may opt to sell and liquidate their holdings to the public or specific institutional investors, further diversifying the offering and facilitating the transition from private to public ownership.
Interesting Note: In 2020, Mr DIY Group (M) Bhd undertook one of the largest IPOs in Malaysia in the past decade, successfully raising RM1.5 billion. Notably, a substantial RM1.2 billion of this amount was raised through the offer for sales of shares by its existing shareholders.2
(c) Exploring Regional Horizons
The allure of an IPO extends beyond Malaysia’s borders. Malaysian private limited companies have the option to propose listings not only on their home jurisdiction exchange, but also on exchanges in the broader region including Hong Kong, Singapore and the United States. This opens avenues for companies to access a wider investor base, tap into regional markets and potentially strengthen their global presence.
Interesting Note: Hong Kong is already among the preferred overseas listing destinations for Malaysian companies choosing to hold IPOs abroad, apart from Singapore and the Nasdaq in the US as it hosted about 60% or 11 of the 19 Malaysian companies that chose to list overseas from 2019 to 2021.3
(d) Talent Acquisition Strategy
Going public through an IPO in Malaysia can serve as a strategic move for companies in attracting and retaining top-tier talent. The increased visibility and prestige associated with being a publicly traded entity can enhance a company’s employer brand, making it more appealing to skilled professionals. The ability to offer employee share option scheme (ESOS) or other equity-based incentives becomes a powerful tool for attracting high-caliber employees who are aligned with the company’s long-term success. The public status also provides a transparent valuation metric for the company’s performance, making it easier to negotiate competitive compensation packages and showcase the organisation’s commitment to rewarding employee contributions.
Moreover, the liquidity of publicly traded shares can present an additional benefit for employees who may view ESOS as a valuable component of their overall compensation. This aligns the interests of employees with those of shareholders, fostering a sense of ownership and commitment within the workforce.
Interesting Note: An interesting observation is that a majority of the top 10 highest-paid CEOs in Malaysia were employed by publicly listed companies, as highlighted in a list compiled by WargaBiz in 2022.4
(e) Potential for Lucrative Acquisitions and Better Access to Lending
Participating in an IPO can open avenues for companies to pursue strategic acquisitions more effectively. With the infusion of fresh capital from the IPO, businesses can explore growth opportunities through mergers and acquisitions. The ability to leverage publicly traded shares as a form of currency or alternative consideration for acquisitions can be advantageous, as it allows companies to negotiate deals without solely relying on cash reserves. This strategic approach to acquisitions can contribute to the expansion of the company’s market share, diversification of product or service offerings, and overall business resilience.
Additionally, being a publicly traded company can enhance access to financing options. The increased visibility and transparency that come with public status can attract interest from financial institutions willing to extend credit or provide favourable lending terms. This improved access to capital can be instrumental for funding ongoing operations, undertaking new projects or managing financial obligations and contributing to the company’s financial stability and flexibility. Furthermore, the ability to issue additional shares in the future provides an ongoing avenue for raising capital without solely relying on traditional debt financing.
Interesting Note: In 2023, Farm Fresh Bhd (Farm Fresh) acquired 65% stake in The Inside Scoop Sdn Bhd (The Inside Scoop) for RM83.9 million, which was paid in combination of cash and issuance of new shares in Farm Fresh to the selling shareholders of The Inside Scoop.5
C. Challenges & Strategic Considerations
Setting sail on an IPO journey demands meticulous consideration of various key factors. Companies must evaluate their financial health, governance structures, compliance with applicable laws and overall market readiness. The success of an IPO is intricately tied to external factors such as the global economic landscape, geopolitical conditions and prevailing market dynamics. Navigating these uncertainties is crucial for companies aiming for a smooth listing process.
Engaging with professional advisors including auditors, company secretaries, investment bankers, independent market researchers, legal advisors and reporting accountants becomes imperative to navigate the complexities of the IPO process successfully. Beyond meeting legal requirements, collaboration with these experts ensures comprehensive strategic planning and effective risk management, and guarantees compliance with regulatory standards throughout the IPO process.
D. Unlocking Opportunities for Growth
In summary, an IPO is not merely a routine corporate exercise, it is a transformative event for private limited companies in Malaysia, unlocking opportunities for growth, expansion and increased visibility. Whether choosing Bursa Malaysia or venturing into regional exchanges, companies can access a broad investor base, raise capital and propel themselves into the public eye. As Malaysian businesses continue to evolve and expand, the IPO avenue remains a crucial chapter in their growth story, contributing to the vibrancy of the nation’s capital market and economy.
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