&
SEMINAR ON ISLAMIC FINANCE
INITIAL PUBLIC OFFERINGS (IPOs)
IN THE ISLAMIC FINANCING CONTEXT
LIM SHUEH LI
HEAD OF CORPORATE FINANCE DEPARTMENT
CORPORATE INVESTMENT BANKING
BANK ISLAM MALAYSIA BERHAD
17 March 2010 / 1 Rabiulakhir 1431H
STRICTLY PRIVATE & CONFIDENTIAL
IPO
Why IPO?
LIQUIDITY OF
SECURITIES
IPO provides greater liquidity of securities.
Quoted securities, because of their marketability, may be
transacted at a premium.
Quoted securities tend to be accepted by lenders as
collateral.
ABILITY TO RAISE
FUNDS
Wider choice of financing alternatives e.g. issue of new
equity securities, private debt securities or debt securities
with equity linked instruments.
Able to secure borrowing at more competitive terms as a
result of its enhanced credit standing.
BETTER POSITION
TO SECURE
BUSINESS DEALS
Suppliers, customers and other business associates may
feel more secure when they are dealing with public listed
companies.
This is mainly due to the listing status which may provide
some indication as to the financial strengths and quality of
management of Applicant.
2
IPO
Why IPO? (cont’d)
ENABLE PUBLIC
PARTICIPATION
A listing status will provide the Malaysian public the
opportunity to participate in the equity of Applicant and
hence its future growth and profitability.
ENHANCEMENT OF Greater visibility and higher profile.
IMAGE
Listed status enhances reputation and credibility of
Applicant.
ATTRACT AND
RETAIN
EMPLOYEES
As a way of rewarding employees, Applicant can consider
the allocation of securities via pink forms to its employees in
its IPO exercise. These allocations would constitute part of
the public shareholding spread requirement.
Ability to attract, retain and reward employees through the
establishment of an Employee Share Option Scheme
(“ESOS”).
A listed company's ESOS is naturally more attractive to
existing and prospective employees.
3
IPO
Implications of IPO
COMPLIANCE AND
DISCLOSURE
REQUIREMENTS
SHAREHOLDERS’
APPROVAL
A listed company has to comply with the rules of Bursa
Malaysia Securities Berhad (“Bursa Securities”) and
Securities Commission (“SC”) which regulate its
transactions
and
impose
extensive
disclosure
requirements such as quarterly and annually reporting to
shareholders and public.
Opportunity for competitors to understand more the public
listed company’s business strategies.
All major investment decisions, acquisitions, divestment or
securities issues will require approval of shareholders at a
general meeting convened for that purpose. Transactions
involving the interests of substantial shareholders and/or
directors will preclude them and their related parties from
voting.
4
IPO
Implications of IPO (cont’d)
PUBLIC
ACCOUNTABILITY
A listed company is usually under constant scrutiny of the
press and the public.
REDUCING
CONTROL
The existing management/owner of an unlisted company
would have their interest diluted as part of the IPO
process.
Major shareholders would not be in the position to control
the action of other shareholders.
DIRECTORS’
RESPONSIBILITIES
HIGHER COSTS
AND RESOURCES
COMMITMENT
Applicant’s directors will have greater responsibility to
safeguard the interests of Applicant and its shareholders,
particularly the minority shareholders.
Stricter requirements to comply with existing
requirements and disclosures.
Additional
costs,
resources
and
disclosures
requirements, i.e. quarterly and annually financial
reporting to shareholders and public.
5
IPO
Practical Issues for Consideration
Prior to Submission
Taxation
• All tax issues would need to be settled and addressed.
• SC’s equity guidelines contains provisions for Applicant and its
subsidiaries to make up-to-date submissions of tax returns and
settlements of tax liabilities to Inland Revenue Board.
• Tax issues may reflect the promoters’ attitude towards corporate
governance.
Conflicts of Interests
• All conflicts of interests especially between directors’ personal interest
and the Applicant’s businesses should be resolved, eliminated or
mitigated prior to listing, which have to be fully disclosed and addressed
in the prospectus and submission to the authorities.
6
IPO
Practical Issues for Consideration (cont’d)
Bumiputera shareholdings for National Development Policy (“NDP”)
Requirements
• If the company proposes to nominate its own Bumiputera shareholders to
be recognized by the Ministry of International Trade and Industry to meet
the NDP requirements, it should ensure that these parties would become
shareholders of the Applicant at least 6 months prior to the submission to
the authorities.
Licenses, Permits and Approvals
• All licenses, permits and approvals for the Applicant to carry out its
business should be obtained prior to submission.
• Certificates of fitness for occupation (CF) must be obtained particularly
for Applicant’s factories. IPO may be delayed if CF are not obtained.
7
IPO
Practical Issues for Consideration (cont’d)
Risk Management Issues
• Issues on susceptibility to flood, fire, outbreak of disease and other risk
factors which may be detrimental to the operations of Applicant.
Corporate Governance
• High emphasis on corporate governance.
• SC may reject proposals where Applicant or its directors have adverse
governance records, e.g. breach of laws and guidelines.
8
IPO
Practical Issues for Consideration (cont’d)
Assessment of suitability for listing
Qualitative Issues
•
•
•
•
•
Industry developments affecting viability of business.
Competition intensity : Need for Applicant to demonstrate its competitive edge.
High reliance on certain customers/suppliers.
Non-compliance to legislations, rules and conditions imposed by authorities.
Continuity of management/succession planning, i.e. dependence on certain
directors or key management.
Quantitative Issues
•
•
•
•
•
•
Uncertainty in future financial performance.
Profit track record met through contribution from non-sustainable business.
High gearing ratio.
Default in borrowings.
High slow moving and/or obsolete stocks.
High overdue trade debtors.
9
IPO
Malaysia Stock Market & IPO Environment
Number of New Listings (As at 25 February 2010)
Year
Main Market
ACE Market
Total
2010
2
0
2
2009
12
2
14
Year
Main Board
Second Board
Mesdaq Market
Total
2008
7
8
8
23
2007
15
8
3
26
2006
10
8
22
40
2005
16
17
46
79
Number of Listed Companies (As at 8 March 2010)
Year
Main Market
ACE Market
Total
2010
842
116
958
2009
844
116
960
Year
Main Board
Second Board
Mesdaq Market
Total
2008
634
221
122
977
2007
636
227
124
987
2006
649
250
128
1027
2005
646
268
107
1021
Source : Bursa Securities’ website
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IPO
Estimated Listing Timeline
An estimation of approximately 7 months is required for the completion of an
IPO exercise.
Appointment of Principal
Adviser
Submission to
Authorities
(SC and other relevant
authorities)
Underwriting Signing
Ceremony
6 months
4.5 months
Start
Appointment of Due
Diligence Solicitors and
Reporting Accountants
2 months
Approval from
SC and other relevant
authorities
Balloting
5.5 months
7 months
time
6.5 months
Opening of Offer
Registration and Lodgement of
Prospectus with SC and CCM
Submission of quotation
documents
LISTING
CCM: Companies Commission of Malaysia
11
IPO
Bank Islam’s Roles in IPO
Our roles may include the following:• Advise, plan and implement the optimum strategy for IPO;
• Advise on the restructuring and equity structure in preparation for IPO;
• Advise on the relevant guidelines and regulations of relevant
authorities;
• Coordinating the work of the parties involved in the IPO;
• Assisting the company to project manage the deal to completion;
• Assisting in review of documentations associated with the IPO;
• Assisting in due diligence review and verification exercise process to be
carried out for the IPO; and
• Preparing and making submission to the relevant authorities for
approvals.
12
MAIN MARKET OF
BURSA MALAYSIA SECURITIES BERHAD
13
Main Market of Bursa Securities
Equity Guidelines - Main Market
Requirement
Profit track
record test
Equity Guidelines
Profit track record:
Remarks
Ease requirements to be met by
Uninterrupted profit track record of 3 to 5
full FYs:Main Market
Total PAT over
3-5 FYs
≥ RM20 million
PAT for the
most recent
FY
≥ RM6 million
Proforma Accounts:-
applicant, easier access with uniform
entry requirements.
The new profit requirements of the
Main Market is the average of both,
the Main Board and Second Board. It
takes
into
consideration
profit
requirements of other major bourses.
Similar
entry
requirement
for
companies
with
predominantly
foreign-based operations may attract
foreign listings.
Qualifying companies must be able to fulfill
the profit requirements based on the
strength of the group’s proforma accounts:- Same core business;
- Common controlling shareholders.
14
Main Market of Bursa Securities
Equity Guidelines - Main Market (cont’d)
Requirement
Market
capitalisation
test
Equity Guidelines
Market capitalisation: Minimum RM500 million.
Profit record: None.
Proforma Accounts: If listing based on the strength of proforma
accounts, corporations within the group
must
have
common
controlling
shareholders only.
Operating history: Must
have been incorporated and
generated operating revenue for at least 1
full financial year.
Remarks
Removals of:-
(i)
profit requirement for latest
financial year;
(ii)
same core business and
common
directors
for
proforma accounts; and
(iii)
shortening
of
operating
history;
will enable more large capitalised
local and foreign companies to list in
Malaysia.
The changes bring our requirements
at par with
exchanges.
than
other
regional
15
Main Market of Bursa Securities
Equity Guidelines - Main Market (cont’d)
Requirement
Infrastructure
project
company (IPC)
test
Equity Guidelines
Applicants with remaining concession or license
Remarks
More IPCs will be eligible for listing.
of at least 15 years.
At least RM500.0 million project cost.
Shorter remaining concession period allowed if
the IPC has a profit track record.
Minimum paidup capital
No minimum paid-up capital.
Management
Continuity and
Capability
Applicant
Another flexibility provided by SC.
Profitable companies not requiring
large capital base e.g. services or
trading industries now able to list on
Bursa Securities without having to
enlarge its share capital beyond its
business requirement.
should have had continuity of
substantially the same management for at least
three full financial years prior to submission to
the SC or for companies listing through market
capitalisation or IPC route, since the
commencement of its operations (if less than
three full financial years).
16
Main Market of Bursa Securities
Equity Guidelines - Main Market (cont’d)
Requirement
Underwriting
Equity Guidelines
No mandatory underwriting.
Remarks
Optional underwriting may raise new
issues to the market.
Optional underwriting based on the funding
requirements of applicant.
Underwriting arrangements are at the discretion
Market perception for the new listing if
no underwriting arrangement is put in
place.
of the applicant and its Principal Adviser (PA).
PA and applicant need to consider all
If there is an underwriting arrangement, the PA
must be part of the syndicate of underwriters.
To disclose in the listing prospectus: If
the minimum subscription is not
achieved, the offering of securities must be
terminated and all consideration received
must be returned to subscriber.
The level of underwriting that has been
arranged, with justifications for the level
arrangement.
the risk factors when determining the
minimum level and maximum level of
shares available for subscription
including the reputational impact
should there be an under-subscription
situation.
17
Main Market of Bursa Securities
Equity Guidelines - Main Market (cont’d)
Requirement
Equity Guidelines
Remarks
Additional
requirements
for the Listing
of Specific
Companies
All additional requirements have been removed.
Lesser requirements to meet for the
Secondary
listing of
foreign
corporations
The
specific companies.
For
property development and investment
companies, an independent valuer must be
appointed.
market
capitalisation
and
requirements have been removed.
profit
Foreign corporations should have the relevant
laws and standards that are at least equivalent
to those in Malaysia particularly with respect to:(i) corporate governance;
(ii) shareholder and minority interest protection;
and
(iii) take-overs and mergers.
Easier access for these companies to
enter into the capital markets.
With the removal
of the market
capitalisation and profit requirements,
it would encourage more secondary
listings of foreign corporations on
Bursa Securities.
PA to assume more responsibilities in
listing foreign corporations.
Concern may be foregoing quality for
quantity with the removal of the
quantitative requirements?
18
Main Market of Bursa Securities
Equity Guidelines - Main Market (cont’d)
Requirement
Equity Guidelines
Remarks
Allocation to
Bumiputera
investors
Companies with Malaysian-based operations
Easier access to Malaysia’s capital
seeking listing on the Main Market and ACE
Market are required to allocate 50% of the
public spread requirement to public Bumiputera
investors (<5% shareholdings) at the point of
listing (i.e. effectively 12.5% Bumi equity
participation) (“Requirement”). This includes
the portion made available for subscription via
balloting, 50% of which are to be made
available to retail Bumiputera investors.
market and shortening the time to
listing as currently some companies
have difficulties in allocating shares to
Bumi investors.
Companies with Multimedia Super Corridor
(MSC) status, BioNexus status and companies
with predominantly foreign-based operations
are exempted from the Bumiputera equity
requirements.
Under the revised process, domestic
companies seeking listing will have to
comply with the Requirement of
12.5% Bumi equity participation: Applicant to make their shares
available
to
MITI-approved
institutions and investors;
If shares unsubscribed, shares
are to be made available to a
wider Bumi public via an IPO
balloting process; and
Applicant will be deemed to have
complied with the Bumi equity
requirement once they have
completed the process.
19
Main Market of Bursa Securities
Equity Guidelines - Main Market (cont’d)
Requirement
Moratorium on
Disposal of
Shares
Equity Guidelines
Remarks
For IPC, moratorium on promoters’ entire
Uniform moratorium requirements for
shareholdings for 6 months period and 45%
thereafter until IPC registered full financial year
revenue.
companies listed under profit test,
market capitalisation test and IPC test.
Shorter
For listing
under profit track record test or
market capitalisation test, moratorium on
promoters’ entire shareholdings for 6 months
period from the date of listing.
moratorium for IPC i.e.
promoters cannot sell their shares in
first 6 months.
Raises
concerns on
investor’s
protection : Will it reduce an investor’s
comfort investing in IPC’s?
20
Main Market of Bursa Securities
Equity Guidelines - Main Market (cont’d)
Requirement
Special
Purpose
Acquisition
Companies
(SPACs)
Equity Guidelines
Must raise a minimum RM150.0 million.
Minimum 90% of IPO proceeds to be deposited
in a trust account.
At least 80% of amount in trust account to be
Definition of
SPACs:
Shell
companies
without
operations that
go public with
the intention of
merging with or
acquiring
operating
companies of
business with
the proceeds of
their IPO
Remarks
SPACs could be used as a vehicle to
promote private equity activities and
encourage corporate mergers and
acquisitions (M&A) – no restriction in
the industry that SPAC can make
investment.
used for qualifying acquisition.
At least 10% in the SPAC held by management
team upon IPO with embedded restriction on
voting
and
participation
in
liquidation
distribution.
A SPAC must demonstrate that the members of
its management team have the experience,
qualification and competence to achieve the
SPAC’s business strategy.
21
Main Market of Bursa Securities
Equity Guidelines - Main Market (cont’d)
Requirement
Equity Guidelines
Remarks
Back-Door
Listings
(“BDL”)/
Reverse
Takeovers
(“RTO”)
BDL/RTO must satisfy the following tests:-
The requirements are now aligned as
per IPO requirements.
Aggregate PAT over 3 to 5 years minimum
RM20.0 million.
Latest financial year PAT of minimum RM6.0
million.
SC’s approval is not required for
disposal of assets. However approval
is required at the point when a listed
company acquires assets which
results in a BDL/RTO.
Allow profit requirement to be met by enlarged
group/assets.
In line with the SC’s objective to
encourage more M&A. Profits from
the new assets can be combined with
the existing assets to meet the
minimum
profit
track
record
requirement.
BDL/RTO
is
easier
since
“uninterrupted profit” requirement has
been removed.
22
Main Market of Bursa Securities
Equity Guidelines - Main Market (cont’d)
Requirement
BDL/RTO
(cont’d)
Equity Guidelines
Remarks
Moratorium on vendor’s shareholdings for 6
Uniform moratorium period as IPO i.e.
months.
Placement of shares to meet shareholdings.
A new percentage ratio has been introduced:-
(i)
(ii)
Revenue attributable to the assets which
are the subject of the acquisition divided
by the revenue of the listing corporation;
and
Further clarification is set out in PN3.
6 months.
However, more responsibility for PA
as there is enhanced disclosure
requirements in the announcement
and circular e.g. greater details on
utilisation of proceeds raised and
justifications for issue of new
securities rather than available
financing options etc. Further details
are set out in Appendix 10A and 10B
of Listing Requirements (LR).
23
Main Market of Bursa Securities
Equity Guidelines - Main Market (cont’d)
Requirement
Equity Guidelines
Remarks
Proposals by
Distressed
Listed
Company
(“DLC”)
Removed entirely from the Equity Guidelines -
A DLC may be able to turn around its
Transfer from
ACE Market to
Main Market
Compliance with either profit track record test,
Main Market.
Such DLC will be governed under the Bursa
financial position without undertaking
a BDL/RTO.
Securities’ LR Para 8.04 and PN 17/ GN 3. PA If a listed company is reclassified as a
to ensure:
DLC within 3 years after it has
Listed companies’ regularisation plan must
undertaken its first regularisation
demonstrate that restructuring scheme:proposal, the second regularisation
(i) is comprehensive and able to regularise its
proposal must be of a BDL/RTO
condition;
nature and be subjected to the SC’s
(ii) no longer trigger PN17/GN3 conditions;
approval.
and
More responsibility by PA to ensure
the scheme will increase shareholders’ value.
that the reqularisation plan meets with
Bursa Securities’ LR.
market capitalisation test or IPC test.
Requirement is simplified where it is
similar to the IPO’s requirements.
Much
more paper work as the
introductory document needs to meet
with the Prospectus Guidelines and
Procedures for Registration.
24
MAIN MARKET:
SUBMISSION PROCESS
25
Main Market: Submission Process
Main Market Submission Process
SC
T (working/market days)
Bursa
Pre-submission consultation
Submission of valuation report
(10)
Submission to SC under S212 and S232 CMSA
Prospectus public exposure period begins
Review of application and prospectus begins
0
Prospectus public exposure ends
SC issues queries and suggestions for disclosure
enhancements
15
Adviser reverts with reply to
replacement pages for prospectus
queries,
40
SC issues decision letter on approval for IPO and
approval-in-principle for prospectus registration
53
Registration of prospectus
Issuance of prospectus / offer period begins
Application can be made to Bursa
Securities for Initial Listing (no more
separate application for listing and
quotation) at any time. Documents
required:
Application form
Copy of the prospectus
Declarations / undertaken by
applicant & adviser
Processing timeframe : 6 market days
60
61
66
Last date for listing application to be
approved
26
Shariah--Compliant Securities
Shariah
27
Shariah-Compliant Securities
Brief Introduction of Shariah-Compliant Securities
Shariah-compliant securities are securities (ordinary shares, warrants and
transferable subscription rights) of a Bursa Securities-listed company which
have been classified as Shariah permissible for investment, based on the
company’s compliance with Shariah principles in terms of its primary
business and investment activities.
Shariah-compliant securities list was introduced in 1997 by the Shariah
Advisory Council of the SC (“SAC”).
The SAC reviews the status of Shariah-compliant securities on a semiannual basis and will update its list of Shariah-compliant securities in the
month of May and November of each calendar year.
The SAC reviews the Shariah-compliant securities through their annual
financial reports, obtaining of detailed company information and specific
inquiries made to the respective companies management.
28
Shariah-Compliant Securities
Brief Introduction of Shariah-Compliant Securities (cont’d)
New applicant seeking for listing on Bursa Securities may apply to the
SAC for the recognition of its securities as Shariah-compliant securities.
With the Shariah compliant status, the applicant will be able to offer their
securities to a wider spectrum of investors pursuant to its IPO including
the funds from the Middle East region.
The availability of Shariah-compliant securities led to the introduction of
the Islamic equity index. This is to meet the demands of local and
foreign investors who seek to invest in securities which are consistent
with the Shariah principles. This index facilitates the tracking and
benchmarking of the performance of Shariah-compliant securities listed
on Bursa Securities.
The current Islamic equity index is FBM Hijrah Shariah Index.
29
Shariah-Compliant Securities
Shariah non-permissible activities
The SAC has applied a standard criterion in focusing on the activities of the
companies listed on Bursa Securities.
Generally, companies will be labeled as Shariah-compliant if they are not principally
involved in the following core activities:• Financing services based on riba (Interest);
• Gambling and gaming;
• Manufacture and sale of non-halal products or related products;
• Conventional insurance;
• Entertainment activities that are non permissible according to Shariah;
• Manufacture or sales of tobacco-based products or related products;
• Stockbroking or share trading in Shariah non-compliant securities; and
• Other activities deemed non-permissible according to Shariah.
Interest income derived from conventional fixed deposit (“FD”) or other interest
bearing instruments, and dividends received from investment in Shariah noncompliant securities are being considered in determining the Shariah conformity.
30
Shariah-Compliant Securities
Shariah-compliant criteria
For companies with activities comprising both permissible and nonpermissible elements, the SAC considers 2 additional criteria:i.
ii.
Public perception or image of the company must be good; and
Core activities of the company are important and considered maslahah
(“benefit” in general) to the Muslim ummah (nation) and the country, and the
non-permissible element is very small and involves matters such as umum
balwa (common plight and difficult to avoid), uruf (custom), and the rights of the
non-Muslim community which are accepted by Islam.
To determine the tolerable level of mixed contributions from permissible and
non-permissible activities towards the turnover and profit before tax of a
company, the SAC has established several benchmarks based on the
ijtihad (reasoning from the source of Shariah by qualified Shariah Scholars).
If the contributions from non-permissible activities exceed the benchmark,
the securities of the company will be classified as Shariah non-compliant.
31
Shariah-Compliant Securities
Shariah Benchmark
The benchmarks are as follows:Benchmark
Description
Examples:-
5%
To assess the level of mixed contributions Riba (interest-based companies
from the activities that are clearly prohibited.
like conventional banks),
gambling, liquor and pork.
10%
To assess the level of mixed contributions FD’s interest income in
from the activities involving element of umum conventional banks and
balwa which is a prohibited element affecting tobacco-related activities.
most people and difficult to avoid.
20%
To assess the level of contribution of rental Rental of premises that involved
payment
from
Shariah
non-compliant in gambling and sale of liquor.
activities.
25%
To assess the level of mixed contributions Hotel and resort operations,
from activities generally accepted by Shariah share trading and stockbroking.
and involve maslahah element but there are
other elements which may affect the Shariah
status of these activities.
32
Shariah-Compliant Securities
Shariah-compliant securities on Bursa Securities as at 23 November 2009
Main Market / ACE
Market
Shariah-compliant
securities
Total securities
% of Shariahcompliant
securities
Consumer products
126
135
93
Industrial products
280
290
97
Mining
1
1
100
Construction
48
50
96
Trading / Services
171
199
86
Properties
73
88
83
Plantation
38
43
88
Technology
98
101
97
Infrastructure (IPC)
6
7
86
Finance
5
40
13
Hotels
Nil
4
Nil
Closed-end fund
Nil
1
Nil
Total
846
959
88
33
Shariah-Compliant Securities
Examples of Shariah-compliant securities & Shariah non-compliant securities
Shariah-complaint securities
Shariah non-compliant securities
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
16.
17.
18.
19.
20.
1.
2.
3.
4.
5.
6.
UMW Holding Bhd
Y.S.P. Southeast Asia Holding Bhd
Hume Industries (Malaysia) Bhd
Lafarge Malayan Cement Bhd
IJM Corporation Bhd
YTL Corporation Bhd
Muhibbah Engineering (M) Bhd
Maxis Bhd
Axiata Group Bhd
UEM Land Holdings Bhd
TH Plantation Bhd
IOI Corporation Bhd
AirAsia Bhd
BIMB Holdings Bhd
Syarikat Takaful Malaysia Bhd
AsiaEP Bhd
Stemlife Bhd
Tamco Corporate Holdings Bhd
LNG Resources Bhd
Mikro MSC Bhd
Genting Bhd
Berjaya Sports Toto Bhd
Allianz Malaysia Bhd
Shangri-La Hotels (Malaysia) Bhd
Hong Leong Financial Group Bhd
Pan Malaysia Corporation Bhd
34
Thank You & Wassalam
The information contained in this presentation may be meaningful only with the oral presentation and are of the personal
view of the presenter and does not necessarily represent an official opinion of Bank Islam Malaysia Berhad.
For further information, please contact:
Lim Shueh Li
Head of Corporate Finance Department
Corporate Investment Banking
Bank Islam Malaysia Berhad
Email: shuehli@bankislam.com.my
35