KUALA LUMPUR: Tycoon Tan Sri Khoo Kay Peng’s hopes of owning an investment bank (IB) seem to have been dashed, at least for now, after three years of waiting.

Pan Malaysia Capital Bhd (PM Cap), a member of MUI group controlled by Khoo, announced yesterday that the Minister of Finance (MoF) had “refused” to grant its 99.99%-owned unit PM Securities Sdn Bhd (PMS) a merchant banking licence or a restricted merchant banking licence.

In the announcement to Bursa Malaysia, PM Cap said Bank Negara Malaysia (BNM) had, via a letter, informed PMS of the MoF’s refusal to grant the licence, the application for which was submitted in January 2006. No reason for the rejection was disclosed.

“The matter will be discussed by the directors of PM Securities at its next board meeting,” PM Cap said in the announcement.

PMS had paid an initial deposit of RM10 million as part-payment of a total contribution of RM52.5 million to BNM. The sum has been refunded to the company, with the accrued interest, as at Sept 30, 2009.

Obtaining an investment banking licence was said to be one of the major steps towards bringing back the glory days of the MUI group, which once owned MUI Bank Bhd. MUI Bank was later sold to Hong Leong Group, leading to the formation of the current Hong Leong Bank Bhd.

Pan Malaysia Holdings Bhd is the major shareholder of PM Cap, with a 34.84% stake. Meanwhile, EON Bank Bhd owns a 10.93% equity stake. According to the latest annual report, Khoo holds an indirect stake of 41.85% in PM Cap.

It is widely known that Khoo has always wanted to return to the domestic banking scene. PMS’ plan to become an investment bank will pave the way for him to be a banker once again.

But not all is lost for PMS although it failed to obtain the merchant banking licence.

Industry players said business should remain as usual at PMS even without the merchant banking licence.

PMS could remain as a universal broker (UB) to continue carrying out corporate finance advisory work.

The major difference between investment banks and UBs is that the latter are not permitted to take deposits from the public.

Also, UB’s capital is set at RM100 million compared with the RM500 million that investment banks have to have parked in the equity.

Consequently, this restricts stockbroking firms from undertaking major corporate exercises, such as bond issuance for clients or even underwriting a sizable initial public offering (IPO).

That said, universal brokers (UBs) could still manage IPO and other exercises. “It is just that the deals that UBs do are smaller,” said a merchant banker.

Recently, TA Enterprise Bhd (TAE) made known that the group had decided to abandon its plan to obtain an investment banking licence after years of trying.

TAE’s managing director-cum-CEO Datin Alicia Tiah had said the returns on investments did not justify the cost for TAE to obtain the IB licence.

Indeed, some industry players opined that the further liberalisation on the foreign ownership in the domestic stockbroking sector has made local broking firms more appealing as an acquiring target for foreign banks compared with the investment banks.

Foreigners are now allowed to own up to 70% in stockbroking firms as well as investment banks. Foreign banks are said to be more interested in buying into broking companies for expansion in Malaysia mainly due to the potentially lower price tag.

“It goes without saying that investment banks will command a premium price higher than stockbroking groups. But foreign banks may be reluctant to pay the premium since stockbroking companies could also enable it to enter the same segment,” said an analyst.

This article appeared in The Edge Financial Daily, December 29, 2009.