Foreign real estate investment trust (REIT) operators will be allowed to raise their stakes in Malaysian REIT managers, which would help the industry “spring to life”, Maybank analysts Andrew Lee and Suhaimi Ilias said.

Plans to cut the government’s stakes in the largest companies and sell their so-called non-core assets will also make them more attractive, they said.

Prime Minister Datuk Seri Najib Razak on Tuesday reduced limits on foreign investors, property purchases and initial share sales, peeling back decades of benefits to the bumiputera community as the nation seeks to revive an economy facing its first contraction in a decade.

The benchmark Kuala Lumpur Composite Index rose 23% last quarter, the smallest gain in Southeast Asia.

“The timing is expedient,” the analysts wrote in a report yesterday. “We are facing the steepest global recession since the Great Depression, which creates a challenging environment and conditions for growth going forward.”

The change in the rules governing property trusts could benefit foreign companies including CapitaLand Ltd and ARA Asset Management Ltd, the analysts said. REITs could also increase acquisitions outside of Malaysia, the report added.

Khazanah Nasional Bhd and other government-linked investment companies hold about 34% of the market value of the FTSE Bursa Malaysia 30 Index, according to Maybank. Reducing their stakes will help boost liquidity and the number of freely traded shares in the market, the brokerage wrote.

These government-linked companies, or GLCs, will also be required to sell units that aren’t central to their businesses and should only remain in industries where they can be competitive, Najib said on Tuesday.

Bursa Malaysia Bhd, operator of the nation’s exchange, said it will press publicly traded companies to sell more shares to stay in a revamped benchmark stock index, a move aimed at making the equities easier to buy and sell, joining the government’s efforts to lure investors.

The government has “plenty of scope to reduce their holdings and still maintain some form of control over these companies”, Datuk Yusli Mohamed Yusoff, Bursa’s chief executive officer, said in an interview on Tuesday.

Sime Darby, the world’s biggest palm oil producer, may sell its businesses in healthcare and travel, while Malaysia Airports Holdings Bhd, the country’s airport operator, may divest its plantation and hotel businesses, Maybank said in the report.

“Although GLCs’ transformation has been reaping the results in the form of improved transparency and accountability, a refocus on the core activities should strengthen their delivery and financials considerably,” the analysts wrote. — Bloomberg

This article appeared in The Edge Financial Daily, July 2, 2009.