KUALA LUMPUR: In a major push to dismantle restrictive policies set under the New Economic Policy in 1971, the government yesterday scrapped the 30% bumiputera equity ownership requirement for public-listed companies (PLCs) but maintained a “macro target” of 30% for the community.
The scrapping of the 30% bumiputera quota for PLCs was among some of the initiatives announced under the deregulation of the Foreign Investment Committee (FIC) investment guidelines, which takes immediate effect.
In its place, the government introduced a new rule that requires companies seeking a listing to offer 50% of the public shareholding spread to bumiputera investors. Currently, companies seeking listing are required to satisfy the public spread requirement of 25% and meet the 30% bumiputera equity condition based on FIC guidelines.
The measures are meant to increase the competitiveness of Malaysian companies and improve the attractiveness of the country as a foreign direct investment (FDI) destination.
In his keynote address at the opening of Invest Malaysia 2009, Prime Minister Datuk Seri Najib Razak said the new measures would enhance Malaysia’s attractiveness as a listing destination.
“The bumiputera equity condition, therefore, becomes subsumed within the public spread requirement. This reinforces the competitiveness of Bursa Malaysia as a listing destination as promoters of companies seeking listing will no longer need to divest equity beyond that required to satisfy the public spread requirement,” said Najib, who is also finance minister.
Meanwhile, Minister in the Prime Minister’s Department Tan Sri Nor Mohamed Yakcop said in the event the 50% of the public spread requirement was not met, it would be waived. The revised guidelines apply to listed companies as well.
Post-listing, fund-raising exercises will no longer be subject to any equity condition, except in the case of reverse takeover (RTO) and backdoor listing.
Foreign companies seeking to list here were not required to comply with any equity conditions and this remained unchanged, the PM said.
Under the new regime, the scope of the FIC with respect to property transactions will also be substantially rationalised.
In future, FIC will only process transactions involving dilution of bumiputera and government interests for properties above RM20 million (see story on Page 6).
“All other property transactions, including those between foreigners and non-bumiputeras, will no longer require FIC approval,” Najib said.
The deregulation of FIC rules takes immediate effect. The FIC will no longer process any share transactions, nor impose equity conditions on such transactions.
However, national interest in strategic sectors will still be maintained through sector regulators. Companies in these sectors will continue to be subject to equity conditions imposed by their respective sector regulators, such as the Energy Commission, Commercial Vehicles Licensing Board, National Water Services Commission, and Malaysian Communications and Multimedia Commission.
“The government believes that the easing of regulations will significantly enhance Malaysia’s value proposition as a place to do business and invest,” Najib said.
At a press conference following his keynote address, the prime minister said the government remained committed to the bumiputera community having 30% of national wealth.
“The difference is this is a macro target, not a micro target. We are still committed to creating a country that mirrors social justice,” he said.
Najib explained there were two factors which necessitated the changes. Firstly, the regional and global economic environment today is much more competitive than when the New Economic Policy (NEP), and subsequently the FIC guidelines, were formulated.
Secondly, Najib said the FIC had failed to expand bumiputera equity ownership, which had stagnated for almost 19 years.
In fact, according to Najib, out of RM54 billion worth of equity that had been allocated to the bumiputera, only RM2 billion were still held by them. Bumiputera equity ownership is currently at 19.4%.
Also, international investors are not satisfied with the old policies.
“So, we are replacing it with a new instrument, Ekuinas (Ekuiti Nasional Bhd),” Najib said.
Ekuinas will be set up as a private equity fund with an initial capital of RM500 million, with a target to enlarge its size to RM10 billion. It will invest in bumiputera companies and entrepreneurs, premised on merit. The fund will be one of the measures to achieve the 30% macro target.
Najib said the changes may be considered as part of the new economic model, which the government is currently formulating, to reach equity growth.
“We need a new instrument but the new instrument must be more market friendly and in the process, we’re embarking on a new philosophy which will help the good and the best bumiputera in business, not just any bumiputera but bumiputera who are willing to help themselves,” Najib added.
He recognised the intense competition for FDIs worldwide but while FDI flow may decline this year, once the economy recovered, Malaysia must position itself to reap the benefits.
“Malaysia has to take the necessary steps to restructure. We have to reposition Malaysia in terms of taking advantage of the global economic recovery which should take place end of this year or early next year,” he said.
“Overall, the macro target (of 30% bumiputera equity ownership) remains, we will move along the lines of trying to achieve a balanced society but we want to be fair to all while maintaining two important trends: no one must feel marginalised, no one must feel disincentivised. It’s a tricky balancing act but it’s do-able,” Najib said.
This article appeared in The Edge Financial Daily, July 1, 2009.