Malaysia discovers flip-side of overseas expansion http://www.reuters.com/article/reutersEdge/idUSKLR11972520070403
Mon Apr 2, 2007
By Mark Bendeich
KUALA LUMPUR (Reuters) - Corporate Malaysia is embarking on a new overseas adventure, buying up firms across Asia and pitching for billion-dollar contracts world-wide.
For the first time in a decade, cashed-up Malaysian companies are ready to take risks, building regional businesses in sectors ranging from oil and gas to banking, telecoms and casinos.
But the government and regulators are discovering there is a flip-side to global expansion: a risk that some of the best firms might list overseas unless market reforms gather pace at home.
Handicapped by a currency that cannot be traded offshore and a thinly traded stock market, Malaysian companies are increasingly likely to want to list their shares on foreign exchanges as they expand internationally, fund managers said.
Malaysian firms have made or agreed overseas deals worth $11 billion since the start of 2005, more than all the deals done in the previous four years, according to Dealogic, a firm that tracks mergers and acquisitions. For deal factbox (ID:nKLR184827: Quote, Profile, Research)
But only one of Malaysia's top-10 deals in the past decade was funded by equity. In that case, buyer and seller were Malaysian.
Conglomerate YTL Corp (YTLS.KL: Quote, Profile, Research), which owns UK and Australian utilities, told Reuters recently it might seek an overseas listing in the longer-term. Budget airline AirAsia Bhd (AIRA.KL: Quote, Profile, Research) has also considered that option, a source close to the firm says.
"If you are making the bulk of your money here in ringgit, getting it out to pay for things or offering paper payment in ringgit is not only not attractive, it can be illegal," said Gerald Ambrose, head of Aberdeen Asset Management in Malaysia.
Malaysia wants its firms to go overseas but not their capital: a dilemma familiar to other emerging nations.
In South Africa in the late 1990s, ambitious companies like mining giants Anglo-American (AAL.L: Quote, Profile, Research) and Billiton went through a similar experience, both listing in London and arming themselves with a hard-currency share price to use in takeover battles.
Just as few global investors wanted to hold South African shares in rand, foreign investors prefer not to hold ringgit.
WHERE CASH MUST BE KING
That poses a problem for Malaysian-listed firms when they join the international acquisition trail: they typically have to borrow and pay in foreign cash, while rival bidders can offer their shares as well -- often a more attractive funding option.
Malaysia has shown a willingness to liberalize domestic markets in recent weeks, with the government promising to sell a small amount of its shareholdings into listed funds to improve stock-market liquidity and the central bank relaxing foreign-exchange rules to make the ringgit more appealing.
"I think it's caught a lot of people by surprise and it's a positive surprise," said Raymond Tang, chief investment officer of CIMB-Principal Asset management, referring to the reforms.
But at the same time, the authorities seem anxious. For example, when Singapore-listed Wilmar International (WLIL.SI: Quote, Profile, Research), a company linked to the family of Malaysian tycoon Robert Kuok, agreed to buy control of Kuok's Malaysian-listed palm oil business in December, it rang alarm bells in Malaysia.
Malaysian regulators were rumored to be worried that this could become a model for effectively shifting capital offshore.
Last month, the central bank approved Wilmar's takeover of Kuok's PPB Oil Palms (PPBO.KL: Quote, Profile, Research) -- provided Malaysian investors in the local firm repatriated all proceeds from selling their stock.
TIME TO RENOVATE
There is talk that Malaysian-listed Wah Seong Corp Bhd (WAHE.KL: Quote, Profile, Research), an oil services company, is also looking to list some assets overseas. It recently announced plans to put its oil and gas businesses into an offshore-based unit, Wasco Energy, fuelling speculation it might then list the unit abroad.
Wah Seong declined to comment on its plans for Wasco Energy. Securities Commission chairman Zarinah Anwar denied the Wilmar deal was a template for Malaysian firms to quietly shift their assets abroad, but she said it was natural for expanding local firms to raise foreign capital and seek overseas listings.
But Zarinah added in a recent Reuters interview: "What we need to do ourselves is to make us as attractive a place as possible to get foreign investment and foreign listings."
With the ringgit banned from offshore trade, and the state owning just over a third of the $284 billion local stock market, that could be a tough assignment.
Bursa Malaysia (BMYS.KL: Quote, Profile, Research) has tried to breathe new life into the market, reintroducing short-selling and foreign buying has boosted the market, Asia's biggest gainer outside China and Vietnam in the past six months. Daily turnover has roared ahead.
But for all that, new listings have been a trickle and foreign listings are virtually non-existent.
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