Law firms interviewed: Rahmat Lim & Partners; Ong Eu Jin Partnership

In a year when global IPO markets have wilted under the economic heat, Bursa Malaysia has stood out as a surprising oasis of activity.

The country led the 10-nation ASEAN region with 21 listings in the first half of this year, raising around $450 million according to Deloitte. These included a fertility care specialist and a business trust that raised US$94 million each.

And in early September, 99 Speed Mart Retail the country's top mini-market chain retailer raised 2.36 billion ringgit ($542.8 million) in the country’s biggest domestic listing in seven years.

In a show of heightened investor confidence, the shares jumped as much as 16.4 percent in its market debut on Monday after the listing.

The group is expected to have a market capitalisation of 13.86 billion ringgit, making it also the biggest IPO in Southeast Asia in over one year since Amman Mineral International’s listing in Indonesia last July.

Wan Kai Chee, a partner at Rahmat Lim & Partners, says the general economic environment in Malaysia for capital markets and investment is positive and are likely to stay so in the near future due to a backlog of prospective proposals during the COVID pandemic.

Ong Eu Jin, managing partner at newly founded capital markets boutique Ong Eu Jin Partnership, also believes the IPO pipeline will keep pumping. “Some business owners may be motivated by the higher valuation and pricing the market is now willing to accept or the performance of the stock price of recent IPOs,” says Ong.

“Others may jump on board the IPO bandwagon simply because they do not wish to lose out or lose face in response to their competitors’ sudden increase in prestige and brand visibility in their sector with their transformation into a publicly traded company,” he adds.

Despite the promising number of companies seeking to list in Malaysia, However, Wan notes that Malaysia’s IPO landscape in recent times has been dominated by companies with growth prospects, including start-ups and new companies run by entrepreneurs.

Out of the 33 listings the Malaysian stock exchange has seen to date, 26 are on the ACE Market, which has been favoured by entrepreneurs looking to push for more capital by taking their companies public

Ong agrees, noting the Malaysia IPO market will continue to be dominated by mid-cap companies but with a few large listings from time to time.

“The typical narrative for a company seeking to be listed is to raise funds from the investing public for its expansion. A mid-cap company fits into the picture as it uses the IPO as a means to accelerate its expansion and facilitate its transformation to a larger company whilst the IPO investors will expect to see the value of their shares grow in tandem with the company’s growth,” says Ong.

The listing of 99 Speed Mart as a result might turn out to be an exception rather than the rule.

“99 Speed Mart does not exactly fit into this description as it is well established with around 2,600 outlets throughout the country. A large chunk of the proceeds raised in the IPO is not for the company’s expansion but pursuant to an offer for sale with the CEO and his wife expected to receive 1.7 billion ringgit,” notes Ong.

While the IPO of 99 Speed Mart may not be representative in terms of its size, but it sheds a light on the sectors that are looking at brighter prospects for fundraising, lawyers say.

“The 99 Speed Mart example mentioned, as well as other past IPOs and proposals, demonstrate that there are advantages and good prospects for IPOs that are based on strong retail business,” says Wan. “Retail investors may also be incentivised to invest in businesses which they themselves are customers of and regularly keep in close contact with.”

And Malaysia’s strong fundamentals have generated more investment confidence. In September, Malaysia’s central bank has maintained the overnight policy rate at 3 per cent amidst the country’s positive economic outlook. Going forward, a lower ringgit may make investments into Malaysia more attractive, where the revenue and costs of the business invested in are not adversely affected by the prevailing exchange rates, say lawyers.

“This may represent better opportunities and increased IPO suitability for companies that fit into this category. This is likely to continue to substantial extent,” says Wan.

Ong expects to see more law firms in Malaysia undertaking their maiden IPO as due diligence solicitors due to the large number of IPOs recently. “It is only sensible to make hay while the sun still shines,” he adds.