Proposed changes seen hitting M&As
The planned change in company takeover rules will cause a sharp drop in mergers and acquisitions (M&As) activity in Malaysia, top investment banker Datuk Seri Nazir Razak warned yesterday.
Capital market regulator, the Securities Commission, is currently seeking public feedback on a set of rule changes that will effectively make it more difficult for a company to be taken over through the sale of its assets and liabilities.
The move has drawn sharp criticisms among investment bankers as it risks stifling the market, while supporters argue that the tougher rules are needed to boost protection for minority investors and help them get a higher exit price in a transaction.
"Minorities profit a great deal from M&A activities. But if you set a threshold at a level where people won't even bother doing deals, how would it benefit the minorities, and how do you get that premium from M&As?" Nazir, who is also CIMB group chief executive officer, told reporters in Petaling Jaya yesterday.
"More seriously, it will cause a drop in mergers, not so much takeovers. But, value is always created through mergers, not by takeovers," he said.
He added that strategic investors only embark on a deal when they have a certain confidence that the transaction can be concluded. If the rules make it too onerous, they may not even bother attempting a deal with the trouble of raising funds and all.
"So let's be sensible. I applaud the SC's effort to socialise this and get the public's feedback. But my hesitation now is I think there is a risk of too much populism in this debate. People say the more power you give to minorities the better it is, which is not true. Because if you give minorities so much power, there will be no deals at all," Nazir said.
Among the proposed law changes, a company planning to sell off its key assets must get shareholder approval of at least 75 per cent in value. The transaction can also be blocked if at least a tenth of shareholders vote against it.
The SC has said that the move aims to close the gap between various rules that govern takeover activities, and the tighter law will reflect similar rules in places like Hong Kong and Thailand.
However, Nazir argued that raising the approval threshold from a simple majority of 51 per cent currently to 75 per cent is counter-productive as it may encourage promoter of a company to keep a tight control of its shares, resulting in liquidity problem in the stock.
"I'm not sure why if Singapore and London have retained the same rules that we have today why we necessarily are getting so excited about migrating to follow Hong Kong," Nazir lamented.
He did not reveal CIMB's exact suggestion to the SC on this matter, but said Malaysia must ensure the existence of a framework that protects minorities, yet still allow transactions to be done.
"What I'm asking for is a level headed deliberation on this and people stop making populist comments like more power to the minority is better, because it's just not sensible. In its present form, the proposed rules are so prohibitive that it will cause a very sharp drop in M&A activities. Is that good for the country, is that good for the capital market?" Nazir said.
Capital market regulator, the Securities Commission, is currently seeking public feedback on a set of rule changes that will effectively make it more difficult for a company to be taken over through the sale of its assets and liabilities. The move has drawn sharp criticisms among investment bankers as it risks stifling the market, while supporters argue that the tougher rules are needed to boost protection for minority investors and help them get a higher exit price in a transaction.
"Minorities profit a great deal from M&A activities. But if you set a threshold at a level where people won't even bother doing deals, how would it benefit the minorities, and how do you get that premium from M&As?" Nazir, who is also CIMB group chief executive officer, told reporters in Petaling Jaya yesterday.
"More seriously, it will cause a drop in mergers, not so much takeovers. But, value is always created through mergers, not by takeovers," he said.
He added that strategic investors only embark on a deal when they have a certain confidence that the transaction can be concluded. If the rules make it too onerous, they may not even bother attempting a deal with the trouble of raising funds and all.
"So let's be sensible. I applaud the SC's effort to socialise this and get the public's feedback. But my hesitation now is I think there is a risk of too much populism in this debate. People say the more power you give to minorities the better it is, which is not true. Because if you give minorities so much power, there will be no deals at all," Nazir said.
Among the proposed law changes, a company planning to sell off its key assets must get shareholder approval of at least 75 per cent in value. The transaction can also be blocked if at least a tenth of shareholders vote against it.
The SC has said that the move aims to close the gap between various rules that govern takeover activities, and the tighter law will reflect similar rules in places like Hong Kong and Thailand.
However, Nazir argued that raising the approval threshold from a simple majority of 51 per cent currently to 75 per cent is counter-productive as it may encourage promoter of a company to keep a tight control of its shares, resulting in liquidity problem in the stock.
"I'm not sure why if Singapore and London have retained the same rules that we have today why we necessarily are getting so excited about migrating to follow Hong Kong," Nazir lamented.
He did not reveal CIMB's exact suggestion to the SC on this matter, but said Malaysia must ensure the existence of a framework that protects minorities, yet still allow transactions to be done.
"What I'm asking for is a level headed deliberation on this and people stop making populist comments like more power to the minority is better, because it's just not sensible. In its present form, the proposed rules are so prohibitive that it will cause a very sharp drop in M&A activities. Is that good for the country, is that good for the capital market?" Nazir said.
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