CORPORATE PROPOSALS NEW GUIDELINES IN RELATION TO TAKE-OVERS AND MERGERS

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1 Operational Review

2 CORPORATE PROPOSALS The Commission regulates the offerings and issues of securities by public companies, and debentures by private companies. It also regulates the listing of such securities on Bursa Malaysia Securities Bhd and MESDAQ, as well as matters relating to take-overs and mergers. The Commission is the sole approving and registering authority for prospectuses of all securities (other than securities issued by unlisted recreational clubs). NEW GUIDELINES IN RELATION TO TAKE-OVERS AND MERGERS The Commission released the Malaysian Code on Take-overs and Mergers (Amendment) 2004 and its practice notes on 25 March The amendments were aimed at ensuring greater clarity of various provisions in the Code without substantially changing the thrust and policies of the prevailing regulatory framework for take-overs and mergers. Key amendments and enhancements to the Code included: Section 20(5) was amended to allow the timing of settlement of offer consideration to be tagged to the closing date of the offer (for consideration involving issuance of securities) or the date the acceptances are received by the offeror (for consideration involving cash settlement). Previously, the provision required settlement to be effected within 21 days from the date the offer becomes/is declared unconditional. The amendment introduced greater flexibilities which are necessary for cases such as those where acceptances to an unconditional offer are received on or just before the closing date of the offer (normally being 21 days from the date of the offer document). Additional time may be required by the offerors to process and validate such acceptances. For offerors who have arranged for credit facilities from financial institutions to finance an offer, the monitoring of the individual deadlines for remittances in respect of each acceptance, as well as effecting multiple drawdowns under such credit facilities, may also be administratively cumbersome; A new provision was introduced in Schedule 1 of the Code which makes it mandatory for every director of the offeror to state that he has taken reasonable care to ensure that both the facts and opinions expressed in the offer document are fair and accurate, and that no material facts are omitted. The offer document must also state that each director accepts responsibility accordingly; and The Format and Content of Applications Under Division 2, Part IV of the Securities Commission Act 1993 and the Malaysian Code on Take-overs and Mergers 1998, which took effect on 1 March 2004, was introduced to enhance the quality of proposals related to take-overs and mergers and to improve the efficiency of the approval process. SECURITIES ISSUES (Table 1 4) In 2004, there was an increase in the number of corporate proposals received by the Commission, relative to There were 504 new submissions as compared with 391 in This was in addition to the 127 submissions brought forward from 2003, bringing the number of submissions to be considered in 2004 to 631. Of this, 470 or 74.5% were considered in 2004, 25 were withdrawn and 136 carried forward to Of the 470 submissions considered, 427 (90.9%) were approved, 40 rejected and three deferred. Most of the approvals were for proposals to 2-30 OPERATIONAL REVIEW

3 raise funds via debt instruments, which formed 21.1% of the approvals. There were 82 approvals for new listings on Bursa Malaysia in 2004 compared to 55 new listings in Of the 82 approved new listings, 18 were for the Main Board and 26 for the Second Board. Approvals for listing on the MESDAQ Market increased from 22 in 2003 to 38 in The two principal types of business activities undertaken by companies approved for listing on Bursa Malaysia in 2004 and 2003 were manufacturing and trading/ services. The various corporate exercises approved in 2004 were expected to raise RM56.25 billion, slightly higher than the RM55.11 billion estimated in About RM47.84 billion or 85% of the funds were to be raised via debt instruments. PROSPECTUSES (Table 5) In 2004, the Commission received 218 new prospectus applications for registration. This was in addition to 70 prospectuses brought forward from 2003, bringing the number of prospectuses at hand in 2004 to 288. Of this, 135 prospectuses were registered, 32 were withdrawn/ returned and 121 carried forward to In 2004, two mega IPOs took place on Bursa Malaysia. KLCC Property Holdings Bhd and AirAsia Bhd made their debut on Bursa Malaysia on 18 August 2004 and 22 November 2004 respectively, with a total market capitalisation of RM1.63 billion. Following the introduction of Syariah compliance review over IPOs, the Commission enhanced disclosures in prospectuses where a company had been classified as a Syariah-approved company. In such a case, the company was required to make a Syariah compliance declaration in the appropriate sections of the prospectus. Pursuant to this, the first prospectus for a company classified as a Syariah-approved company was Fotronics Corporation Bhd. The company s prospectus was registered with the Commission on 3 January 2005 and issued to the public on 5 January The first electronic prospectus was issued by Kurnia Insurance Bhd on 30 December 2004, following the release of the Guidelines on Electronic Prospectuses and Internet Securities Application on 9 December Pursuant to this, authorised persons, also known as e-hosts are allowed to issue, circulate or distribute the electronic prospectus via the Internet and application for such securities would also be via the Internet. The Internet Securities Application is in addition to the current practice of share application by way of application forms or by way of electronic share application via automated teller machines. In May, the Commission issued supplement guidelines to facilitate greater disclosure of information by foreignincorporated companies seeking listing in Malaysia, with a view to help investors make informed investment decisions. The supplement guidelines, which complemented the Prospectus Guidelines, require foreign-incorporated companies seeking listing in Malaysia to disclose in their prospectus material information, such as differences in enforceability of laws, corporate information and risks associated with being regulated by other jurisdictions. PRIVATE DEBT SECURITIES (Table 6) In 2004, the Commission approved 124 PDS issues (excluding PDS issues by Cagamas) amounting to RM47.84 billion as compared with 118 PDS issues amounting to RM47.35 billion in Out of the total number of 124 approved PDS issues, six issues with an aggregate value of RM4.65 billion were approved pursuant to the ABS Guidelines and two issues amounting to RM900 million involving multilateral development banks or multilateral financial institution were approved. In terms of types of issuance, bonds accounted for 34.68% of the total number of PDS issues approved, followed by commercial paper/medium-term note (CP/MTN) OPERATIONAL REVIEW 2-31

4 programmes 27.42%, loan stocks 19.35%, short-term notes/ commercial papers 9.68% and medium-term notes 8.87%. For 2004, conventional PDS issues accounted for 68.31% (74.6% in 2003) of the total size of PDS issues approved by the Commission in 2004 whereas Islamic securities issues accounted for the remaining 31.69% (25.4% in 2003). With regard to maturity profile, 48 or 38.71% of the total number of PDS issues (excluding CP/MTN programmes) approved by the Commission in 2004 had maturity periods of between one and seven years and 30 or 24.19% of the PDS issues had maturity periods of more than seven years. Twelve or 9.68% of the PDS issues had maturity periods of less than one year (Chart 1). Chart 1 Maturity Profile In 2004, 132 of the rated PDS issues had a short-term rating of between P1/MARC-1 and P3/MARC-3 and long-term rating of between AAA and BBB while 27 issues were not rated as they were either not required pursuant to the PDS Guidelines and the Guidelines on the Offering of Islamic Securities or were granted exemption from the rating requirement (Chart 2) Less than 1 year 1 7 years Above 7 years Note: Above maturity profile excludes CP/MTN programmes as the maturity profile are determined only at the point of issuance. The total value of PDS issues by Cagamas Bhd approved by the Commission in 2004, amounted to RM9.32 billion. The PDS issues by Cagamas comprised short-term notes, conventional bonds and Islamic bonds. In addition to the PDS issues proposed by Malaysian issuers, the Commission approved one offer of US dollardenominated Islamic securities in Malaysia by a foreign issuer worth US$250 million (or equivalent to RM950 million) in Chart 2 Rating Summary Long-term Rating Short-term Rating AAA 13 AA 17 A 5 1 BBB 0 0 BB 3 0 B, C or D Not rated P1/MARC-1 9 P1/MARC P1/MARC Not rated Note: For CP/MTN programmes, both short-term rating accorded for CP and long-term rating for MTN are taken into account OPERATIONAL REVIEW

5 With regard to issuance of structured products pursuant to Guidelines on the Offering of Structured Products, the Commission approved six issues of structured products transactions amounting to approximately RM6.9 billion. TAKE-OVERS AND MERGERS (Tables 7 8) In 2004, the Commission considered a total of 163 applications relating to the Malaysian Code on Take-overs and Mergers 1998 (2003: 200 applications). Out of the 163 applications considered, 61 were for exemption from the mandatory offer obligation made pursuant to section 33C of the SCA and Practice Note 2.9 of the Code. This represented a decrease of 8.9% from the number of applications in The Commission also cleared 16 offer documents in 2004, which represented an increase of 14.3% from the previous year. The remaining applications were for the appointment of independent advisers, clearance of independent advice circulars, extension of time for the despatch of offer documents, requests for rulings and other ancillary applications. Compliance Under the FIC Guidelines Pursuant to the measures to liberalise the FIC Guidelines announced under the New Strategies Towards the Nation s Economic Growth Package on 1 August 2004, the FIC Guidelines were replaced by the Guidelines on the Acquisition of Interests, Mergers and Take-overs by Local and Foreign Interests and Guidelines on the Acquisition of Properties by Local and Foreign Interests. The main purpose for these guidelines is to clarify the rules and regulations pertaining to acquisition of interests and properties, to streamline the involvement of multiple authorities in the approval process for the issuance of securities and to incorporate the measures to attract foreign direct investment. In 2004, the Commission considered 316 applications comprising proposals to raise funds via equities and debt instruments, acquisition of interests involving mergers and take-overs, appointment of unit trust management companies and market intermediaries under the SIA and FIA. The transfer of processing the FIC aspects under the FIC Guidelines included the monitoring of Bumiputera equity condition imposed on the companies. In this regard, the Commission issued show-cause letters for non-compliance of equity conditions and rejected some applications for extension of time to comply with the conditions imposed. ASSET VALUATION AUDIT (Table 9) A total of 83 public companies submitted 362 valuation reports to the Commission in conjunction with various corporate proposals involving the valuation or revaluation of properties in Though the number of reports reviewed in 2004 was 8% lower than that of 2003 at 391 reports, the number of companies submitting various corporate proposals involving the valuation or revaluation of properties recorded a 28% increase when compared with 65 companies in The number of properties involved in the review at 2,907 was lower than that of 2003 at 8,283. This was largely due to the smaller number of ongoing development projects being involved in corporate proposals for However, the total capital value reported at RM22.74 billion for 2004, showed an increase of 80% over the total capital value reported in 2003, at RM12.66 billion. This was due to several corporate proposals, listed below, which involved several high-value properties: Proposal : Listing of KLCC Property Holdings Bhd on the Main Board of Bursa Malaysia Major properties : involved Total capital value: Petronas Twin Towers Suria KLCC Menara Maxis Menara ExxonMobil Kompleks Dayabumi Mandarin Oriental RM7.5 billion OPERATIONAL REVIEW 2-33

6 Proposal : Rationalisation exercise by Island & Peninsular Bhd and Golden Hope Plantations Bhd Major properties : involved Total capital value: Large development lands Oil palm plantations RM3.6 billion Proposal : Acquisition by Matrix International Bhd Proposal : Acquisition by Kris Components Bhd Major properties : involved Total capital value: Midvalley Megamall RM1.5 billion Of the RM22.74 billion total capital value reviewed, acquisition and flotation cases formed 45% and 38% respectively, followed by restructuring at 11%. Major properties : involved Total capital value: Berjaya Times Square RM1.9 billion 2-34 OPERATIONAL REVIEW

7 KEY STATISTICS Table 1 Status of Submissions Submissions Submissions brought forward from the previous year Submissions received during the year Submissions on-hand for the year Submissions considered during the year (470) (376) Submissions withdrawn during the year (25) (13) Submissions carried forward to the next year Table 2 Listing Proposals Considered Main Board Second Board MESDAQ Total Approved Rejected Deferred Total OPERATIONAL REVIEW 2-35

8 Table 3 Number of Submissions Considered by Type of Proposals Type of Proposals Approved Rejected Deferred Total Flotation MESDAQ Market Transfer to Main Board Fund-raising via equity Fund-raising via debt Private placement/restricted issue Preference shares Replacement warrants/issue of warrants Restructuring, reorganisation, revaluation and recapitalisation Acquisition Merger Disposal Conversion of debt into equity Bonus ESOS Share split Proposals by unlisted companies Others Total Including debt-restructuring proposals. 2 ESOS no longer require the Commission s approval with effect from February Proposals other than debt securities OPERATIONAL REVIEW

9 Table 4 Amount of Funds Raised/to Be Raised by Type of Issues Funds Raised/To Be Raised (RM million) (%) Type IPOs 5 Amount raised by PLCs 3, , Amount raised by offerors 2, Funds raised via equity Listed 2, , Unlisted Funds raised via debt Listed 5, , Unlisted 42, , Preference shares Listed Unlisted Total 56, , Table 5 Equity Prospectuses Considered Full Abridged Supplementary Total Full Abridged Supplementary Total Balance brought forward Received during the year Total Less: Prospectus registered (105) (30) 0 (135) (81) (54) (1) (136) Withdrawn/returned (29) (3) 0 (32) Pending consideration Refers to each type of individual issues approved to be undertaken by listed/unlisted companies. 5 Excludes private placement and restricted issues. OPERATIONAL REVIEW 2-37

10 Table 6 PDS Issues Approved Number Size of Issues Number Size of Issues of Issues (RM million) of Issues (RM million) Conventional Short-term notes/cp 9 2, MTN 7 5, , CP/MTN programme 13 2, Bonds 22 11, , Loan stocks 24 10, , NCDs , , Islamic Short-term notes/cp MTN 4 2, , CP/MTN programme 21 2, , Bonds 21 9, , , , Total , , Table 7 Applications Considered in Respect of Take-overs and Mergers Type of Applications Clearance of offer document Extension of time for the despatch of offer document 7 17 Appointment of independent adviser Clearance of independent advice circular Exemption from mandatory offer obligation Request for rulings and other ancillary applications Total OPERATIONAL REVIEW

11 Table 8 Number of Submissions Considered in Respect of Compliance with FIC Guidelines Type of Proposals Flotation on Main Board and Second Board Flotation on MESDAQ Special issue 4 1 Rights issue 12 0 Fund-raising via debt 11 2 Private placement/restricted issue 52 7 Preference shares 0 0 Composite scheme Acquisition 27 3 Disposal 3 1 Proposal by unlisted companies 6 0 Take-over and mergers 12 0 Unit trust management company 2 0 Market intermediaries under SIA and FIA 5 0 Others 33 1 Total Types of proposals listed are on a stand-alone basis except for composite schemes. 7 Excluding applications by MSC status companies which are not subject to compliance with the FIC Guidelines. 8 Composite schemes consist of a combination of multiple types of proposals which may include any of the proposals listed in the table. OPERATIONAL REVIEW 2-39

12 Table 9 Valuation Reviewed by Type of Proposals Type of Proposals Number of Companies Number of Properties Capital Value (Number of Reports) (RM million) Flotation Main Board 7(35) 5(36) , Second Board 17(71) 12(78) MESDAQ Market 12(22) 2(6) Acquisition 21(98) 11(64) 555 2,853 10,297 2,429 Bonus issues 1(2) 1(2) Restructuring, reorganisation and revaluation 18(111) 27(164) 990 4,970 2,415 8,439 Change in utilisation of proceeds Utilisation of proceeds from: rights issues 1(2) private placements bonds ICULS Combination 0 1(5) Unlisted companies Disposal 6(21) 6(36) , Total 83(362) 65(391) 2,907 8,283 22,740 12, OPERATIONAL REVIEW