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Malaysia’s IPO market remains robust amidst a general global slowdown in public floats that pundits attribute to sentiment stemming from the European credit crisis. While the proposed offering of Malaysia Marine Heavy Engineering, announced last week, will raise over 1 billion ringgit ($309.6 million) and is expected between the third and fourth quarter of this year, the planned listing of Malaysian property developer Sunway City Bhd’s real estate investment trust (REIT) will raise about 1.5 billion ringgit ($459 million), more than was expected in the beginning of this year, sources with direct knowledge of the deal told Reuters on Monday. Moreover, local investment banks are eagerly eyeing the impending float of state-owned gas and oil company Petronas’ petrochemicals unit, which some analysts wager may garner a P/E multiple of FY09 earnings in the high teens for a total valuation of roughly 5 billion ringgit ($1.548 billion). That said, it is still unclear as to precisely what form said IPO structure will take. Petronas’ petrochemicals business, for instance, entails 19 total companies ranging from olefins and polyolefins to fertilizers, industrial and specialty chemicals.
The state’s divestiture of portions of Petronas is seen by observers as part of prime minister Najib Abdul Rajak’s “New Economic Model” (NEM), whereby the government hopes to transform Malaysia “from a middle-income to a high-income country by 2020.” Per a piece by Thomas Clouse in May’s Global Finance:
“The ambitious plan, known as the NEM, outlines a number of new policy recommendations to promote private investment, raise productivity, improve education and balance growth in order to lift the per-capita average income from $7,000 to $15,000 in the next 10 years.”
Specifically, the government hopes to reverse the downtrend in private investment as a percentage of GDP, which declined to less than one-third of its pre-1997 peak in the decade following the Asian crisis and still remains far below its potential. Per economist Dr. Yeah Kim Leng, for instance:
“Malaysia’s share of inward FDI into the Asean economies was unchanged at 12% for the two previous five-year periods of 1999-2003 and 2004-2008. By contrast, Singapore captured 58% in the first period and 45% in the more recent period. Thailand, meanwhile, garnered 20% and 17% for the respective two periods . . . This should be taken as a wake-up call for Malaysia that it needs to do more to attract foreign investors.”
The recent resurgence of Dubai’s Financial Market’s (DFM) general index (it has fallen 61% since last summer, but is up 42% since March and roughly 28% YTD)–coupled with tighter lending standards–will likely cause more firms to publicly float their shares, surmised Essa Kazim, executive chairman of Borse Dubai. Firms are historically reticent to utilize capital markets, especially under distressed conditions. Yet because it may be the only source of long-term financing, their hands will be forced. Moreover, Kazim told Reuters that “a priority would be to attract listings to diversify the DFM away from the dominant and closely-connected banking and real estate sectors.”