Rules, revised Code, a necessary move

PETALING JAYA: The removal of the 50% minimum equity interest required for parties to initiate a takeover by Securities Commission Malaysia (SC) is a necessary move to keep up with changes in forms of business, said Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew.
“It is a step forward, a good move for the market and definitely it is in keeping with changes in the forms of business entities, a necessary move to cover all these new things. It shows that SC is keeping on top of things, on top of structural changes in the types of business entities that are now in operation out there,” he told SunBiz.
On Monday, SC launched a rule book on the revised Takeovers and Mergers Framework. The rules came into force on Monday together with the revised Malaysian Code on Takeovers and Mergers 2016 which sets out the broad principles to be adhered to by parties involved in any takeover or merger transaction.
One of the notable changes is the removal of the limitation that takeover schemes can only be initiated by parties holding over 50% equity interest. With the new rule, parties with less than 50% shareholding in a company can initiate a takeover.
“It covers also unlisted companies. It covers some of the newer types of entities like REITs (real estate investment trusts) and business trusts. I think it is an extension to cover some of the innovations in stock markets around the world like dual-listing and things like that, which previously wasn’t common or wasn’t in widespread practice.
“This regulation is to cover these newer developments, including takeovers that may involve companies in this situation that previously, there were too few to contend with but now there are more of them. You need the rules to cover these kind of situations,” said Pong.
On whether this would drive takeover and merger activities, he said such activities would still require substantial resources and involve large sums of cash thus it is still a question of how easy it is to attract funding.
Meanwhile, a fund manager who declined to be named said takeovers and mergers are imminent and are being driven by business conditions such as rising costs and new technology that would automatically drive consolidation to happen.
He said SC’s move is a step forward towards more liberalisation in the market as well as a move towards globalisation and international standards.
“Overall I would say it is a positive thing for the financial market,” he said.
RHB Investment Bank Bhd CEO Robert Huray also said it is a positive move and a key milestone in the development of the capital markets.
“The changes are facilitative in nature for takeovers or mergers transactions while ensuring that all stakeholders involved are treated equally – hence leading to greater protection for minority shareholders. We are very positive about the changes. The rules and revised Code will ensure that the industry participants strictly adhere to the rules and endeavour to structure the transactions more efficiently,” he said.