Corporate Finance and Securities
We are a leading firm in the equity capital market space and have been consistently and highly ranked in regional and international publications. Our specialised team provide experienced counsel on complex structures and issues pertaining to equity capital market transactions, related securities and company laws, licensing regimes and the regulatory requirements of the Securities Commission, Bursa Malaysia Securities Berhad (the Malaysian stock exchange), Bank Negara Malaysia (the Central Bank of Malaysia) and Labuan International Business and Financial Centre governing.
We regularly advise issuers, underwriters, placement agents, arrangers, managers, trustees, investors and other market participants on a wide variety of domestic and international equity capital market transactions including initial public offerings, rights issues, placement issues and equity issues involving business trusts, Real Estate Investment Trusts (REITs), exchange traded funds as well as equity linked derivatives such as structured warrants. Our familiarity with this area enables us to be innovative in our advice, and to manage the complexities of increasing cross-border securities offerings. This includes advising on the first dual primary listing of a Malaysian corporation on Bursa Malaysia Securities Berhad and the Hong Kong Stock Exchange.
We are also experienced in the establishment, structuring and management of conventional and Shariah-compliant funds and innovative in our approach to advising both general partners and limited partners, private equity houses, financial institutions and investors.
Latest insights
Global Growth of Sustainable Finance
The World Investment Report 2022, released by the United Nations Conference on Trade and Development (“UNCTAD”), has shown strong growth in sustainable finance in global capital markets. UNCTAD estimates that the value of sustainability-themed investment products in global financial markets amounted to USD5.2 trillion in 2021, up 63% from 2020. These products include (i) sustainable funds and (ii) sustainable bonds, including green, social and mixed-sustainability bonds. The number of sustainable funds reached 5,932 by the end of 2021, up 61% from 2020. The total assets under management (AUM) of these funds reached a record USD2.7 trillion, an increase of 53% from the previous year (figure 1). [1]
Strong growth in sustainable finance is primarily driven by stock exchanges and other market operators, by integrating ESG considerations in market infrastructure. The regional exchanges across the ASEAN region, through the ASEAN Capital Markets Forum [3] (“ACMF”), have also collaborated to push the sustainable finance agenda across the region.
National initiatives under the SRI Roadmap
On a national level, the Securities Commission Malaysia (“SC”) has undertaken various initiatives to support the development of a holistic sustainable and responsible investment ecosystem under the Sustainable and Responsible Investment Roadmap for the Malaysian Capital Market (SRI Roadmap). These include the release of the Sustainable and Responsible Investment-linked (SRI-linked) Sukuk Framework [4] and the expansion of the SRI Sukuk and Bond Grant Scheme to include issuances under the SRI-Linked Sukuk Framework and the ASEAN Sustainability-Linked Bond Standards. [5]
Revised Guidelines on Sustainable and Responsible Investment Funds
On 17 February 2023 the SC revised its Guidelines on Sustainable and Responsible Investment Funds (“the Guidelines”) following the introduction of the ASEAN Sustainable and Responsible Fund Standards. This is timely given that a total of 58 Sustainable and Responsible Investment Funds with RM7.05 billion net asset value were offered in Malaysia as at 31 December 2022. [6]
The revised Guidelines has been rearranged and consists of three parts, namely:
- Part A: Sustainable and Responsible Investment (“SRI”) Fund;
- Part B: ASEAN Sustainable and Responsible Fund Standards [7] (“ASEAN SRF Standards”); and
- Part C: Application to Qualify as an SRI Fund and an ASEAN Sustainable and Responsible Fund.
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Lastly, it is worth noting that a tax exemption on the statutory income derived from fund management services of managing a fund in accordance with the Guidelines is made available under the Income Tax (Exemption) (No.5) Order 2018 and Income Tax (Exemption) (No.5) Order 2021. [19] Chapter 5 of the Guidelines set out the qualifying conditions for a tax exemption in relation to managing an SRI Fund.
Commentary
The revision to the Guidelines results in the expansion of the pool of funds that may be eligible to qualify as an SRI Fund. Further, the standardisation of the ASEAN SRF Standards would also enable fund managers to tap into a regional pool of investors (not just at national level). With this widening pool of sustainable funds on a regional level, we are hopeful that this would meet the increasing demands for sustainable funds from investors in general. This in turn would lead to a stronger growth in the sustainable finance products space in the equity capital market, hopefully matching the strong growth of sustainable bonds.
This article was authored by Andreanna Ten. If you have any questions or require any additional information, please contact the Zaid Ibrahim & Co. (in association with KPMG Law) partner you usually deal with.
This alert is for general information only and is not a substitute for legal advice.
[1] Please see UNCTAD, “Chapter IV Capital Markets and Sustainable Finance” in World Investment Report 2022 (9 June 2022) at <https://unctad.org/system/files/official-document/wir2022_ch04_en.pdf>for further details.
[2] Source: UNCTAD (based on Morningstar Data). UNCTAD, “Chapter IV Capital Markets and Sustainable Finance” in World Investment Report 2022 (9 June 2022) at<https://unctad.org/system/files/official-document/wir2022_ch04_en.pdf>.
[3] The ASEAN Capital Markets Forum (“ACMF”) is a forum which comprises capital market regulators from ASEAN countries whose primary task is to promote greater integration and connectivity of regional capital markets.
[4] Please refer to our article on the Introduction of Sustainable and Responsible Investment (SRI)-Linked Sukuk Framework.
[5] Please see Securities Commission Malaysia, ‘Driving Greater Growth in Sustainable and Responsible Investment - Enabling a More Relevant, Efficient and Diversified Market’ for further details.
[6] Securities Commission Malaysia, ‘Driving Greater Growth in Sustainable and Responsible Investment - Enabling a More Relevant, Efficient and Diversified Market’.
[7] The ASEAN SRF Standards aims to provide the minimum disclosure and reporting requirements that can be consistently applied to collective investment schemes (“CIS”) that seek to qualify under the ASEAN SRF Standards, considering the rise of CIS with ESG investment focus and the need for a comparable, uniform and transparent disclosure of information to mitigate the risk of greenwashing. Please see ASEAN Sustainable and Responsible Fund Standards for further details on the ASEAN SRF Standards.
[8] Paragraphs 3.01(a) and 3.03(b) of the Guidelines.
[9] Paragraphs 3.04 and 3.05 of the Guidelines.
[10] Such strategies include ESG integration, ethical and faith-based investing, impact investing, negative screening, positive screening, thematic investments, and any other ESG-related strategies, as may be authorised by the SC. Please see guidance to paragraph 3.08 of the Guidelines for further guidance on such strategies.
[11] Paragraph 3.08 of the Guidelines.
[12] Paragraph 3.09 of the Guidelines.
[13] Paragraphs 4.03 and 4.04 of the Guidelines.
[14] Paragraph 4.05 of the Guidelines.
[15] Paragraphs 4.06 and 4.07 of the Guidelines.
[16] Paragraphs 4.08 to 4.16 of the Guidelines.
[17] Paragraphs 4.17 to 4.20 of the Guidelines.
[18] Paragraph 7.07 of the Guidelines.
[19] Appendix I, the Guidelines.
Malaysia revises its Guidelines on Sustainable and Responsible Investment Funds
As part of the revised Budget 2023, tabled on 24 February, the Malaysian government revealed its plan to allow the issuance of dual-class shares on Bursa Malaysia. This measure is to encourage the listing of local high-growth technology companies in Malaysia. This move is welcomed by the Securities Commission Malaysia (“SC”) as one of the measures to enable the capital market and its supporting ecosystem to serve the needs of the domestic economy and business.
Contrary to the “one share, one vote” principle, the concept of dual-class shares allows companies to issue to shareholders shares which carries disproportionate voting rights, also known as weighted voting rights. Under this structure, there are at least two classes of shares – one with limited voting power and the other with significantly more voting power. This means that certain individuals or group of shareholders, such as founders, will hold superior voting shares while other shares, offered to the public, have inferior voting rights. This is particularly enticing for founders or entrepreneurs of a company who would be permitted to hold shares with superior voting to retain control over the management of the company while allowing sufficient funding to expand the business.
However, this also raises corporate governance concerns that shareholders with superior voting shares may become deeply rooted in the management of the company or seek to extract excessive personal benefit, to the detriment of the minority shareholders. The current approach adopted by regulators in other jurisdictions allowing dual-class shares, such as Hong Kong and Singapore, is to allow listing of companies with dual-class shares structure coupled with some safeguards or restrictions to protect minority shareholders. For example, by imposing a maximum cap of voting differential ratio and by requiring certain shareholders’ resolutions to be decided on a “one share, one vote basis”.
The SC has not yet indicated its approach on the implementation of dual-class shares as details have not been announced at this juncture. We will continue to monitor developments and provide updates.
If you have any questions or require additional information, please contact Joan Ting or the partner you usually deal with at Zaid Ibrahim & Co (in association with KPMG Law).
Malaysia to permit listing of dual-class shares
The Securities Commission Malaysia (“SC”) had on 30 June 2022 launched the Sustainable and Responsible Investment linked (“SRI-linked”) Sukuk Framework (“Framework”).[1] Introduced as an extension of the initiatives under the Sustainable and Responsible Investment (“SRI”) Roadmap by SC to broaden SRI products offerings, this Framework is intended to facilitate fundraising by companies in addressing sustainability concerns such as climate change or social agenda.[2] This would enable companies in these as well as other industries to transition into a low-carbon or net zero economy.[3]
With the introduction of this Framework, private financing for sustainable development would no longer be limited to companies eligible to issue sukuk under the SRI Sukuk Framework but would also be available to a wider pool of eligible companies under the SRI-linked Sukuk Framework. Such introduction is timely for eligible companies to tap into the huge global sustainability financing market. As at 31 December 2021, the global sustainable bonds outstanding exceeded USD1 trillion with sustainability-linked bonds making up USD118.8 billion.[4]
What is a SRI-linked sukuk?
Under the Framework, a SRI-linked sukuk is a sukuk where the financial and/or structural characteristics vary depending on whether the issuer achieves its predefined sustainability objectives within a predefined timeline.[5] For example,[6] a company issues a SRI-linked sukuk with a baseline profit rate of 5% per annum. The key performance indicator (KPI) is reduction in carbon dioxide (CO2) emission to 50 million tonne in Year 3 whereupon if it achieves the KPI, the profit rate will be reduced by 25 basis point (b.p.). In Year 3, the external verifier confirms that the CO2 emission target has been achieved. The profit payment is reduced to 4.75% as incentive for achieving the objective.
Differences between SRI-linked sukuk and SRI sukuk
Such primary feature of a SRI-linked sukuk greatly differs from that of a SRI sukuk where there is no such feature i.e. variation to the financial and/or structural characteristics for SRI Sukuk.[7]
Further, there is no restriction on the use of the SRI-linked sukuk proceeds. Proceeds raised from a SRI-linked sukuk may be utilised for general purposes, whereas the proceeds from a SRI sukuk issued under the SRI Sukuk Framework must be applied exclusively for funding of any activities or transactions relating to the eligible SRI projects[8] as set out in Chapter 20 of the Guidelines on Issuance of Corporate Bonds and Sukuk to Retail Investors (“Retail Bonds Guidelines”).
SC has also announced on 23 August 2022 that the SRI Sukuk and Bond Grant Scheme, to facilitate companies raising sukuk to meet sustainable finance needs, will also be extended to the Framework.[23] This will enable eligible SRI-linked sukuk issuers to apply to the Grant Scheme to offset up to 90% of the external review costs incurred, subject to a maximum of RM300,000 per issuance. The expansion aims to encourage the issuances of SRI-linked sukuk by companies in carbon-intensive industries as they transition to better sustainability practices and low-carbon activities.
Further details of the requirements for the SRI-linked sukuk are set out in Chapter 9 of Part 3 of the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework and Chapter 23 of the Retail Bonds Guidelines.
A set of Frequently Asked Questions issued by the SC on the SRI-linked Framework can be accessed here.
This article was authored by Andreanna Ten. If you have any questions or require any additional information, please contact the Zaid Ibrahim & Co. (in association with KPMG Law) partner you usually deal with.
This alert is for general information only and is not a substitute for legal advice.
[1] Securities Commission Malaysia, ‘SC releases new sukuk framework to facilitate companies’ transition to net zero’ (30 June 2022) <https://www.sc.com.my/resources/media/media-release/sc-releases-new-sukuk-framework-to-facilitate-companies-transition-to-net-zero>.
[2] Supra note 1.
[3] Supra note 1.
[4] Securities Commission Malaysia, ‘SC releases new sukuk framework to facilitate companies’ transition to net zero’ (30 June 2022) <https://www.sc.com.my/resources/media/media-release/sc-releases-new-sukuk-framework-to-facilitate-companies-transition-to-net-zero>.
[5] Securities Commission Malaysia, ‘Frequently-Asked Questions Sustainable and Responsible Investment Linked (SRI-Linked Sukuk Framework)’ (30 June 2022) <https://www.sc.com.my/api/documentms/download.ashx?id=d34d6f67-8f41-4e20-a478-b54fbb817389>.
[6] Supra note 5.
[7] Supra note 5.
[8] Supra note 5.
[9] Paragraph 23.08, Retail Bonds Guidelines.
[10] Guidance to Paragraph 23.08, Retail Bonds Guidelines.
[11] Paragraph 23.10, Retail Bonds Guidelines.
[12] Guidance to Paragraph 23.10, Retail Bonds Guidelines.
[13] Paragraph 23.12, Retail Bonds Guidelines.
[14] Guidance to Paragraph 23.12, Retail Bonds Guidelines.
[15] Paragraph 23.13, Retail Bonds Guidelines.
[16] Guidance to Paragraph 23.13, Retail Bonds Guidelines.
[17] Paragraph 23.16, Retail Bonds Guidelines.
[18] Paragraph 23.17, Retail Bonds Guidelines.
[19] Supra note 5.
[20] Supra note 5.
[21] Paragraph 23.19, Retail Bonds Guidelines.
[22] Paragraph 23.20, Retail Bonds Guidelines.
[23] Securities Commission Malaysia, ‘Expansion of SRI Sukuk and Bond Grant Scheme to Facilitate Sustainable Finance’ (23 August 2022) <https://www.sc.com.my/resources/media/media-release/expansion-of-sri-sukuk-and-bond-grant-scheme-to-facilitate-sustainable-finance>.