Major IPOs herald exciting times ahead
Discovery Reports - Malaysia's Financial Services
Bursa Malaysia is abuzz with excitement. Home to the world's second- and third-largest initial public offerings (IPOs) this year, Malaysia has become the world's top IPO destination.
Next only to American social networking service corporation Facebook, in terms of capital generated through the offering, the Felda Global Ventures IPO in June raised US$3.3 billion.
The Malaysian plantation operator even had to sell additional shares to accommodate excess demand. The local bourse again took the spotlight with the IPO last month of leading hospital operator IHH Healthcare, the world's third-largest offering this year.
The stock market's strong showing did not come as a surprise. As one of the 12 NKEAs under the ETP, the financial services sector has been undergoing structural changes over the past two years.
The sector's role in the economy has been growing across the past decade. From an average gross domestic product (GDP) share of 9.9 per cent between 2000 and 2005, the financial sector's GDP contribution climbed to 10.9 per cent in the 2006-2009 period and to 11.6 per cent in 2010.
The ETP aims to further strengthen the sector so it can serve businesses and consumers when Malaysia achieves a high-income status in 2020.
The financial services NKEA identified four thrusts: strengthening core financial services, serving the needs of the high-income population, developing new growth sectors and adopting an offensive stance.
From these objectives, the government has identified 10 EPPs, or concrete action plans, to expand the sector's gross national income (GNI) contribution.
With Islamic finance leading the sector, the EPPs will cover areas such as bond markets and wealth management.
Of the 53 financial sector initiatives, 31 of these or 58 per cent have been accomplished last year. About 20 initiatives, or 38 per cent, are slated for completion this year, while the remaining two initiatives will be implemented by 2015. "The financial services NKEA has done exceptionally well. All our EPPs have made significant progress in creating a better investment and financial landscape for the years to come," says Minister of Finance II Ahmad Husni Bin Mohamad Hanadzlah.
"We are working to increase the sector's depth and expand its regional and global market shares."
The structural changes scheduled for implementation this year include the creation of an international trading board at Bursa Malaysia, further privatisation of government-linked investment companies (GLICs), increasing the range of wealth management products and carving a niche in Islamic asset management.
"We are looking at policies and regulations that will enhance market liquidity," says Dr Mohammed Emir Mavani Abdullah, PEMANDU director for oil, gas and energy and financial services.
"If we make the regulation too loose, we will have a problem. If we make it too tight, players cannot come in. We have to strike a balance between regulation and deregulation."
The ETP will raise Malaysia's total financial sector GNI by 121.5 billion to 180.2 billion ringgit (HK$298.3 billion to HK$442.3 billion) by 2020 and create 275,400 new jobs.
Of this goal, the 10 financial sector EPPs will contribute 28.8 billion ringgit, creating 45,000 high-paying jobs.
The following is a quick look at six of the 10 financial services EPPs.
EPP1 - Revitalising equity markets
Investors can look forward to more innovative products such as exchange traded funds and derivatives. A more liberalised stockbroking industry will also double the level of trading activities to 60 per cent of total market capitalisation, matching the liquidity in other markets in the region. These initiatives will expand the Bursa's market capitalisation by 15 per cent yearly from 1 trillion ringgit in 2010 to 3.9 trillion ringgit by 2020.
EPP2 - Deepening bond markets
To encourage retail participation in sukuk and conventional bonds, the Securities Commission and Bursa Malaysia will help with the offering of corporate bonds to retail investors. The government is also attracting niche players with higher risk appetites to invest in lower-rated bonds.
The widening of the credit spectrum and increase in foreign issuers and investors will deepen and broaden the Islamic bond or sukuk market. The initiatives are seen to raise total outstanding issuances from 270 billion ringgit in 2010 to 880 billion ringgit by 2020 for an annual growth of 23 per cent.
EPP7 - Spurring wealth management
Top foreign wealth management institutions will enjoy an income tax break for the first 10 years of operation in Malaysia. This is on top of a more liberalised business environment and streamlined product approval processes. To carve a niche in Islamic wealth management, the government will also provide training and education for sharia financial planners. This EPP also calls for tax exemptions for investment income generated from employee provident fund withdrawals amounting to more than HK$2.4 million.
EPP8 - Accelerating asset management
External fund managers can invest more in Malaysia as GLICs raise their exposure to such investors from 5 to 15 per cent of assets under management (AuM). Each mandate will be from HK$2.4 billion to HK$4.9 billion to stay attractive. Other initiatives include the establishment of a private retirement scheme and a seeding strategy to create more Islamic investment strategies and styles. These initiatives will raise total industry AuM from 300 billion ringgit to 1.7 trillion ringgit through 2020 for a 17 per cent yearly growth.
EPP9 - Developing regional banks
Bank Negara Malaysia (BNM) will assist major Malaysian banks to lead the expansion outside Asean. These banks include Maybank, CIMB, RHB Capital, Public Bank and Hong Leong Bank. To adopt best practices from Asean regulators and financial institutions, BNM has entered into agreements with China Banking Regulatory Commission, Bank Indonesia, State Bank of Vietnam and National Bank of Cambodia.
EPP10 - Global hub for Islamic finance
Within the Islamic finance space, Malaysia leads globally. The country accounted for 64 per cent of global sukuk in 2010 while Bursa Malaysia leads in listed sukuk. Malaysia also has the largest number of Islamic funds with 163 Islamic unit trusts amounting to HK$61.4 billion in total net asset value as of September last year. The country also operates the most comprehensive Islamic capital market occupying second place in Islamic insurance or takaful and third in banking.
This EPP aims to make Malaysia the intellectual and capital centre for Islamic finance. Global share of Islamic banking assets is targeted to increase from 8 per cent in 2009 to 13 per cent in 2020. Worldwide takaful contribution is seen to rise from 11 per cent in 2009 to 20 per cent in 2020.
Other initiatives include issuance of more sharia parameters for activities such as musharakah or Islamic banking and Ijarah or Islamic mortgage. BNM is also working to strengthen legal support for Islamic financial transactions.
By covering all bases, the government is building a financial sector fit to handle the demands of a highly developed Malaysia in 2020. "This sector will become more mature and innovative," Emir says. "We will become a financial hub not only in Malaysia but overseas, especially in Islamic wealth management. We are poised to do that."
Acronyms at a glance
ETP - Economic Transformation Programme
Launched in October 2010, the ETP lays out the framework to fulfilling Malaysia's vision of becoming a high-income nation with a per-capita income of at least US$15,000 by 2020.
NKEA - National Key Economic Area
These are 12 of Malaysia's strongest and most competitive sectors, ranging from oil, gas and energy to education and tourism. The NKEAs reinforce the private sector as Malaysia's new champions, in close partnership with the government.
EPP - Entry Point Project
The ETP outlines specific projects that are geared towards catalysing investment, and has identified about 131 EPPs and related BOs to kick-start growth.
BO - Business Opportunities
Alongside EPPs, BOs invigorate high-potential business areas under each NKEA. Together with EPPs, these are expected to fuel up to
1.7 trillion ringgit (HK$4.2 trillion) in gross national income and create more than 3.3 million jobs by 2020.
PEMANDU - Performance Management and Delivery Unit
An agency under the prime minister's department, PEMANDU oversees the implementation of the programme. It combines the best talent from the civil service and private sector.