New SPAC rulesIT had long been known that the rules that first allowed the listing of special purpose acquisition companies or SPACs had some weaknesses in them.
Since SPACs or cash shells were first introduced into the Malaysia capital market in 2009, there had been a rule that required 75% of non-interested shareholders to approve the SPAC’s maiden deal, termed as the qualifying acquisition or QA.
However that rule inadvertently led to a situation where some opportunistic investors would buy up shares in the SPAC and attempt to greenmail the management in order to lend their support to vote for the QA.
There were also situations where funds would buy shares in the SPAC if they were at less than their cash value, and opt to reject the QA as that would mean the distribution of all that cash back to shareholders.
It was easy to accomplish that when the threshold for votes for the QA was at 75%.
Finally, the Securities Commission (SC) announced this week that the rules are being changed to require only a simple majority of shareholders to vote in favour of the QA, which would make it much more difficult for the opportunistic investors to pull off their exploits on the SPACs.
There are other enhancements to the rules, including allowing SPACs to issue new shares to pay for the QA (as opposed to the current cash-only rule) and to obtain additional financing via private placements for the QA. The is also a lowering of the minimum amount of funds required to be raised by a SPAC to RM100mil from RM150mil.
However, one area where more clarity is needed relates to the more subjective criteria that is used when assessing SPACs as some of those who have gone through the experience before reckon that there is a lack of standardisation of rules in that approval process.
Cautious on digital currency
RISING interest in cryptocurrency has raised the question of whether central banks should consider issuing official digital currencies, or a central bank digital currency (CBDC).
While several central banks across the globe are already at advanced stages of developing their own CBDC, Malaysia is taking a cautious step in that direction.
On Wednesday, Deputy Finance Minister II Yamani Hafez Musa said Bank Negara has no immediate plans to issue CBDC.
This is given that domestic payment systems, including the Real-time Retail Payments Platform (RPP), are able to continue operating securely and efficiently to support economic needs and enable real-time digital payments.
However, Bank Negara will actively assess the potential value proposition of CBDC in light of developments in the digital assets and payments space.
While there seems to be a stronger case for central banks to look into CBDC given its potential benefits such as faster settlement and easier accessibility, it is not without its risks.
For one, CBDC is vulnerable to cyber security attack, account and data breaches and theft, counterfeiting, and even farther-off challenges related to quantum computing, according to the World Economic Forum.
And depending on how CBDC is deployed, it may have implications to monetary policy and the financial system.
If there was a large shift of bank deposits to CBDC, for example, it may undermine commercial banks’ deposit funding and potentially affect the supply of credit to the economy.
More importantly, the issuance of CBDC shouldn’t just be for the sake of keeping up with the digital trend.
It needs to have solid use cases and be ubiquitous to provide some real value.
Bank Negara opines that CBDC issuance should complement existing payment instruments including physical cash to ensure that all Malaysians, particularly the underserved communities, have continued access to safe and efficient payment solutions.
With much to consider, the move to issue CBDC, really, shouldn’t be a hurried one.
CPO demand at risk
HISTORICALLY, crude palm oil (CPO) has often been traded at a discount between US$100 and US$150 (RM421.05 and RM631.57) per tonne to its close competitor, soybean oil.
However, the current bullish CPO prices saw the commodity now trading at a premium of about US$13 (RM54.74) per tonne to soybean oil from US$25 (RM105.26) per tonne discount last month.
This latest development triggers concern that the near-term demand for palm oil could be at risk in major importing countries such as India and China.
Export demand is also the key to ensure the profitability of the domestic oil palm industry going into the first quarter of 2022, especially with the projection of higher production from December 2021 onwards.
However, the narrowing price discount gaps between soybean oil and palm oil suggests that buyers of palm oil may opt to switch to soybean or other edible oils in the near term.
This is particularly true for price-sensitive countries such as India, which is also the world’s largest palm oil importer.
Palm oil traditionally accounts for about two-thirds of India’s annual edible oil imports between 13 million to 15 million tonnes, mainly sourced from Malaysia and Indonesia.
In 2020, India maintained its position as the largest Malaysian palm oil export market for the seventh year since 2014, with 2.75 million tonnes or 15.8% of total Malaysian palm oil exports.
This was followed by China at 2.73 million tonnes and the European Union (EU) at 1.94 million tonnes.
Another concern is the European Commission in its Agricultural Outlook 2021-2031, which projected that palm oil imports in the EU are expected to decline to four million tonnes by 2031 from 6.5 million in 2021.
This is well reflected in Malaysia’s first 11-month of 2021 palm oil exports to the EU, which fell by 18.2% year-on-year to 1.5 million tonnes.
On the flip side, the weak demand factor could raise the local palm oil stockpiles to above two million tonnes in early-2022, thus exerting downward pressure on the CPO price.
Other factors to watch for include delay in global economic recovery due to the prolonged Covid-19 pandemic as well as unfavourable government policies, which could also affect demand for palm oil next year.