Where have all the big companies gone?

NO doubt, there seems to be a significant number of new public listings on the local bourse these days. However, most of these companies are relatively small.

There has been a noticeable absence of major players entering the market.

When was the last time we saw the likes of a Malayan Banking Bhd, Maxis Bhd or MISC Bhd being listed? While the upcoming listings of Sunway Bhd’s medical arm and MMC Port Holdings Bhd are noteworthy, they do not address the larger issue – there simply aren’t enough large companies coming to the local market.

One reason for this is that the country is no longer producing as many big companies as it once did. The reasons for this are varied and complex, but that discussion is for another time.

What if there were a low-hanging fruit of companies that could be, let’s say, “encouraged” to come to the Malaysian public market, by virtue of their large presence here? Yes, I’m talking about multinational companies or MNCs. Some MNCs have already done so, but many others have not.

Consider the foreign banks that have operated here for decades, global semiconductor companies deeply embedded in the local ecosystem, and newer entrants winning construction or infrastructure projects.

Could these companies be encouraged – or even mandated – to list their operations locally, especially if they secure concessions in Malaysia?

Public listings of such companies would not only share wealth creation with the Malaysian public but also promote governance and disclosure standards.

In some cases, it could even benefit foreign multinationals operating in sectors that face constant regulatory scrutiny, such as alcohol and tobacco companies.

The idea of attracting foreign MNCs to list here is not new and presents notable challenges. A delicate balance must be struck between fostering foreign direct investment and mandating them to list here.

As one former banker notes, “Mandating domestic public listings for foreign companies could undermine the very factors that have made Malaysia an appealing FDI destination for decades.”

Instead, encouraging rather than mandating foreign companies to list could be more effective.

For instance, Oman’s 2024 Capital Market Incentives Programme (CMIP) offers a model. It incentivises both local and foreign companies to list on the Muscat Stock Exchange by providing benefits such as a five-year income tax refund post-listing, a 10% price preference for government procurement contracts, and access to financing.

The latter is facilitated through the Oman Development Bank, which offers expedited processing of financing applications for participating companies.

Companies are also exempt from listing fees. So far, though, the CMIP is also known to have galvanised only a few locally owned groups and GLCs to start their listing process. There is no indication that any of the foreign companies operating there have started a listing process.

Oman also has just launched The Promising Companies Market (MSX-AIM), aimed at encouraging more SMEs and startups to list. In that sense, Malaysia is years ahead, as our ACE Market has been vibrant with 236 companies listed and it keeps growing.

On a related matter, the Securities Commission (SC) has now called for proposals that include enhancing routes for listing. One of those proposals relates to attracting what it refers to as “new economy” companies.

Specifically, the regulator is suggesting loosening the cash flow requirement for companies seeking a Main Market listing via the market capitalisation route.

Companies with a market capitalisation over RM500mil must have positive cash flow from operating activities to be eligible to list on the Main Market. The SC now suggests treating this requirement merely as “one of many factors to be considered”.

It makes sense to follow this rationale. According to the SC, rigid requirements for positive operating cash flow may inadvertently discourage listings of companies with high growth potential, particularly those in the new economy and innovation-driven sectors.

This proposal aims to provide greater access to capital for high-growth and new economy corporations by relaxing this requirement.

And could it be that this comes after Bursa Malaysia lost out on attracting a company like Malaysian-founded Grab Holdings for its listing?

Recall that when Grab listed via an injection into a special-purpose acquisition company (SPAC) on Nasdaq in 2021, it had massive losses totalling some US$652mil in just its first quarter of financial year 2021 and was cash flow negative. It would have been some feat for the regulators in Malaysia or even in Singapore to allow for such a listing.

Regulators are in a tough spot. Are Malaysian investors ready to take on such risky bets? If things go sour, would the regulators be blamed for facilitating the listing of such risky assets?

Since its Nasdaq listing, Grab Holdings’ shares have experienced significant fluctuations but generally traded below its initial SPAC valuation, despite its improving profitability and revenue growth.

The SC’s proposal does seem to be a middle-of-the-road approach.

While it is proposing to remove the positive cash flow requirement, the rules will still require these IPO aspirants to demonstrate a healthy financial position, including having sufficient working capital to cover at least 12 months from the date of the prospectus. Hopefully this will attract some solid tech-based companies to our domestic market.