This article first appeared in The Edge Malaysia Weekly on August 7, 2023 - August 13, 2023

Lately, a number of public-listed companies’ (PLCs) proposals for private placements have been rejected by market regulator Bursa Malaysia.

On Aug 2, GIIB Holdings Bhd announced that its proposed private placement of up to 82 million new shares, or 10% of its issued share capital, to raise about RM7 million for working capital had been rejected, owing to pending charges against some of its directors under the Malaysian Anti-Corruption Commission (MACC) Act 2009.

According to the rubber compound manufacturer, as corporate governance practices by a PLC and its directors are one of the key areas considered by the regulator during the application process, “the charges have given rise to concerns on the corporate governance practices”, leading to the rejection.

Before that, on July 27, Practice Note 17 company Pharmaniaga Bhd said Bursa was “unable to consider” its proposed second private placement of new shares to its largest shareholder Lembaga Tabung Angkatan Tentera. It was told to ensure an expeditious regularisation of its financial condition to remain listed on the exchange. The company is appealing against the decision.

Private placements are often PLCs’ preferred fundraising route, as it is cheaper and faster than going to the bank or issuing bonds. It leads to a dilution, however, in the shareholding of existing shareholders.

During the pandemic, Bursa raised the private placement general mandate to 20%, from 10%, of a company’s issued share capital so that companies affected by lockdowns could raise funds in an expedient, efficient and cost-effective manner to tide them over during the tough times then. The relaxation of rules on private placement and rights issue ended on Dec 31, 2022.

The lifting of the general mandates then was necessary, given the unprecedented nature of the pandemic, but it did lead to unintended consequences.

Now, the regulator sees it fit to say “no” to the proposed private placements by GIIB and Pharmaniaga for the reasons stated by the companies. We are hopeful that the overarching reason is to protect investors and ensure market integrity.

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