This article first appeared in The Edge Malaysia Weekly on September 18, 2023 - September 24, 2023

MENTION the name Maybank Investment Bank Bhd (Maybank IB) and the business and investment community would inevitably think of companies with large market capitalisations and the deals it has undertaken for them over the years.

The investment bank, which has a 50-year track record being part of the country’s largest banking group Malayan Banking Bhd, has been at the forefront of notable mega transactions in the past, including the initial public offerings (IPOs) of FGV Holdings Bhd, Westports Holdings Bhd, Lotte Chemical Titan Holding Bhd and, more recently, Mr D.I.Y. Group (M) Bhd.

It is now looking to accelerate the pace. It is turning its attention to mid-cap companies — a space it is not traditionally known for.

“It is a space where we see tremendous opportunities. We see a lot of companies growing and requiring capital, be it equity or debt, to elevate themselves in terms of growth,” Maybank IB CEO Datuk Fad’l Mohamed tells The Edge in an interview.

He joined the investment bank as deputy CEO in March 2015 and assumed his current role as CEO in October 2018.

“Our focus is not just companies listed on the Main Market, but also those on the ACE Market,” he says, pointing out that mid-cap companies are the growth drivers of the economy.

Fad’l notes that the investment bank is not just talking about IPO transactions but rather, its interest in growth companies on the ACE Market that are looking to access capital, be it from the equity or debt capital markets (DCM).

“It is not just supporting these companies on the IPO side. We can also support them from the perspective of the DCM space. If these companies are suitable and ready for the DCM, we will certainly go out there and raise capital for them. One example, which we did recently, was raising capital for Solarvest Holdings Bhd and Sunsuria Bhd,” he says.

With Maybank IB putting more focus on the mid-cap space, it means it is throwing its hat in the ring to compete with the smaller boutique investment banking houses. Advisory fees tend to be lower in that space as the transactions undertaken are smaller in size and value when compared with the big-cap market.

It is worth noting that fees generated from investment banking deals are no longer as lucrative as before when there was less competition. With more players in the market now, the competition has been intense.

Acknowledging this, Fad’l maintains Maybank IB has demonstrated its ability to stay ahead of its competitors despite the challenges. The investment banker believes that opportunities are abundant in the DCM, given the ample liquidity available in the system. This is especially true when it comes to sustainability-type issuances, be it in the mid-cap or large-cap space.

The conviction that Maybank IB has in the sustainability agenda, which is also part of the group’s refined corporate strategy known as M25+, was shown in the establishment of a sustainable finance team in 2021. The dedicated DCM team looks into every aspect of sustainable financing, including structuring deals for clients and educating board members and senior management on the topic.

“Sustainable financing is our core strategy and we want to continue to scale up. We see a lot of opportunities these days [in this segment]. We are seeing the need among clients looking to transition to greener assets to be in line with the country’s commitment to net zero emissions by 2050,” says Fad’l.

“A lot of our customers have made the commitment to net zero emissions and what we are doing today is to help them raise sustainable financing and acquire assets to shift to a lower carbon footprint.”

Among the sustainability financing issuances Maybank IB has undertaken recently include being the lead adviser, bookrunner and manager of MBSB Bank’s first sustainability sukuk, with an issuance worth RM300 million, the proceeds of which will be channelled to financing its green and social-related projects.

The investment bank was also the joint manager, adviser and bookrunner for TNB Power Generation Sdn Bhd’s first sustainability sukuk worth RM1.5 billion.

“The need for us to help companies move away from fossil-fuel-based assets to more renewable assets is going to be critical, given the country’s commitment to net zero emissions and the National Energy Transition Roadmap (NETR) goals. Based on the NETR announcement, the transition is going to require RM435 billion to RM1.85 trillion up to 2050, so the capital requirements are huge, whether it is debt or equity,” says Fad’l.

Having said that, he opines that more awareness is still needed among Corporate Malaysia regarding sustainability issues and financing. While larger corporations have in place their sustainability departments, the sustainability agenda largely remains a new area and is something that needs to be accelerated, he says.

“In general, I don’t think the awareness on sustainability issues have cascaded all the way to the operations level, particularly for the mid-cap companies. So there is a lot of awareness still needed. The team that we have is constantly meeting management to create awareness on sustainability issues and in some instances, we do show them proposals when they are ready for sustainable financing,” says Fad’l.

Maybank IB’s business model comes with two core pillars. One of them is the investment banking and advisory (IB&A) segment, which includes the equity capital markets, DCM and corporate advisory services. The other, which is less talked about, is the investment management segment — or more commonly known as the equity business — that includes retail brokerage, institutional brokerage and structured products.

During the Covid-19 pandemic, when deal transactions were scarce, it was the equity business that lifted the investment bank’s earnings. It was a period when trading volumes surged as shares changed hands in the market at a furious pace, resulting in this segment contributing more to its bottom line than the IB&A segment.

For the financial year ended Dec 31, 2022 (FY2022), Maybank IB posted a profit before tax of RM77.5 million. Of this amount, the equity business recorded a profit before tax (PBT) of RM65.61 million while the IB&A segment saw a PBT of RM11.89 million.

The contribution of the equity business was even higher in FY2021, registering a PBT of RM174.28 million while that of the IB&A segment stood at RM85.99 million. This brought Maybank IB’s profit before tax for FY2021 to RM260.03 million.

Trading volumes have moderated significantly this year. This is evident by the local stock market’s performance, which has been lacklustre.

Fad’l says the contributions of the two business segments are now more evenly distributed. He points out that the earnings of the IB&A segment tends to be lumpy, given the long gestation period.

As the equity market tends to be volatile and is cyclical, what Maybank IB wants to do going forward is to come up with more structured solutions, the margins of which tend to be better.

“We see better margins from new products and they will provide a buffer against the volatility in the retail market. This is an area that we are also growing in and scaling up,” he says.

Competition is equally fierce in the retail brokerage space with digital brokers in the mix, but Fad’l stresses that being a full-fledged broker is how Maybank IB sets itself apart from the competition. “We give value to clients,” he says, with the investment bank continuously enhancing its digital experience for the retail market.

There has been a slowdown in deal activity worldwide. It was reported that global merger and acquisition (M&A) activity fell 38% in the first half of this year (1H2023) to US$1.3 trillion — the lowest deal volume since the pandemic started in 2020.

Fad’l observes that in Malaysia, there has been a lot of activity among companies looking to dispose of their non-core assets.

“A lot of companies experienced stressed balance sheets when cash flow was tight during the pandemic. Coming out of it, we see today that companies are looking to dispose of non-core assets because they saw how they had to carry these assets during the pandemic and how these strained their balance sheet,” he says.

“There is a lot of activity building up in this space of companies selling non-core assets and other companies looking to buy them. But to add on, the one space that we have built a niche in is being able to tap private equity investors looking at companies requiring growth capital in Malaysia.”

Fad’l says the pipeline of deals in 2024 is strong for Maybank IB. “In 2024, we see about three to four IPOs in our pipeline, which are estimated to be about RM1.3 billion, and it could be even more.”

He believes the interest rate cycle has certainly led to increased volatility, especially in the global fixed income market, and this has reduced supply as issuers recalibrate to look at their funding strategy.

“But Malaysia continues to be a bright spot in Asean, where year to date, bond and sukuk volumes are tracking closely with those in 2022. In terms of total issuance, we are on track to close at RM110 billion. We anticipate a lot of infrastructure projects and refinancing in the DCM market to continue,” he says. 

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