This article first appeared in The Edge Malaysia Weekly on October 28, 2024 - November 3, 2024

REGULATORS are said to be looking at imposing bumiputera equity requirements for initial public offerings (IPOs) on the ACE Market, sources familiar with the matter tell The Edge.

The move, if it materalises, will align the bumiputera shareholding requirement with that of the Main Market, the sources say.

On top of that, sources say Bursa Malaysia is also considering widening the shareholding threshold for recognition of existing bumiputera shareholders in fulfilling the bumiputera equity requirement.

It is understood that the Securities Commission Malaysia and Bursa Malaysia are considering changing the listing guidelines to require new listings on the ACE Market to allocate 12.5% of the enlarged share base to bumiputera investors approved by the Ministry of Investment, Trade and Industry (Miti).

This is in line with Main Market listing requirements, where applicants must allocate 50% of the 25% public spread requirement — 12.5% of the enlarged share base — to bumiputera investors at the point of listing.

The growth-oriented ACE Market currently has no bumiputera equity requirements at the point of listing.

Under current listing rules, ACE Market companies only have to undertake the allocation within a year of achieving Main Market profit requirements, or after being listed on the ACE Market for five years.

Meanwhile, the shareholding threshold for recognition of existing bumiputera shareholders in fulfilling the bumiputera equity requirement, which currently only recognises bumiputera shareholders who are not substantial shareholders, will be expanded to include bumiputera shareholders who hold less than half of the company’s enlarged share base.

With the proposed ACE Market listing rule, applicants would have to take the additional step of ensuring bumiputera equity requirement compliance at the point of listing instead of doing so after listing.

“Requiring the bumiputera allocation to be done at the listing stage might result in increased listing costs, but it brings the ACE Market bumiputera equity requirement in line with the Main Market,” a market watcher, who did not wish to be identified, comments.

Malaysia has long endeavoured to increase bumiputera equity participation.

The target was most recently reinforced in the Bumiputera Economic Transformation Plan 2035 (PuTERA35), launched in August this year, which aims to reach the 30% threshold by 2035. In 2020, bumiputera equity ownership stood at 18.4%.

At press time, Minister of Investment, Trade and Industry Tengku Datuk Seri Zafrul Abdul Aziz had not responded to queries from The Edge on the rumoured changes.

Of the 30 ACE Market listings completed so far this year, 17 allocated at least 12.5% of their enlarged share base to Miti-approved bumiputera investors in their respective IPOs.

Another nine were approved for listing subject to compliance with the bumiputera equity condition within a year of achieving Main Market profit requirements, or after having been listed on the ACE Market for five years.

Four other listings were exempted due to their Malaysia Digital Status given by the Malaysia Digital Economy Corporation or because their operations are pre-dominantly based overseas.

Special issues to bumiputera investors are a way for ACE Market-listed companies to meet the requirements after triggering the conditions. However, many of them face lacklustre receptions to their placement shares.

Most recently, HE Group Bhd (KL:HEGROUP) and Zantat Holdings Bhd (KL:ZANTAT) — both of which listed on the ACE Market this year — have proposed special issues in order to comply with the bumiputera equity conditions.

Last year, UMedic Group Bhd (KL:UMC) undertook a special issue to bumiputera investors after meeting Main Market profit requirements but only received an acceptance level of 1.6% — 799,500 shares out of 49.86 million (12.5% of enlarged share base), offered at 68 sen apiece.

Similarly, ECA Integrated Solution Bhd’s (KL:ECA) special issue to bumiputera investors last year received an acceptance level of 7.41% — 6.15 million shares out of 83 million (12.57% of enlarged share base) at 77 sen per share.

UMedic was listed in July 2022 with a market capitalisation of RM164.52 million. At the time it proposed the special issue, the medical devices and consumables company commanded a market cap of RM272.95 million, 65.9% higher than its value at IPO. As at last Friday, it was valued at RM220.62 million.

As for ECA Integrated, it was listed in November 2022 with a market cap of RM91.18 million, which rose to RM470.66 million at the time it proposed its special issue, representing more than four times its value at IPO. Its valuation has now fallen to RM121.6 million.

Compared to fully subscribed approved bumiputera-allocated placements at the IPO stage, the response to these post-listing special issues is clearly muted.

Similar instances of bumiputera special issues with low take-up rates were those by Coraza Integrated Technology Bhd (KL:CORAZA) and Ecomate Holdings Bhd (KL:ECOMATE), both in 2022. 

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