Tajuddin Atan, chief executive of Bursa Malaysia, cannot quite believe what has happened to his exchange.
From being a sleepy southeast Asian backwater dwarfed by the markets of China and Japan, Malaysia’s bourse has been catapulted to global prominence after a wave of big-ticket listings.
Many of them have involved companies that are barely household names in Asia, let alone on Wall Street or London: IHH Healthcare, a hospital operator, and Felda, a sprawling Malaysian palm oil group.
Felda’s $2bn initial public offering in June was the second largest IPO in the world after Facebook. And unlike Facebook, which stumbled on its debut, Felda traded above its issue price and has stayed there ever since.
“All of a sudden we’re sticking out like a sore thumb,” says Tajuddin, a former banker at the Malaysian bank RHB who has run Bursa since last year.
Poor market conditions scuppered IPOs in Hong Kong such as jeweller Graff Diamonds, while Singapore has seen issues from Manchester United, Formula One and the cable division of Reliance of India evaporate.
Bursa is the 14th largest exchange in the world measured by its market capitalisation as a listed company. However, it has vaulted to fourth position in terms of destination for IPOs this year by value after the US, China and Japan, according to Dealogic.
Thirteen companies have raised $6.4bn so far this year including the latest, a $1.5bn issue last week by Astro Malaysia, a pay-TV company partly owned by Ananda Krishnan, one of the country’s richest men.
“This is our moment in the sun,” Tajuddin says. “We are seeing that we are attracting attention, global attention, and that’s something, I think, for a small exchange like ours, that’s very valuable.”
He anticipates the next question. “What people will be asking is more powerful. What is fundamentally happening there? Is it just a one-off?”
The answer is it may just be. Felda’s success was seen by analysts as a result of backing from cash-rich Malaysian pension funds and other big investors such as sovereign wealth funds in Qatar and Singapore. Political support also came from the Malaysian government, which has made divestment of stakes in government-linked companies (GLCs) such as Felda a priority.
Tajuddin says the exchange is now trying to nurture the next wave of companies. He points out that Malaysian companies are moving beyond national borders; the biggest 30 companies on the benchmark KLCI index derive 38 per cent of revenues from Southeast Asia.
“And these are good stocks. These are companies that now have got good dividend yield policy,” he says.
Malaysia also has improved its corporate governance record. It moved up in this years’s Asian Corporate Governance Association rankings after amended listing rules requiring companies to provide segment analysis in notes to quarterly reports, as well as better cash flow disclosure.
Tajuddin admits there are not enough companies available to list. That is partly because of a lack of political will to spin off some of the GLCs’ non-core businesses.
“The challenge now is that you have to be providing quality stocks. So the conversation that we have at the exchange, securities commission and even as high as the government is to say ‘how do we improve this to ensure sustainability?’.”
One obstacle is that with abundant bank financing and an active bond market – including in sukuk Islamic issuance – companies are reluctant to tap equity markets.
Another is that liquidity is soaked up “like a sponge”, says Tajuddin by the country’s vast pension funds. They have huge cash reserves but few places to invest beyond Bursa’s relatively small range of companies and the bond market.
“They [the funds] say – and it hurts me a little bit as head of an exchange – what do I buy? There’s not much. I already bought all the top 30. So you need to provide quality stocks, sizeable stocks for me to actually do this,” Tajuddin says.
One large IPO is expected in April next year, by Malakoff, an energy company. But pressure is likely to build for more, with third-quarter listings revenues already off 10 per cent. The recent run of buoyant IPOs was punctured last week when Astro had a tepid debut.
Nonetheless Tajuddin says Bursa will not loosen standards just to add to listings. “If you want to raise money here, it is my obligation to my investors to say is this a quality company,” he says. “We are not letting any Tom, Dick and Harry raise money here.” -By Jeremy Grant