The Country has been vulnerable by the effects of the recession due to its dependence on export oriented manufacturing sector. Exports and manufacturing declined 7.4% and 11.1% from Q4 2008. (Analytics & Department of Statistics, 2009). Malaysian economy is set to strengthen 2014, backed by private investments and stronger exports. The government is set to reduce its deficit by scaling back subsidies for staples such as fuel, flour and sugar. Deficit is projected to fall by 3.5% and 3.0% in 2014 and 2015, respectively (Euromonitor, 2014). Strong job market, transfer payments and hike in minimum wages is set to strengthen consumer spending. Private investment is expected to increase to MYR ...view middle of the document...
Malaysian government has taken steps to liberalize the economy and relax the controversial rule that required businesses to be owned partly by ethnic Malays. The ownership has gradually been decreasing from 50.0% to 30.0%. The Prime Minister of the country recently announced that the listed companies will no longer be required to have Malays to hold a stake. The Country realised that the policy was not benefiting the Malays.
2. Most businesses in Malaysia are on a personal basis and the deal can take time to kick in. There are cultural and social barriers, and most companies are family run. Malaysia is moving away from traditional funding and is warming up for PE investments. However, the country has to ensure that regulations and guidelines are effective. The Securities Commission has recently revised its equity investor’s guidelines
PE investment in Malaysia
The government is giving a boost to the private equity investment in Malaysia. Local companies have been dependent on state-owned companies for financing. The government now aims to reduce this dependence by encouraging funding from private equity investors, to help small businesses expand. Malaysia’s state-run pension fund is also allocating more funds to private equity investment. Most companies in Malaysia prefer to take debt since the cost of debt is as low as 3.0% maintained by the Bank Negara Malaysia (BNM), for the last 10 years, and thus have overlooked funding from private equity and IPOs. Promoters of the company were typically averse to sell out their stake and preferred maximizing debt funding.
Cause of concern
The piling debt is a cause of concern for these companies and has made infusion of capital from private equities more attractive.
Also, the interest rates are expected to increase. It is expected that the rate will be increased to 3.5% in the coming year.
Trends in PE
Deals involving private equity have been few in number. There have been three major investments in the year 2013, totalling $100.0 million. In 2012, there were seven deals totalling $277.0 million. When compared to the deal activity in Southeast Asia valuing upto $1.1 billion, Malaysia has received only a fraction of the deal size.
Figure 1: Private Equity investment in Malaysia account for a fraction of deals in the region
In March 2013, the Employees Provident Fund said it planned to expand its private-equity investments. Despite an average annual increase of 50.0% over the past four years, private-equity investments accounted for less than 1% of its $161.6 billion under management at the end of 2012. It didn’t specify the amount it aims to allocate to private-equity investments.
KKR, the multinational PE fund, has also shown belief in the Malaysia’s economy by announcing its first investment in Malaysia in October 2013, in Weststar Aviation Services Limited, investing MYR 642.0 million (USD 200.0 million).
(KKR Invests in Weststar Aviation...