The Malaysian capital market tomorrow enters the final phase of its move from a merit-based to a disclosure-based regulatory (DBR) framework for fund raising. The Securities Commission (SC) marked this milestone with the release of seven revised fund-raising guidelines.

“We have completed the transition to DBR—which is a milestone in the development of our capital market. The new framework, effected through the revised fund-raising guidelines, would result in significant improvements in the efficiency of the fund-raising process,” said the SC Chairman, Datuk Ali Abdul Kadir.

“More broadly, this is a pivotal point in our progress towards a more sophisticated and diversified financial system,” said Datuk Ali.

DBR, premised on greater and higher quality of information disclosure by issuers, will bring about greater transparency in the market, thus empowering investors to make informed investment decisions.

Malaysia has taken a phased and incremental approach towards DBR, focusing on enhancement in disclosure, due diligence and corporate governance as well as promotion of accountability and self-regulation.

The revised guidelines, which are available on the SC website at www.sc.com.my, are as follows:

1. Policies and Guidelines on Issue/Offer of Securities (pdf);
2. Guidelines on the Offering of Private Debt Securities (pdf);
3. Guidelines on the Offering of Asset-Backed Debt Securities (pdf);
4. Guidelines on Asset Valuations (pdf);
5. Prospectus Guidelines (pdf);
6. Guidelines on Unit Trust Funds (pdf); and
7. Guidelines for the Issue of Call Warrants (pdf).

(Table 1 provides a summary of the key improvements to these guidelines.)

Key features of new fund-raising environment

In highlighting some of the key features of the fund-raising environment in the final phase of DBR, Datuk Ali said that the requirement to seek approval of the SC for corporate proposals is being retained. Notwithstanding that, the market would enjoy significant improvements in the efficiency of the fund-raising process, through faster approval time and more business-friendly and market-based rules.

Investor protection remains a high priority with a strong emphasis on high standards of disclosure, due diligence and corporate governance.

For example, companies that have been flaunting laws in the past may find themselves restricted by the SC from seeking funds from the public. A company with even a single director whose integrity is questionable might not get its corporate proposal approved as long as the person remains on its board.

Datuk Ali said the final phase of DBR would see major changes in how the SC reviews corporate proposals involving the issue/offer/listing of equity and equity-linked securities. Essentially, the review of corporate proposal would be based on two approaches—“assessment approach” or the “declaratory approach”—depending on the type of corporate proposal.

“The new approaches to the review of corporate proposals would result in faster approvals from the SC,” he said.

The two approaches differ in the extent of suitability assessment that would be undertaken by the SC. Under the “declaratory approach”, the SC would approve a corporate proposal based on a declaration by the issuer and the principal adviser that the corporate proposal complies with the relevant requirements of the SC. Under the “assessment approach”, there would be more focused review of the suitability of the corporate proposal, and this approach would generally be adopted for major transactions such as new listing applications, reverse take-overs/back-door listings and corporate proposals by distressed listed companies.

Business-friendliness would also be another pertinent feature of the new guidelines. For instance, companies issuing equities would now have more discretion to price their shares and utilise the proceeds as long as these are done for the benefit of the company as a whole. The measures announced by the Acting Prime Minister on 11 March 2003, in particular, the new moratorium requirements for listings and reverse take-overs and the market capitalisation test for listing of large companies have also been incorporated into these guidelines.

Effective date of revised guidelines

The revised guidelines would come into effect on 1 May 2003 to allow companies and their advisers time to familiarise themselves with the requirements. Until that date, the existing fund-raising guidelines remain applicable but the SC may allow companies to enjoy some of the new flexibilities upon application.

The SC would conduct a series of briefings on the revised guidelines for relevant industry participants.

The SC had progressively implemented DBR since 1996 under a three-phased programme whereby the assessment process of corporate proposals for the issue, offer and listing of securities had gradually been liberalised while maintaining regulatory standards.

Market readiness surveys carried out by the SC in 1999 and 2002 revealed that the market is, in general, supportive of DBR. In coming up with the guidelines, the SC has had extensive consultations with the relevant industry groups and stakeholders.

Datuk Ali said that the move to the final phase of DBR is an important step in ensuring the overall process of raising funds is efficient and provides a competitive cost of raising funds for issuers, in line with the aim to establish Malaysia as a preferred fund-raising centre for Malaysian companies, as stated in the Capital Market Masterplan.

Table 1
Summary of Key Improvements in the Revised Fund-Raising Guidelines

SECURITIES COMMISSION
31 March 2003