Keynote Address by

YBhg Dato’ Mustapa Mohamed
Executive Director, National Economic Action Council
at the seminar on

9-10 July 2002

Introduction :

1. First and foremost, I would like to thank the Securities Commission for inviting me to officiate the “Capital Market: Impetus for Growth of Bumiputera Companies” seminar. Given the rapid developments taking place in the capital market, we must ensure that Bumiputera entrepreneurs too are in-tune with these changes to compete effectively both within the country and overseas.

Ladies and Gentlemen:

2. The Government has, and will continue to develop Bumiputera entrepreneurship in Malaysia. However, Bumiputeras should never take the assistance provided to them for granted. We have heard the challenges posed by our Prime Minister, for Bumiputeras not to be complacent and to strive to bring their social-economic status to greater heights.

3. The Government is constantly exploring ways to enhance Bumiputera strength in all sectors of the economy. Globalisation now increases the need for Bumiputera businesses to remain robust to face external challenges. Bumiputeras must not be contented to remain as small-and-medium sized businesses. The greater challenge is to compete effectively, both locally and globally. Bumiputera entrepreneurs should capitalise on the opportunities offered by the capital market and make the capital market part of your planning.

Ladies and Gentlemen:

4. The capital market has undergone rapid changes over the last few years. I must commend the Securities Commission for its constructive approach. Constant dialogues held with industry participants have helped to make it more business friendly. The authorities, including the SC and KLSE have taken measures to liberalise the industry. This liberalisation is in line with efforts to make the Malaysian capital market develop in tandem with the more advanced markets around the world, and at the same time, facilitate the capital raising process.

5. The trend now is for the regulators to move away from a paternalistic approach to a more facilitative approach, and merit-based regulation is being replaced with disclosure-based regulation. What this means is that the SC and the authorities will leave it up to you all, the entrepreneurs and the businessmen who are seeking capital and funding from the capital markets to vouch for the truthfulness and compliance of all the relevant information. Hence greater levels of integrity, discipline and transparency are incumbent on the entrepreneurs and businessmen.

Ladies and Gentlemen:

6. In an increasingly borderless and digital world, capital allocation is no longer restricted to one particular market. Companies are able to tap into the resources of various capital markets in the world. Investors too are increasingly aware of the attractions of capital markets other than those of their home country. Bumiputera entrepreneurs must be aware of these developments too or risk being left behind in the rapid pace of globalisation. And in order to remain in-sync, Bumiputera companies must familiarise themselves with the latest developments in the global capital markets too.

7. But we also have to have more Bumiputera businesses as listed entities. Between 1999 – 2001, 122 applications for listing were considered. Of this number only 24 applications came from Bumiputera companies, bringing the percentage of Bumiputera applications considered by the SC within this time frame to only 19.6%. We have a big task ahead of us to to increase the numbers of Bumiputera listed companies in Malaysia.

8. Bumiputera entrepreneurs must recognise the value a listed entity could bring to their business. A listed vehicle provides that most privileged access, to tap funds from the investing public and the number of successful and listed companies in a stock exchange also adds strength to the market. Then there are the fund managers worldwide, who use the stock indices comprising these successful companies to benchmark the market.

Ladies and Gentlemen:

9. One of the main objectives of this seminar is to familiarise Bumiputera companies with capital market regulations – in particular the listing requirements. The listing requirements are in place to ensure that only companies which can meet them are able to seek quotation on the stock exchange. However, Bumiputera entrepreneurs should bear in mind that listing is not an end by itself but merely a means to help sustain and grow a business. Companies which have achieved the public-company stature, must ensure that the going concern becomes stronger, keeping shareholders happy with good governance and financial results.

10. Listing carries numerous benefits which are not usually available to the non-listed companies. The capital market is an avenue for listed companies to raise funds with relative ease compared to non-listed companies. Listed companies have a wider capital base comprising equity, debt securities or a combination of both. Listed companies would also enjoy better credit ranking usually associated with a listed status.

11. However the objective of any company should be to enrich its stakeholders through the production of high quality goods and services which will attract the purchasing power of your customers. Ultimately the viability of your businesses will depend on the quality of your products, the quality of your customer service and the competitive pricing of your products and services.

Ladies and Gentlemen:

12. When companies are blinded by too much speculation or speculative greed and stray too far away from their core businesses they will end up in disaster. Easy access to the capital markets but without direction or knowledge of what to do with the easy capital often leads businessmen and entrepreneurs to embark on speculative activity to make a quick profit.

13. Please do not forget the property bubbles we have had in Malaysia. In the late 80s we also had very speculative investments in the manufacturing of disposable latex gloves. Then there was massive investments in golf club developments, condominium development and others. More recently the whole world has witnessed the bursting of the speculative bubble. As Bumiputera entrepreneurs and present or future members of the listed fraternity, I want to stress that the access to easy capital provided by the listed status should never be abused to embark on speculative investments and speculative behaviour just to make a quick profit.

14. A little speculation of course is good. Even a vegetable vendor who buys and stocks up vegetables for sale is speculating that he can sell his vegetables before it turns bad and also for a price that is higher than his cost. Any business carries with it an element of speculation. But what we must avoid is the more adventurous and perhaps foolhardy sort of speculation which can put at risk everything which you have built up over the years. This must be avoided at all costs.

Ladies and Gentlemen:

15. The Government is encouraging Bumiputera companies to go public because of the discipline and the staying power that is required to achieve the status of a listed company. Hence the status of Bumiputera entrepreneurship will be raised. Investors would deem Bumiputera entrepreneurs to be strong and financially secure due to their adherence to the strict listing requirements imposed like the profit history and proven track record. This is in turn, would attract other major investors such as institutional investors, unit trust funds, insurance companies and retail investors within the country and from abroad. It would also indicate that Bumiputera entrepreneurship is at par or better than any other entrepreneur.

Ladies and Gentlemen:

16. The collapse of Enron and now the WorldCom issue in the US has made the whole world wonder about their corporate governance structure. But so far, the strength of their market is able to withstand such shocks. But it is of the utmost importance that Malaysia shield itself from such corporate scandals. It is in this regard, that the authorities continue to advocate that corporate governance best practices be adopted totally in business. We may have the best systems in place but ultimately it is individual integrity that will matter the most.

17. While superior resources and better technology contribute to the competitiveness of a company, a market or an economy – good governance or management is a pre-condition to competitiveness that underpins all these other factors. Capital will flow into a company not just because of technology or resources, but also due to the best practices in the area of governance which is upheld by the company. This is also why, in the long term, some companies, some markets, some economies are more successful than others, despite lacking superior resources or technology – simply because they are more well governed.

18. Bumiputera companies too must ensure that they practise good corporate governance throughout their company’s life. Good corporate governance brings value to the market and attracts investors easily. Good management will make Bumiputera companies visible to the radar screens of not only domestic investors but foreign investors as well.


Ladies and gentlemen:

19. Private investment will continue to play a major role in national economic development. On the Government’s part, we will continue to provide the necessary infrastructure and ensure there is a conducive business environment and healthy investment climate for private enterprises to grow and prosper. This commitment of the Government, particularly through friendly business policies will also stimulate private domestic and foreign direct investment in the country.

20. To conclude my remarks, I would like to thank the Securities Commission for organising this seminar to enhance Bumiputera participation in the capital markets. It will certainly increase the awareness of their potential to be full participants in our economy.

Thank you.