Guidelines for the Public Offering of Securities of Infrastructure Project Companies (IPCs)

Kuala Lumpur, 19 September 1995

Following the Finance Minister's announcement on 22 June 1995 to allow companies having major infrastructure project companies with long gestation periods to apply for listing on the KLSE, the Securities Commission is pleased to release the guidelines for the public offering of securities of infrastructure project companies. These guidelines were formulated after extensive consultations with various industry groups, including merchant banks, lawyers, accountants, financial analysts, the Federation of Public Listed Companies, some potential issuers and KLSE.

The release of these guidelines is timely in view of the Government's strategy in shifting the burden of bearing infrastructure expenditure to the private sector and in the process, encourage better risk sharing, accountability, monitoring and management of infrastructure projects.

With huge estimates of spending on infrastructure projects in Malaysia, the securities market can provide an alternative source of capital to fund infrastructure projects since it represents the largest pool of capital resources. Whilst the strongest impact in domestic fund mobilisation is brought about through equity listings on the stock exchange or domestic bond issues of infrastructure project companies, the Securities Commission is committed to an integrated approach towards a financing strategy for infrastructure project companies. Therefore, apart form the equity listing of infrastructure project companies on the KLSE, the Securities Commission believes that it is also essential to develop other financing options in the capital market such as the listing of infrastructure funds, developing the debt and asset securitisation markets and putting in place a framework which facilitates institutional investors to participate and invest in infrastructure projects.

Types of Infrastructure Projects

A public company having an investment in an infrastructure project may make a public offering of its securities if the infrastructure project (which may be located in or outside Malaysia) fulfils the following conditions:-
a. it contributes to the overall economic growth of Malaysia or which is in accordance with its national economic objectives and policies;
b. a concession or licence has been awarded by a government or a state agency, in or outside of Malaysia -
i. with a remaining concession or licence period of not less than 18 years from the time the proposal is submitted to the Securities Commission; or
ii. with a remaining concession or licence period of not less than 15 years from the time the proposal is submitted to the Securities Commission if it is satisfied that the applicant is disadvantaged by the timing of the introduction of these guidelines relative to the timing of the granting of the concession or licence to the applicant; and
c. project costs of not less than RM 500 million and is able to generate income of an amount sufficient to give a suitable rate of return to its shareholders
Eligible Infrastructure Project Companies
Effectively, the following types of infrastructure project companies may offer their securities in Malaysia -

    1. a Malaysian incorporated company operating an infrastructure project that is located in Malaysia;
    2. a Malaysian incorporated company operating an infrastructure project that is located outside Malaysia;
    3. a Malaysian incorporated holding company that has subsidiaries/associated companies operating an infrastructure project(s) that is/are located in or outside Malaysia;
    4. a foreign incorporated company (whose equity and key personnel is controlled by a Malaysian resident) operating an infrastructure project that is located outside Malaysia

Utilisation of proceeds
The proceeds of the fund raising must be utilised towards the completion of the infrastructure project including the reduction of debt borrowings. This would be particularly important in the case of greenfield projects. Hence, funds raised by an infrastructure project company during an initial public offering can be utilised: -
    1. for the completion of project;
    2. to reduce debt borrowings of the infrastructure project company;
    3. where debt borrowings for the infrastructure project were raised by the holding company which has strong creditworthiness, funds may be utilised to reduce the debt borrowings of the holding company.

However, where a mature project is already generating positive operating pre-tax profits for at least two years, the Securities Commission may consider allowing existing shareholders of the project company to undertake an offer for sale.

Small shareholders spread
It is required that a minimum of 25% of the nominal and paid up capital of the infrastructure project company must be in the hands of the public. Of the 25% public float, the proportion that must be allocated to shareholders who hold not more than 10,000 shares each and not less than 500 shares each is as follows:

Nominal value of issued and paid capital Minimum percentage
< RM50 million< RM100 million< RM200 million> RM200 million 15%12.5%10%such lower % as may be approved by Securities Commission but in any case not less than RM 20 million

Restrictions to be imposed on the dealing in shares by promoters and co-promoters
The Guidelines require promoters of an infrastructure project company to hold not less than 51% of the ordinary shares of the company. These promoters who hold 51% or more of the ordinary shares of the infrastructure project company at the time when the proposal is submitted to Securities Commission are not allowed to -
  1. dispose of their shares one year after the initial public offering whether or not the project is generating positive operating pre-tax profits; and
  2. dispose thereafter until the company generates positive operating pre-tax profits. Upon the company achieving a positive operating pre-tax profit record, the promoters may only dispose 20% of their shares on a straight line basis over the next five years.
However, under exceptional circumstances, the Securities Commission would consider imposing such other appropriate restrictions on the shareholdings of promoters after considering the specific nature of the project, when the project is expected to generate positive earnings and other factors.

In the move towards a market oriented basis of pricing, the offering price of the institutional tranche of shares would be determined by the issuer and its underwriters.

With respect to the tranche of shares to be offered to retail investors i.e. shareholders who hold not more than 10,000 shares each but not less than 500 shares each, the Securities Commission would approve the price. In this regard, if appropriate, the Securities Commission would consider the applicant's proposal to structure cash discounts or non-cash incentives to retail investors. The use of non-cash and deferred incentives would provide incentives not only for investors to subscribe for shares in the initial public offering but also to hold shares for the longer term.

Chain listing rule
The following chain listings rule would apply to an infrastructure project company -
  1. The parent company (excluding infrastructure project company which is the subsidiary/associated company to be listed and existing listed subsidiary / associated companies) must on its own be eligible for listing under the Issues Guidelines;
  2. The infrastructure project company must be involved in a viable business of its own under the Issue Guidelines;
  3. The relationship between the infrastructure project company which is the subsidiary / associated company and other companies within the group including the parent company, must not give rise to intra-group competition or conflict of interest situations;
  4. The infrastructure project company which is the subsidiary / associated company to be listed must demonstrate that it is not overly dependent on the other companies within the group, including the parent company, in terms of its operations, including purchases and sales of goods, management policies and finance; and
  5. The investment transaction must be done at arms length with due regard to the rights of minority shareholders of the parent company.
However, where the shares or assets of an infrastructure project company have been acquired by a public listed company which resulted in a very substantial acquisition within the meaning of the listing rules of the KLSE or a reverse take-over within the meaning of the Securities Commission's Guidelines on Reverse Take-overs and Backdoor Listings, the abovementioned criteria and the 5 year track record requirements under the Issue Guidelines shall apply.

Due Diligence
Given the market oriented pricing of public offerings of infrastructure project companies and the greater reliance on disclosures made by the participants in an initial public offering, the Securities Commission would place greater responsibilities on issuers, their directors and management, financial advisers such as merchant banks, auditors, lawyers and other experts in the entire initial public offering process.

In this connection, section 32 of the Securities Commission Act 1993 has been amended to strengthen the sanctions that may be imposed on issuers, their directors and other advisers, should they be found to fall short of due diligence standards in their preparation of information relating to the initial public offering to the Securities Commission. Once the amended section 32 comes into force, the Securities Commission would also release a Code of Best Practices on Due Diligence setting the standards expected of different market participants.

Criteria for Public Offerings of Securities of an IPC without a listing
In regard to public offerings of securities of infrastructure project companies without a listing, in view of the risks involved in investing in an infrastructure project company, the offer may only be made to investors who are sufficiently sophisticated in evaluating the risks and merits of any investment. Thus, such public offerings may only be made to "accredited investors".

Continuous disclosure
Infrastructure project companies, in particular, greenfield projects, have long gestation periods before earnings are generated. Hence, a great deal of reliance is placed on the cash flows and earnings projections of the infrastructure project companies at the time of the offer. Very often, cost overruns or delays occur which may or may not have been within the control of the infrastructure project companies. When this happens, the assumptions applied in the feasibility report would change, resulting in the earnings or cash flow projections of the infrastructure project company being adversely affected. As the change in assumptions may or may not have been within the control of the infrastructure project company, requiring the infrastructure project company to not deviate from its cash flow projections would not be realistic or reasonable. As such, it is felt that immediate disclosure of such changes in assumptions would be more important to shareholders, analysts and investors, in order for them to assess the progress of the project and when and what the anticipated returns would be.

In addition, a requirement is also imposed for continuous disclosure of any substantial variance in the earnings projection of the infrastructure project company. In some situations, the variance would affect the projections so much that it substantially differs from the projections made at the time of the submission forming the basis of the offer. Under such circumstances, the Securities Commission would reserve the discretion to require the applicant to provide a revised earnings projections to the KLSE and its shareholders.

The guidelines also require that important documents such as the concession documents and other covenants be made available to investors at the registered office of the applicant.

Non-compliance and penalties
The Guidelines stipulate the various instances of non compliance and set out clearly the range of administrative sanctions which the Securities Commission would impose for non compliance. These administrative penalties do not preclude the Securities Commission from taking any action for criminal offences as are provided under the law.

Effective Date
These Guidelines will become effective once the proposed amendments of the Securities Commission Act 1993 are brought into force. it is expected that the effective date will be early October 1995.


Issued by Corporate Affairs Unit. For further information, please contact Ms Nafizah Omar at (603) 2507550 or Mr Izelan Basar at (603)2507511.
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