Securities Commission Releases Guidelines And Additional Listing Requirements

Kuala Lumpur, 26 June 1995

The Securities Commission (SC) released guidelines and additional listing requirements which shall take effect immediately today. The guidelines and requirements were released following the dialogue by the Deputy Prime Minister and Finance Minister Dato' Seri Anwar Ibrahim last Thursday.

The releases include new guidelines on the Acquisitions of Foreign Assets and amendments to the Property Trust Guidelines. The additional listing requirements relate to the Listing of Stockbroking Companies.

Chairman of the SC, Datuk Dr Munir Majid, said that the guidelines and requirements were formulated after review and extensive consultations with the industry and other regulatory bodies.

"The revisions are in line with the SC's business plan to liberalize and develop the capital market and position Kuala Lumpur as a regional financial centre," he said.

"The process of liberalisation reflects a planned and systematic effort to widen the deepen the capital market. The measures introduce address the needs of companies, investors, intermediaries and institutions, which are adduced from a process of continuous review and consultations with industry," he added.

Listing of Stockbroking Companies
In announcing the requirements for listing of stockbroking companies, Datuk Munir said that the new criteria were formulated to ensure that only financially strong and stable stockbroking companies are listed on the KLSE.

"In addition to the normal listing guidelines, stockbroking companies seeking listing on the KLSE should preferably do so by way of the listing of their holding companies and not through direct listing," he said.

The shareholders' funds of the stockbroking companies must be at least RM100 million at the time of submission.

In complying with the public shareholding spread requirements, at least 50 per cent of the number of shares available for public offerings must be implemented by way of public issues of new shares.

The stockbroking companies must maintain retained earnings at a level sufficient to declare and effect a dividend payment rate not less than 15 per cent based on the enlarged capital upon listing.

The after-tax return on the shareholders' funds of the stockbroking companies for the preceding five years before listing must be a least 15 per cent per year, but the SC will, in its assessment, also take into account the performance of the industry as well.

"The cyclical nature of the business requires a certain amount of flexibility in our assessment, thus the need to compare a company's performance against the industry average," said Datuk Munir.

He added that, in considering the holding company's submission for listing, the SC will also look at the qualitative aspects of the company's business.

"In particular, that the stockbroking companies should adhere to high standards of business rules and ethics, possess strong research capabilities and be supported by up-to-date accounting and back-room systems. They must also plan to strengthen their internal compliance procedures to ensure that their employees and agents adopt responsible sales practices, especially if they are entrusted with new responsibilities and new business opportunities, such as becoming an issuer of call warrants, or being the promoter of a unit trust." he said.

"The promoters and substantial shareholders of the stockbroking companies will not be allowed to sell, assign or transfer their shareholdings upon, and subsequent to, the listing of the companies without obtaining the prior written consent of the Minister of Finance," added Datuk Munir.

The additional requirements will not apply to proposals involving the acquisition of stockroking companies by public listed companies.

Acquisitions of Foreign Assets
The SC announced that the acquisitions of foreign assets will generally be treated the same way as those involving domestic acquisitions, subject to additional disclosure requirements.

"Foreign investment by Malaysian listed companies is an indication of development and internationalisation of the economy but it should be appreciated that they pose additional and different risks from those associated with acquisitions of domestic assets. These are what the requirements are supposed to address," said Datuk Munir.

"The ability to raise capital for strategic investments efficiently is a critical success factor and one of the pre-requisites to establishing a regional financial centre for any country. The government's policy has facilitated in creating the environment for this process and the SC has set what it considers fair conditions to ensure that company directors should not neglect their fiduciary and professional due diligence," he added.

The new guidelines require the company to make certain announcements to Kuala Lumpur Stock Exchange (KLSE) and to inform their shareholders, through circulars or an abridged prospectus, specific aspects of the acquisition.

In their announcements to the KLSE, listed companies will have to give relevant financial information pertaining to the foreign assets being acquired.

The company will have to provide estimates of the financial commitments in undertaking the transaction, which should be confirmed and verified by independent parties.

The policies of repatriation of the host country as well as the time frame these profits will be repatriated to Malaysia will need to be clearly stated.

The investment risks will need to be clearly spelt out as well as the actions the company intends to take to reduce or manage these risks.

Through circulars or abridged prospectuses, shareholders will need to be informed of the relevant financial information pertaining to the assets to be acquired.

The estimated financial commitment in undertaking the transaction should also be highlighted.

The circular or prospectus will also provide an accountant's report certifying in Malaysian Ringgit terms the accounts of the foreign assets to be acquired as well as valuation or experts' reports, verified by Malaysian parties, on the fairness of the purchase consideration for the acquisition.

Shareholders will be given legal opinions of all legal implications of the deal (e.g. ownership of title, enforceability of agreements, representations and undertakings etc.), and advised on the host country's policies on foreign investments and repatriation of profits, with emphasis on the risks associated with that country.

Property Trust Guidelines (Amendments)
The amendments to the Property Trust Guidelines are a liberalisation of the property trust industry through broadening the definition of real properties in the guidelines.

"The amendments to the property trust guidelines are part of SC's business plan to develop the fund management industry and to create a more efficient, more liquid and more sophisticated market by widening the choices of real properties that may be acquired by property trust funds," said Datuk Munir.

"Unitholders will be able to reap the benefits from the boom in the property market and during periods of strong economic growth while at the same time minimise their risk of the cyclical nature of the industry."

"The guidelines offer property trust companies wider options and benefits from the tremendous growth experienced by the property market now rather than wait for later. However, the SC also bears in mind that those responsible will need to observe prudential requirements as the risk taken by property trusts will be greater with these liberalisations," said Datuk Munir.

  • Properties that may be acquired by property trust funds have now been extended to include:
  • Properties which have no earnings/rental track record but have good income prospects;
  • Buildings which are not fully tenanted out provided there are good prospects to secure tenants;
  • Equities of companies which own properties instead of purchasing the properties themselves where there are valid commercial reasons for doing so;
  • Partial interest in a property where the property cannot be wholly-acquired, provided that major ownership and control is obtained with that acquisition;
  • Properties located outside Malaysia, provided the property trust fund making the acquisition is a listed fund.

While property trust fund cannot invest in uncompleted property development projects, they may enter into an agreement to purchase the property upon its completion.

"Under this amendment, the fund can now enter into an agreement at the onset to buy and own a piece of property before it is built. In so doing, the fund will be able to purchase the development of the property at a lower cost but at the same time not burden its unitholders with the huge liabilities of developing the property," said Datuk Munir.

Cash acquisitions of properties are now required to be submitted to the SC for its perusal before the acquisitions are effected.

Datuk Munir added that, in allowing greater flexibility in the Guidelines, property trust managers and trustees should be more conscious of their responsibilities.

"Property trust managers must at all times ensure that the interest of investors and unitholders are considered. Trustees should continue to play an active role in safeguarding the interests of unitholders and in ensuring that property trust managers comply with the trust deeds and guidelines," he said.

In announcing the amendments to the Property Trust Guidelines, Datuk Munir said that the review of the guidelines was done together with the Federation of Malaysian Unit Trust Managers (FMUTM), the Registrar of Companies, the Kuala Lumpur Stock Exchange and the Government Valuation and Property Services Department of the Ministry of Finance.

The Guidelines on Property Trust Funds were first issued in 1989. The amendments to these guidelines follow the review of the Unit Trust guidelines in March of last year.


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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