There are many good investment opportunities in the manufacturing sector for private equity firms, according to the Malaysian deputy minister of international trade and industry Ong Kian Ming.
“From the manufacturing perspective, there are many good investment opportunities for private equity [firms]. Some companies for different reasons do not want to list and may want to keep it within the family, this is where private equity can come in and build long-term relationships with these business owners,” Ong said, responding to a question at the Nikkei Forum: Focus on Malaysia – Business and investment opportunities amid new challenges.
“They will be able to add value and globalise these companies as well as to lead them towards the Industry 4.0 pillars. Malaysia is a very good source for this area because of the large numbers of SMEs (small and medium enterprises) that are family-owned,” he added.
In the first half of 2019, Malaysia recorded approved investments totalling 92 billion ringgit ($21.8 billion) in the services, manufacturing and primary sectors, an increase of 7.6 per cent over the 85.5 billion ringgit ($20.2 billion) registered during the same period last year. Of the total, foreign investments in these sectors increased by 97.2 per cent to 49.5 billion ringgit ($11.7 billion) from 25.1 billion ringgit ($5.9 billion) recorded in the first half of 2018.
The panel session included Bursa Malaysia CEO Muhamad Umar Swift and Nomura Asset Management Malaysia country head and managing director Rejina Rahim.
The Malaysian stock market has been lacklustre over the past year and the Main Board of Bursa Malaysia finally saw the first listing this calendar year – Leong Hup International, which was backed by Hong Kong-based Affinity Equity Partners. It was the largest IPO in Malaysia since Lotte Chemical Titan went public in July 2017.
Another much-anticipated IPO in the market was CVC Capital Partners-backed QSR Brands (M) Holdings Bhd but the fast-food operator has postponed its plans to list, citing market volatility.
Local home improvement retailer Mr.D.I.Y., which is backed by private equity firm Creador, is also eyeing a Bursa Malaysia listing sometime this November. The IPO could raise as much as 1.5 billion ringgit ($355 million).
On whether the local bourse is affected by the growing interest of private equity firms in local and regional businesses across Southeast Asia and causing companies to stay private longer, Bursa Malaysia’s Umar said it is all about offering the right capital solution for business owners.
“There’s an explosion of choices – venture capital, private equity, equity crowdfunding – it has to be the right [capital] solution for the [business] owner. At the end of the day, we provide a marketplace where we match capital investors to investees. We may not be the right solution – there is a time and place for every form of investment.
“That being said, private equity has certain attributes that would be different from a listed environment. So yes, PE funds like outperforming markets because of their mandates but that being said, I know significant tranches of equity not being deployed because they cannot find the investment mandates that they’re sitting on. The capital market is everything from ‘borrowing from your parents to start your own business’ to an IPO listing – everything in between are sources of capital to help you grow and we will play a role in it,” he said.
Nomura’s Rejina added that private equity has a very significant role to play in the capital market, especially when the economic growth rate is “very, very low”.
“If you’re looking at an environment that has very low yields, PE actually makes a lot of sense but if you’re looking from an asset allocation perspective, given the fact that PE is illiquid – it takes a longer time, in terms of the lock-in period. Everyone has a role to play, PE can make a portion of your investment portfolio but it’s not going to be the solution for everybody,” she said.