Barefoot Investor: Malaysia leads Asian M&A rebound

Malaysia is the fastest growing market for mergers and acquisitions in the Asia-Pacific region as companies seize on record valuations and relaxed takeover rules to catch up with rivals in India and Singapore.

Acquisitions of Malaysian companies almost tripled so far this year compared with all of 2009 to US$21.3 billion, the highest in three years, according to data compiled by Bloomberg. In November alone, Malaysian real estate developers announced three mergers worth almost a combined US$3 billion.

“This is a year of M&A for Malaysia,” said Chay Wai Leong, managing director of Kuala Lumpur-based RHB Investment Bank Bhd, the top-ranked adviser on takeovers of Malaysian companies this year, according to Bloomberg data. “The sentiment is good and there is a recognition of the need for scale.”

The deal rebound came after Prime Minister Datuk Seri Najib Razak last year eased rules governing takeovers, initial public offerings and property purchases as Malaysia faced its first economic contraction in a decade. Najib, 57, is pushing for consolidation after finding during a 2009 trip to New York that the relatively small size of Malaysian companies deterred US investors.

Malaysian mergers have outpaced investment in the Asia- Pacific region, where the US$435 billion of deals announced in 2010 marks a 7 per cent gain from last year, Bloomberg data show.

Carlyle Group, the world’s second-largest private equity company, made a RM1.9 billion (US$602 million) takeover offer for Malaysian fast-food chain operator QSR Brands Bhd, according to a statement on Nov. 25 by Kulim Malaysia Bhd, QSR’s biggest shareholder Kulim rejected the bid on Nov. 29.

‘Off the Radar’

Domestic consolidation has powered Malaysian deals this year, with mergers between local companies accounting for about three-quarters of total acquisitions, Bloomberg data show. The country’s main stock index closed at a record 1528.01 on Nov. 10, and has since lost 0.9 per cent.

Even after the FTSE Bursa Malaysia KLCI Index rose 17 per cent this year, the average company on the gauge has a market value of US$4.9 billion, data compiled by Bloomberg show. That’s 60 per cent smaller than in neighboring Singapore and 57 per cent below counterparts in India. All three countries’ benchmarks include 30 stocks.

“The consolidation is partly driven by the need to boost capacity,” said Tengku Zafrul Tengku Abdul Aziz, chief executive officer of Maybank Investment Bank Bhd. in a telephone interview. “You need scale to compete in Malaysia and to go abroad. Malaysian companies have fallen off the radar of foreign investors for years because they are too small.”

Property Deals

Malaysian tycoon Jeffrey Cheah said on Nov. 24 that he’s merging Sunway Holdings Bhd and Sunway City Bhd, two property and construction companies he controls, in a transaction valued at US$2 billion. IJM Land Bhd and Malaysian Resources Corp Bhd earlier said they planned to swap shares valued at US$2 billion, while state-controlled UEM Land Holdings Bhd made a US$447 million bid for Sunrise Bhd.

“When you have a bigger sized company, of course you can take in bigger jobs and bigger projects,” Sunway’s Cheah told reporters on Nov. 24.

RHB Capital Bhd’s RHB Investment Bank overtook CIMB Group Holdings Bhd to become the No. 1 adviser on acquisitions of Malaysian companies for the first time since at least 2005, working on US$11.5 billion of deals, Bloomberg data show. RHB ranked 7th last year. CIMB, the country’s biggest bank by market value, has arranged US$11.2 billion worth of deals, the data show.

Banks ‘Flush’

Adding to the M&A surge, quantitative easing by the US Federal Reserve has resulted in money flowing into Asia, boosting share prices and making deals more attractive for both buyers and sellers, said Ho Weng Yew, Royal Bank of Scotland Group Plc’s head of banking in Malaysia.

“It’s pent-up demand,” Ho said in a telephone interview. “There haven’t been that many M&A deals in the last three years. Liquidity is not a problem to finance transactions. Asian banks are still very flush.”

Foreign direct investment in Malaysia tumbled 81 per cent to US$1.4 billion in 2009, according to the United Nation’s World Investment Report. Since Najib’s New York trip in November last year, the government has announced an economic transformation program and liberalization measures, including steps to roll back some policies that favored the country’s ethnic Malays and indigenous people.

Najib also dropped a requirement that the country’s Foreign Investment Committee must approve all acquisitions by overseas companies.

Malaysia attracted RM5.1 billion of foreign direct investment in the first quarter of this year, almost matching the total for 2009, International Trade & Investment Minister Mustapa Mohamed said in July. The government forecasts economic growth of up to 7 per cent in 2010, the fastest pace in a decade. -- Bloomberg

“This is perhaps the beginning of a private sector transformation program, catalyzed by what the government has been doing,” CIMB Chief Executive Officer Nazir Razak said in a text message to Bloomberg News. -- Bloomberg


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