Waning IPOs

April 2008

Bursa Malaysia data indicates that the number of initial public offerings (IPOs) in Malaysia coming to market since 2005 has declined drastically, with many companies opting to list abroad in more flexible markets.

According to the stock exchange's data, reported in The Edge, the number of IPOs fell to 28 for 2007 from 40 in 2006 and 79 in 2005, whereas the number of annual IPOs has declined by about 68.2% from a decade ago.

The falling numbers were attributed to a trend among Malaysian companies to list abroad on more liberal bourses such as the London Stock Exchange's AIM and Singapore Exchange's Catalist for fast growing companies. Other deterrents include low valuations in comparison with the rich price-earnings ratios that come from listing abroad and a preference to take companies private or go the merger and acquisition (M&A) route, compounded by stiffer regulations to ensure only quality companies were listed on Bursa. In 2006, 40 IPOs out of a total application of 71 were rejected, whereas 51 out of a total application of 124 companies were rejected in 2005. Twenty-six IPOs were approved in 2007, while three were rejected. Other obstacles to local IPOs include the stringent disclosure-based regime that calls for listed companies to be more transparent.

However, the trend of declining IPOs is expected to reverse, thanks partly to the Securities Commission relaxing its listing requirements recently. As of March 2008, there have been six IPOs, three on the Second Board and three on the MESDAQ market, and more are in the pipeline.