Malaysia’s corporates are turning to private share placements to raise funds as demand for public listings of bonds and stocks wanes and banks cut back on their lending.
The Southeast Asian nation’s stock exchange saw 151 deals in the first nine months of the year, compared with 76 in the same period of 2019, according to data compiled by Bloomberg. Volumes jumped 25% to 1.41 billion ringgit ($339 million), the data show.
For cash-strapped corporates, private placements can allow them to raise money quickly through dealing directly with investors, even though they may get lower valuations than via the public markets. The fund-raising situation has become more acute as Malaysia’s export-driven economy contracted the most since the 1998 Asia financial crisis amid the pandemic.
Coupled with falling commodity prices, a shrinking economy has put a strain on corporate earnings and cash flows. Many of the companies doing private placements had losses in the recent quarter and will likely remain weak in coming months, said Bharat Joshi, an investment director who oversees the Southeast Asian region at PT Aberdeen Standard Investments Indonesia.
“Banks are unlikely to extend credit to these companies, which results in them raising from private placements instead of paying a hefty premium in the bond market,” said Jakarta-based Joshi.
Top Glove Corp., the world’s biggest rubber glove maker, raised 110.32 million ringgit in March, while Dialog Group, an oilfield services firm, mobilized 161.48 million ringgit in June, the biggest local private placement so far in 2020.
Companies in Malaysia aren’t alone in facing a tighter funding situation: some Indonesian publicly listed firms have also been resorting to rights offers and private share placements.
Malaysian corporates were only able to raise 4.15 billion ringgit on the local stock exchange through primary and secondary offerings as of Sept. 30, a 43% drop from the comparable period in 2019. Bond sales in all currencies fell 13% to $28 billion.
“Private placement shall continue to be an attractive avenue to raise funds for public-listed companies, subject to availability of investors, regardless of the equity-market conditions,” said Roslan Hj Tik, Kuala Lumpur-based executive director at Kenanga Investment Bank Bhd.