The Securities Commission Malaysia (SC) has tightened requirements for offer of shares by unlisted public companies (UPC), stating a significant number of complaints was received on fundraising misconduct in relation to preference shares, including those declared to be Shariah compliant.
“Among the key issues identified includes misleading information disclosed in the information memorandum, with promises of unrealistic high target dividends and returns.”
The SC also said there are other concerns on possible breaches of securities laws including offering of shares intended for sophisticated investors to retail investors without registering a prospectus with the SC and the appointment of unlicensed marketing agents.
As such, all ongoing UPC offerings have to cease immediately as of the 28th March 2025 – until the SC has reviewed and approved the offer documentation or granted an exemption, including for mitigating factors which justify the said exemption or any variations.
The SC further clarified that the new tighter guidelines apply to all fundraising by UPC with preference shares – but not for firms involved in venture capital (VC), private equity or UPC “licensed, registered, approved, recognized or otherwise authorized by the SC or Bank Negara Malaysia”, or for the offering of ordinary shares.
Among the key changes would be setting an 18-month maximum offering period with the SC-registered information memorandum – no deadline applies currently – and only to sophisticated investors. For offerings with a prospectus, which is open to retail investors, the six-month limit remains.
Further, a corporate finance adviser (CFA) must be appointed to act as an extra safeguard for the UPC offering and all monies received must be deposited in a Malaysian bank account – with regular reporting to the SC on how the proceeds are utilized.
“A request for consultation with the SC must be submitted by the CFA at least three months prior to the intended date of the UPC’s proposed offer.” The UPC offer must commence within three months from this SC consultation date – failing which, a new application must be submitted.
These CFA requirements can make it tougher for new offerings, observed Bronson Wee, the chief operating officer at LKE Group, which offers Shariah compliant UPC investment opportunities in Malaysia’s durian farming and distribution sector.
“There are not many qualified CFAs available and the SC’s intent to avoid conflict of interest may not be fully met if the CFA is already an internal employee of the UPC.” But Bronson welcomed the 18-month offering cap to ensure UPCs stay updated on latest trends and expectations.
Shariah compliant VC Ficus Capital Co-Managing Partner for Business Development Rina Neoh described the latest SC rules as fostering an increase in reporting and compliance standards.
“It positions regulated funds as more credible, possibly increasing their attractiveness to lead partners and family offices as Malaysia is not known to be the preferred destination for family offices.”
Appreciating the exemption for VCs, Rina said the need to comply to stricter requirements will trickle down to start-ups – making it tougher for them to attract investments as they will need to reallocate resources to comply with governance and reporting needs.
“For start-ups that can present better capitalization tables, board governance and clearer financials, even at earlier stages, this will be their advantage compared to those who can’t comply.”
