Analysts welcome Najib's call

By Jeeva ArulampalamPublished: 2009/11/25

Malaysia's Prime Minister has called for the creation of bigger companies on Bursa Malaysia possibly through mergers


Analysts yesterday welcomed Prime Minister Datuk Seri Najib Razak's call for the creation of bigger companies on Bursa Malaysia possibly through mergers, to create sizeable entities that can draw foreign investment funds.

"Once you are big enough, you will naturally draw more attention. A company's market capitalisation has to be at least over US$1 billion (RM3.39 billion) before foreign investors consider investing," OSK Research head of research Chris Eng told Business Times yesterday.

Jupiter Securities research head Pong Teng Siew added that fund managers are looking for companies that can contribute returns to their large portfolios.

Analysts were commenting on Najib's statement in New York on Monday that the government may look at encouraging mergers of companies listed on Bursa Malaysia to attract foreign investors.



Najib said this after meeting US fund managers who told the prime minister that they were keen to see more Malaysian companies with big market capitalisation such as Maxis Bhd.

They also expressed their preference for government-linked investment companies (GLIC) such as the Employees Provident Fund (EPF), Khazanah Nasional Bhd and Permodalan Nasional Bhd (PNB) to reduce their stakes slightly in government-linked companies (GLCs) to allow for more liquidity in the market.

Najib said he will bring up the matter with the executive committee of National Economic Action Council (NEAC) when he gets back to study the possible implications of these suggestions.

Sectors that could see potential mergers include property, oil and gas and plantation stocks, said analysts. It would also help some become either regional or global players.

However, Aberdeen Asset Management managing director Gerald Ambrose stressed that there are more factors to consider than just size.

"Size is not everything and there needs to be a good business rationale behind a merger. We consider the quality, corporate governance and valuation of the company when we invest," said the fund manager.

Meanwhile, industry experts said that the paring down of the GLIC's stake in GLCs has been a long time coming.

In September, Khazanah reduced its stake in airport operator Malaysia Airports Holdings Bhd by 5 per cent, from 72.7 per cent to 67.7 per cent.

This sparked market talk that the government was starting to reduce its stake in GLCs to attract foreign investors to the local market.

"What the government needs to do is find a middle ground on how much they can sell down and still maintain control over these companies," said Pong.

The question, however, is where should the GLICs such the EPF and PNB put their monies.

"What we propose is a distributed investment into the Malaysian companies with good growth potential. These would include some small and medium capital stocks," said Eng.

Although investing abroad is another possibility, funds such as the EPF have restrictions on their foreign exposures.

"Though the government could consider relaxing these restrictions, a major consideration for the EPF is if they have the expertise to manage an international portfolio," said Pong.