The barriers to a single capital market

The barriers to a single capital market
Business & Markets 2013
Written by M Shanmugam of The Edge Malaysia
Monday, 25 March 2013 15:30


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THE biggest barrier to the liberalisation of Asean capital markets by 2015 will be the convergence of disclosure standards and regulatory requirements in all the member countries.

When liberalisation takes place, it effectively means that capital-raising exercises, which at the moment can only take place within the boundaries of each country, will be opened up.

A unit trust in Thailand, for instance, can tap the Malaysian market without having to undergo the process of launching a prospectus and getting regulatory approvals. It would no longer require the services of feeder funds in the various Asean members to access the different regional markets.

A company seeking a listing in Malaysia can offer its shares in other Asean members with ease and would no longer have to come up with a prospectus for each country. In the most ideal form, the single Asean capital market would be like the eurozone, but without the single currency.

The basis for that to happen is that the regulatory standards have to be uniform in all the Asean members. For instance, the rigorous accounting scrutiny a company is subject to in Malaysia or Singapore before it can access the capital markets must also prevail in other countries.

Companies seeking to access the capital markets in the region will have to adopt uniform disclosure standards. The same applies to those wanting to access the bond market. The rating standards have to be uniform as well.

A single market cannot take place if one country has less regulatory or disclosure standards than the others. It would not provide comfort to investors or the authorities.

We don’t want to see a repeat of what’s happening in the US where the accounts of listed companies originating in China are being scrutinised by the investors and authorities because of doubts over the accounting standards.

At the moment, there is already a large amount of funds flowing among countries in Asean, but that is mainly driven by individuals. For instance, local investors can invest in the various regional equity markets.

But it’s always a sticky issue when it comes to Malaysian companies seeking a listing outside the country, especially in Singapore.

The Berjaya group drew scrutiny when it picked Singapore to list Sports Toto Malaysia (STM), the company that manages BERJAYA SPORTS TOTO BHD []’s number forecast operator.

What’s more, the group recently announced that it was looking at listing five more companies in Singapore. STM has yet to be listed, but whether the group eventually lists the others in the island state will surely depend on the response it gets to STM.

Berjaya is not the first company to list outside Malaysia. Apart from Singapore, Hong Kong and the London Alternative Investment Market (AIM) are other favoured destinations.

Except for Parkson Retail Group Ltd that belongs to the Lion group and made its debut on the Hong Kong Stock Exchange in November 2005, the others that listed outside KL in recent years have been relatively small.

The bigger Malaysia-based companies almost always turn to Bursa Malaysia to list their companies.

There are a few fundamental reasons a company looks at when it goes for a listing. Among the more important criteria are the valuations accorded by the market and the regulatory environment.

A company will normally list where it can get the highest valuations. That is the fundamental reason. Normally, the capital market that gives the highest valuations is where the business is located.

In the case of Parkson Retail Group, the company was listed in Hong Kong because of its department stores, which are located in China. Investors in Hong Kong know of Parkson and its growing presence in the mainland, which was why it managed to get a healthy valuation.

Another criterion is the regulatory environment, which has to be robust and business-friendly.

An executive with a shipping company once said that among the reasons it opted to list in Singapore was the ease of doing business. He said when the company wanted to raise funds, it took only a week to get the prospectus approved and to see the money in the account.

In an ideal single Asean capital market, that should be the case not only in Singapore but also in the Philippines or Thailand.

A liberalised Asean capital market should go beyond converged regulatory and disclosure requirements. It should mean uniform enforcement and even movement of key people within the capital markets from one country to another without licensing requirements.

But can that scenario become a reality by 2015?


M Shanmugam is managing editor of The Edge. This article was first published in The Edge Malaysia issue March 18-24.