Malaysian Firms Turn to Private Placements to Raise Funding

(Bloomberg) - Malaysia's companies turn to private placements to raise funds as demand for public quotes on bonds and stocks fades, and banks cut their lending.
The Southeast Asian nation's stock market saw 151 trades in the first nine months of the year, compared with 76 in the same period in 2019, according to data compiled by Bloomberg. The data increased 25% to 1.41 billion ringgits ($ 339 million).
Cash struggled private companies can raise cash quickly through private placements by trading directly with investors, even though they may receive lower valuations than public markets. The fundraising situation has worsened as Malaysia's export-driven economy has shrunk the most since the 1998 Asian financial crisis amid the pandemic.
Coupled with falling commodity prices, a shrinking economy has weighed on corporate profits and cash flow. Many of the companies that run private placements suffered losses in the last quarter and are likely to remain weak in the months ahead, said Bharat Joshi, investment director who oversees the Southeast Asian region at PT Aberdeen Standard Investments Indonesia.
Closer funding
"Banks are unlikely to lend to these companies, causing them to move out of private placements rather than paying a high premium in the bond market," Jakarta-based Joshi said.
Top Glove Corp., the world's largest manufacturer of rubber gloves, raised 110.32 million ringgits in March, while Dialog Group, an oilfield services company, raised 161.48 million ringgits in June, the largest local private placement to date in 2020.
Companies in Malaysia are not alone in facing a tight financing situation: some publicly traded Indonesian companies have also resorted to rights offering and private equity placements.
Malaysia Bond Arrangers are preparing for a break-in despite record lows
Southeast Asia's IPO market shows signs of recovery: ECM Watch
Malaysian companies were only able to raise 4.15 billion ringgit on the local exchange through primary and secondary offers as of September 30, a decrease of 43% compared to the same period in 2019. Sales of bonds in all currencies decreased 13% to $ 28 billion.
"The private placement will continue to be an attractive way to raise funds for publicly traded companies regardless of stock market conditions, when available," said Roslan Hj Tik, executive director of Kenanga Investment Bank Bhd in Kuala Lumpur.
(Adds details on top glove and dialogue placements in paragraph six.)
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