Najib Eases Malaysian Rules as Economy Deteriorates
Malaysia eased rules governing overseas investors, initial public offerings and property purchases, peeling back decades of benefits to ethnic Malays as the nation faces its first economic contraction in a decade.
Foreign companies investing in Malaysia and locally listed businesses will no longer need to set aside 30 percent of their equity to so-called Bumiputera investors, Prime Minister Najib Razak said today. He also raised overseas ownership thresholds in the fund management industry and at local stockbrokers.
“It will help remove the bottlenecks impeding foreign investment,’ said Pankaj Kumar, who manages about $540 million of assets as chief investment officer at Kurnia Insurans Bhd. near Kuala Lumpur. “We can’t deny that we need to compete with the world. We need to be on par in attracting investments.”
Najib, who took office in April, is seeking to revive an economy that he says may shrink as much as 5 percent in 2009. He’s already announced a 67 billion ringgit ($19 billion) spending plan, raised foreign ownership caps at banks and let in more overseas lenders for the first time in more than a decade.
The benchmark Kuala Lumpur Composite Index today gained as much as 0.6 percent after Najib’s speech, before trading 0.2 percent higher at 2:25 p.m. local time. The ringgit strengthened 0.5 percent against the U.S. dollar to 3.5165.
“We are at a critical juncture,” Najib, 55, said at an annual investment conference in Kuala Lumpur. “Failure or hesitation to act now will have long-term ramifications for the nation.”
Election Victory
Najib has pledged to deliver change, including the gradual removal of benefits for the ethnic Malay majority in the multiracial nation. He took over from Abdullah Ahmad Badawi, who in 2008 led the government to its slimmest election victory in more than 50 years of unbroken rule.
Malays, or Bumiputeras, get a string of social and economic benefits under a 38-year-old program designed to rebalance wealth and eradicate poverty. The set of rules, known as the New Economic Policy, has forced Indian and Chinese minorities in Malaysia to pay more for homes and compete for some jobs, university admissions and contracts, only after Malay slots have been filled.
Malaysian companies must offer half of the 25 percent stake required to be sold to the public to Bumiputera investors at the initial public offering, Najib said. Publicly traded companies will no longer have to meet any Bumiputera equity requirement under today’s liberalization measures.
“It is a brave move,” Stephen Hagger, an analyst at Credit Suisse, said at the conference after Najib announced the measures. “But the devil, of course, will be in the detail as to how that actually happens. There is a lot more work to be done.”
Target Remains
Even as he unveiled his plans, Najib reiterated a broader goal, established under the New Economic Policy, to increase ethnic Malays’ share of corporate equity to 30 percent from a 2004 estimate of 19 percent. At the same time, investments will still be overseen by regulators in certain industries, such as water, to safeguard “the national interest,” Najib said.
And he announced a government private equity fund, Ekuiti Nasional Bhd., to invest in high-growth industries and promote Bumiputera ownership of Malaysian businesses. The fund will initially have capital of 500 million ringgit, eventually rising to 10 billion ringgit.
Government Companies
Najib is under added pressure to restore economic growth and shore up public support because Malaysia’s opposition alliance, led by former deputy premier Anwar Ibrahim, has won four out of five regional elections this year. Malaysia’s economy shrank for the first time since 2001 in the first quarter as exports slumped.
Malaysia’s government-linked companies, which include Sime Darby Bhd., the world’s biggest palm oil producer, will be required to sell units that aren’t central to their businesses and should only remain in industries where they can be competitive, Najib said.
He raised the foreign-ownership limit on Malaysian stock brokers and retail unit-trust management companies to 70 percent from 49 percent. Overseas investors can also own 100 percent of wholesale fund-management units, he said.
“These announcements are good for the Malaysian economy, the investment environment and business in general,” said Nazir Razak, Najib’s brother and the chief executive officer of Bumiputra-Commerce Holdings Bhd., Malaysia’s second-biggest bank.
Approval from the government’s Foreign Investment Committee won’t be needed when a property owned by a Bumiputera is sold to an ethnic minority investor for less than 20 million ringgit, Najib said. Foreigners won’t need FIC approval to buy properties for more than 500,000 ringgit, up from 250,000 ringgit, he said.
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