SC starts review into potential lapses

A special committee will address internal gaps and lapses that may have led to the abuse of SC’s rules

By MARK RAO / Pic By ISMAIL CHE RUS

The Securities Commission Malaysia (SC) is looking into potential lapses within its regulatory role in light of the ongoing investigations into 1Malaysia Development Bhd (1MDB).

Its chairman Datuk Syed Zaid Albar said the capital market regulator has set up a special committee at the board level to address internal gaps and lapses that may have led to the abuse of its rules.

“We have from time to time reviewed all our processes, be it in the area of bond issuance or otherwise, and the review includes the entirety of the SC,” he told the press at the launch of the SC’s 2018 annual report in Kuala Lumpur yesterday.

Syed Zaid was appointed as SC executive chairman in November last year.

“The special board committee will look at the processes which we have in order to address any potential gaps or lapses within the SC,” he said, adding that the SC will then take whatever appropriate action deemed necessary.

The internal review comes amid mounting allegations of misappropriation of 1MDB-related funds and questions of how this flew under the SC’s radar despite the state investment fund first coming under scrutiny back in 2015.

1MDB’s first debt raising in 2009 came under scrutiny after Bloomberg reported that wanted rogue financier Low Taek Jho (better known as Jho Low) profited from the flipping of the RM5 billion bond.

At a 5.75% coupon rate, the 30-year Islamic bond was arranged by AmInvestment Bank Bhd and approved by Datuk Shahrol Azral Ibrahim Halmi, who was 1MDB’s (then Terengganu Investment Authority or TIA) former CEO at the material time.

The issuance drew the ire of bankers at the time as it was sold at a steep discount and not through an open tender. Jho Low was the official advisor to TIA at the time.

Subsequent investigations revealed that AmInvestment Bank sold RM3.8 billion of the issuance to a Thai brokerage firm, as well as an alleged RM500 million to an unnamed Singapore firm believed to be Aktis Capital Singapore Pte Ltd.

The bank then facilitated the re-selling of the bonds on behalf of these companies for a quick and substantial profit for the parties involved.

The SC was believed to have made inquiries into the RM5 billion bond issuance when it first drew public criticism, but did not pursue the matter further.

The statutory body has since changed its stance in line with the current government’s effort to investigate alleged misconduct carried out by the previous administration.

Syed Zaid said the agency is still in the process of investigating the matter and will make the necessary recommendations once the investigation is completed.

Meanwhile, SC chief regulatory officer Foo Lee Mei said its inquiry into Goldman Sachs Group Inc with regard to its role in the misappropriation of 1MDB funds is ongoing, but declined to comment further until the outcome of the investigation is reached.

Total fundraising from Malaysia’s capital market declined 21.8% year-on-year (YoY) to RM114.6 billion in 2018 as factors like moderating economic growth, prolonged US-China trade tensions and tightening of financial conditions worldwide dampened market sentiment.

The bearish conditions remain and the SC expects total fundraising in 2019 to range between RM110 billion and RM120 billion.

SC corporate finance and investments MD Eugene Wong said fundraising this year will be largely driven by initial public offerings (IPOs).

QSR Brands (M) Holdings Bhd and Leong Hup International Bhd are big-ticket IPOs expected to launch this year and raise some RM2 billion and RM2.49 billion in proceeds respectively.

Wong said the amount raised by the domestic capital market is not as important a gauge as its ability to meet businesses’ financing needs.

“When it comes to fundraising, we always look at the ability of the capital market to act as a conduit to bring funds to the businesses,” he said.

“That is the important measure for us — we are not so fixated by the numbers (raised by the capital market).”

Of the RM114.6 billion raised last year, RM105.4 billion came from corporate bond and sukuk issuance, while RM9.2 billion was raised in the equity market.

The total size of Malaysia’s capital market stood at RM3.1 trillion as at the end of 2018 — equivalent to 2.2 times the size of the domestic economy. This was supported by the 8.8% YoY growth in the bond market size to RM1.4 trillion.

Equity market capitalisation contracted 10.8% YoY to RM1.7 trillion over the same period, the SC annual report noted.