Blockbusting IPO raises questions about Kuala Lumpur Stock Exchange

By Paul Mackintosh - 29/06/12

Question: What’s the common factor between the world’s biggest and most successful IPO since Facebook and the European financial crisis? Answer: The overweening state. For Malaysian palm oil giant Felda Global, which has just raised $3.1 billion on the KLSE, has come to market partly to shore up the Barisan Nasional coalition, and its own cornerstone, the United Malays National Organisation. Some have called it a vindication of Malaysia’s status. Others have called it an embarrassment.

Hong Kong’s Value Partners, Qatar Holdings and other cornerstone investors will be pleased with Felda’s 20% jump on its first trading day – for now. Local institutions such as the Employees Provident Fund have also backed the listing substantially. Around 20% of IPO proceeds are reportedly allocated to plantation farmers, predominantly ethnic Malays and tenants of the acronymic counter’s ultimate owner, the Federal Land Development Authority. Almost 25% of the float went to highly connected individual investors, according to Reuters sources. This is the platform that reportedly bids to emulate Cargill, with its $120 billion revenues, by 2020.

Market observers need only look to Greece to see what happens to an economy that is driven against market realities for political ends. According to Dealogic, Felda and the pending Integrated Healthcare Holdings IPO will catapult KL ahead of Hong Kong as a listing venue for 2012. But can anyone seriously imagine that the KLSE, driven by Malaysia’s 28.3 million population and $277 billion GDP, really has better underlying drivers than the HKSE, fronting for China’s 1.34 billion and $11.3 trillion GDP? That looks more like a huge danger signal than a cause to congratulate KL. And why should Malaysia enjoy a charmed life when market conditions are forcing Hong Kong, China, India and Singapore to delay or cancel IPOs? What will this whole saga do for the credibility of the KLSE when it seeks to win listing business away from these other centres?

Global financial houses called in to assist in the process may yet live to regret it. Morgan Stanley, JP Morgan and Deutsche Bank supported the IPO alongside Malaysian financial players: are they now going to be called in to underwrite the next election? More seriously, could they face penalties or investigations if Malaysia’s opposition movement takes power? Quite possibly. Europe is also full of examples of companies and advisors penalized after the fact for participation in corrupt politically-driven processes when a different administration takes power. After all, those who play the political game can hardly complain if it turns against them. An old Malaysian proverb I have just invented states: turn a blind eye once too often and you will walk off a cliff.