MALAYSIA: An Introduction to Corporate/M&A

The effects of geo political, regional and internal developments on M&A activity in Malaysia in 2024 

In 2024, Malaysia finds itself at the crossroads of several geopolitical, regional, and international developments that significantly impact its M&A landscape.

Impact of US and China 

The US and China, two of Malaysia's biggest trade and investment partners, are locked in an increasingly hostile geo-political contest. Malaysia sits at the heart of South East Asia astride one of the most critical arteries of global trade, the Straits of Malacca. Malaysia is also an integral part of the global supply chain for semiconductors with Penang responsible for a significant chunk of output though its outsourced semiconductor automation and testing industry. Malaysia is also a critical manufacturing hub for many global multinational companies offering a competitive cost structure for land, labour and power, abundant natural resources, quality logistics infrastructure and pro-foreign direct investment policies (FDI).

But it is also at the heart of a region where competition for foreign direct investment is fierce. Its neighbours compete head on for FDI and some offer much larger domestic markets and on certain measures, a deeper pool of talent and lower costs. Malaysia’s M&A landscape in 2024 reflects a delicate balance between geopolitical complexities, technological advancements and sustainability imperatives.

Malaysian Political Stability 

Malaysia has benefitted from much needed political stability after a period of drift and indecision during the COVID19 era of 2020-2022. Following the general elections at the end of 2022, the new "Unity Government" has promulgated a number of policies that have sought to provide a more facilitative environment for FDI, including the New Industrial Masterplan 2030 (NIM), the Madani Economic Narrative and most recently the National Semiconductor Strategy (NSS). Key goals of NIM include increasing economic complexity, creating high-value job opportunities, extending domestic linkages, developing new and existing clusters, improving inclusivity and enhancing ESG practices.

Addressing key challenges of the semiconductor industry in Malaysia, the NSS has an ambitious plan to attract over USD100 billion in investments through a strategy of training 60,000 high skilled local engineers and establishing at least 10 local semiconductor firms in design and advanced packaging. The Government has also committed to invest over USD5 billion over a five year period to achieve the aims of the NSS.

Courting FDI 

The new Government has assiduously and energetically courted FDI from all corners and in particular, the US, China, Japan, the EU and the Middle East. Significant new investments have been secured from major companies including Tesla, Microsoft, Amazon, Google, Infineon and a host of Chinese companies particularly in the data centre industry which forms another significant element of Malaysian participation in the high growth and transformational cloud computing and artificial intelligence sectors.

Recently, its sovereign wealth fund Khazanah Nasional Berhad and statutory pension fund board, the Employees Provident Fund, have formed a consortium with the global infrastructure fund, Global Infrastructure Partners (GIP) and the UAE sovereign wealth fund Abu Dhabi Investment Authority (ADIA), to de-list and take private its national airport operator company, Malaysia Airports Holdings Berhad, in one of the most significant M&A transactions in 2024. The transaction underlines the Government's determination to not only promote inflows of FDI in its manufacturing and tech industries but also to encourage large, cross border, transformational M&A transactions to spur new investments and heighten operational excellence in infrastructure services.

The hunger for FDI, the commitment to an open market for M&A activity and post-pandemic economic recovery continue to drive M&A interest in Malaysia. Leading international and regional financial investors and private equity funds including GIP, TPG, CVC, KKR, Navis, Affinity, KV Asia and Creador have continued to show strong appetite for Malaysian companies engaged in a variety of sectors including consumer and retail, healthcare, education and specialist manufacturing services. The growth of these target companies is driven by the relatively young population, the growing purchasing power of the tech savvy middle classes supported by relatively developed and inclusive financial services and the ability to scale up by tapping into the 600 million strong ASEAN market.

The GLC and GLIC Sector 

The large and important Government Linked Company (GLCs) and Government Linked Investment Company (GLIC) sector has also been pushed to be more competitive and value driven, as part of the Government's drive under the Madani economic narrative to emphasise inclusivity and national competitiveness to realise a sustainable and resilient economy. The GLCs and GLICs have been given a clearer mandate to be more focused on value creation to deliver sustainable returns to their stakeholders within the context of strategic national objectives. One consequence, from an M&A perspective, has been the more widespread use of transparent and competitive sale processes with multiple bidders to achieve optimal valuation outcomes.

Capital Gains Tax 

As part of addressing its fiscal deficit, the Government has introduced capital gains tax (CGT) on the disposal of shares of unlisted companies by non-individuals. CGT does not apply to the sale of shares of listed companies. There are also exemptions from CGT for sales of unlisted company shares for purposes of internal group restructuring, IPO or venture capital related investments but the regulations relating to these exemptions have not been published. As the rate of CGT is relatively moderate, the introduction of CGT has not had a demonstrable adverse impact on transactions. However, early publication of the regulations relating to the exemptions will be important so as not to dampen appetite for group restructuring, IPOs or venture capital related investments.

Merger Control Regime 

The market is also anticipating the introduction of a merger control regime through the amendment of the Competition Act 2010. This has been in the pipeline for some years but it has so far been delayed for various reasons and Malaysia is currently the only South-East Asian country without such a regime. It is anticipated that draft legislation will be tabled in the second half of 2024.

It is expected that the regime will draw from the best practices of leading competition law jurisdictions. It is hoped that the introduction of the regime will provide clarity and streamline MyCC's clearance processes to ensure that Malaysia remains an attractive jurisdiction to undertake M&A transactions.