Securities legislation in Malaysia was recently amended followed by the issuance by the Malaysian Securities Commission of new guidelines to introduce and make operational business trusts (BTs) as an alternative investment structure in Malaysia. The establishment of BTs swiftly follows the recent wave of high-profile Malaysian-led initial public offerings (IPOs) in 2012, such as Felda Global Ventures, IHH Healthcare and Astro Malaysia Holdings. With the introduction of BTs, investors investing in Malaysian securities can tap into this investment structure which has been available in Singapore since 2006 and Hong Kong since 2011.
A BT has elements of both a company and a trust. Like a company, a BT operates and manages a business enterprise. Unlike a company, however, it does not have a separate legal personality, but is created by way of a trust deed. A company's assets are then injected into the trust which is managed and operated by a trustee-manager. While legal title to the trust assets lies with the trustee-manager, investors will enjoy the economic interests in the assets with rights to participate in distributions declared by the BT.
BTs are marketed in Singapore and Hong Kong as an investment option which is intended to generate steady and recurrent distributions and gives investors direct exposure to the cash flows generated by the assets in the trust. Unlike a company (which is restricted under law to making distributions out of profits), a BT can declare distributions from its operating cash flows, subject to solvency requirements. As such, BTs are seen as very attractive vehicles for businesses with capital intensive assets such as infrastructure, public utility assets and concessions. As with any investment option, the quality of the assets injected into the BT is of course fundamental. A BT with a weak asset base and low earnings potential will not be in a position to generate stable cash flow and consequently the expectation of steady and recurrent distributions may be unrealistic.
BTs are in some ways similar to real estate investment trusts (Reits). Unlike Reits, however, which may only invest in real estate and related assets and companies whose principal assets comprise real estate, there are no such published restrictions for BTs. Furthermore, unlike Reits, which have gearing limits of up to 50% of the fund's total asset value, there are no corresponding gearing limits for BTs.
The Exchange's listing requirements have not yet been amended to cater for listed BTs, but amendments are expected to be made if indeed a BT seeks to undergo a public floating exercise. As a note of interest, the provisions of the Malaysian Code on Take-overs and Mergers do not extend to BTs and, as such, based on current regulation, it is still a matter of academic debate if indeed the Code is intended to apply to BTs. Additional developments by the regulators are likely to provide clarity on some of these crucial areas so as to accord BTs every opportunity of success as a viable investment option for investors to the Malaysian market.
Norinne Ira Dewal
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