Page 48 - CMP3

3.1 CATALYSING COMPETITIVE GROWTH
Malaysia’s transformation to become a high-income economy will need to be driven by dynamic entrepreneurs and companies with a strong presence in regional and global value chains. The capital market plays an integral role in providing tailored and effective funding options to catalyse the growth of such companies across every stage of their development. At the same time, efficient fundraising avenues need to be supported by deep secondary markets, to allow orderly exits and attract participation from investors. The SC envisions a multi-layered capital market with a competitive ecosystem of market institutions, intermediaries and other participants to meet the diverse needs of issuers and investors. This section outlines the development considerations and plans to enhance fundraising efficiency for Malaysian companies at various stages of growth, and enable the competitiveness of the markets and the intermediation landscape over the next five years.
THE STATE OF PLAY
MSMEs form the current growth engine of the Malaysian economy, contributing ~60% of GDP.1 However, they remain relatively underserved with regard to the availability of suitable financing options, with an estimated RM90 billion financing gap2 for MSMEs alone.
The end of the last decade saw new alternative financing avenues, enabled by digital capabilities, stepping in to partially fill this gap. Complementing traditional VC and PE firms, new platform-based fundraising models, such as ECF and P2P financing, have emerged. While the size of these markets are still relatively small and fundraising activities remain concentrated around the Klang Valley, they have gained strong traction in catering to selected segments of MSMEs and look poised to broaden their reach to serve more issuers.
MTCs, on the other hand, have outgrown existing financing avenues for MSMEs, but are still too small for traditional public markets. Currently, MTCs are heavily reliant on banks, and to some extent, PE firms, but might require more sophisticated and bespoke financing options to make the leap to the next stage. This segment of companies will be a key development focus for the SC in the coming years to offer financing options that will enable them to accelerate their growth, including potential expansion to other business verticals or overseas markets.
Compared to the abovementioned alternative market segments, which still have considerable room to grow, the traditional public equity and corporate bond markets are ripe for transformation. In recent years, the declining value of IPOs in the public market has resulted in annual equity fundraising activities being primarily dominated by secondary issuances. Corporate bond issuances remain popular among banks, larger corporates and infrastructure project companies with credit ratings of AA and above, but have become too cost prohibitive for companies with smaller needs or of a higher-risk profile.
Apart from the COVID-19-driven rally and explosion of renewed interests from retail investors in 2020, trading activities on the secondary equity market have been largely subdued over the past decade. Long- only large institutional investors have helped maintain liquidity in the market and acted as a stabilising factor for price movements. Meanwhile, traditional market participants, operating through legacy infrastructure, serve investors with one-size-fits-all offerings. The secondary market for corporate bonds is in a similar state, remaining the realm of large institutional investors served by brokers, some of whom are still quoting prices and executing trades through traditional methods such as telephones.
Internal analysis, SC, 2018.
MSME Finance Gap: Assessment of the Shortfalls and Opportunities in Financing Micro, Small and Medium Enterprises in Emerging Markets, International Finance Corporation, 2017.
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