Why Malaysian tech firms are shunning Bursa for Nasdaq

If you’ve been following tech news in Malaysia, one thing that stands out is the number of companies – including Carsome and Capital A – that are keen on listing on the Nasdaq.

Pic: Bursa Malaysia

And why not? With a market capitalization of shares traded US$28.4 billion, the stock exchange is second only to the New York Stock Exchange globally.

Starbox Group, which provides cash rebates, digital advertising, and payment solutions, is the first Malaysian company to list on the Nasdaq. The group began trading on the exchange on September 4 this year.

But why are many Malaysian firms seeking fortunes abroad instead of looking toward Bursa Malaysia, the local exchange? After all, Indonesian peers Blibli, Bukalapak, and GoTo are listed on the Indonesia Stock Exchange.

The answer is complex, according to Kuala Lumpur-based investors who spoke to Tech in Asia, but they agree that if nothing is done to bolster Bursa Malaysia’s appeal, the country will continue to lose out to overseas peers.

One Kuala Lumpur-based institutional investor we spoke to believes that the main reason Malaysian companies are going abroad is the allure of dual class shares, which provides owners with superior voting rights over their companies despite not having large equity ownership.

Companies that have a dual-class structure have two designations for common stock, A shares and B shares. One class of stock ownership has more power than the other. Holding these more powerful shares allows shareholders, which usually consists of founders, to control boardroom decisions.

Grab is a good example in this case, he says. The super app’s co-founder, Anthony Tan, has 60.4% of the firm’s voting rights even though he owns just 2.2% of its shares.

“And this isn’t a Nasdaq thing,” he points out, referring to Malaysia’s regional peers Singapore and Hong Kong. Both countries introduced dual class shares in 2018.

“One explanation here is that Malaysian law is heavily influenced by the Commonwealth system. This includes the country’s companies law. But the UK is now open to dual class shares,” the investor said.

The UK’s Financial Conduct Authority (FCA) said last year that it would implement changes to its listing rules to permit companies with dual class shares to be admitted to a “premium list.” But there’s a caveat: Companies are expected to drop the share structure after five years of going public.

To be sure, dual class shares have their critics. Principles for Responsible Investment, a sustainable investing body backed by the UN, wrote a letter in September last year to the FCA stating that dual class structures “would weaken the existing [governance] regime and risks undermining confidence by institutional investors in the UK premium listing segment.”

Different per-SPAC-tives

Another attraction for Malaysian companies is the nature of special purpose acquisition companies (SPACs) in the US. A SPAC, or blank-check company, is generally given a two years to close the acquisition of a private company before returning the raised money to investors – Grab is an example of a successful SPAC listing.

The political elephant in the room

Systemic difficulties

Malaysia to lose out?