The Malaysia Securities Commission (SC) announced on April 28 that flexibility will be granted for businesses issuing convertible notes to venture capital (VC) and private equity (PE) firms registered with the SC.
Under the previous regulations issued by the SC, issuers could only issue bonds to sophisticated investors or to retail investors subject to SC’s approval. The issuer also had to appoint a principal adviser for the issuance.
To make the fundraising process easier and more cost-effective, the SC has eased regulations for businesses issuing convertible notes to VC and PE firms by implementing the following measures:
In the SC’s statement, these measures have been introduced to ensure that capital markets remain accessible for micro, small, and medium-sized enterprises to meet the funding needs required to weather the coronavirus (COVID-19) pandemic and to prepare businesses for recovery beyond the current crisis. Currently, there are 124 VC and PE firms registered with the SC, managing an estimated total commitment of RM 6 billion (approx. $1.4 billion).
Any issuance of the convertible notes will be facilitated through new requirements in Part 5 to Section B of the Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework, which outlines criteria for eligible convertible notes.
Eligible convertible notes need to meet various requirements, including the following:
The lodgement process has also been simplified via electronic submission of the required information via email. Details on the information required to be lodged with the SC are set out in the Lodgement Kit. The measures increasing flexibility will also be provided for Islamic convertible notes, but will be operationalized at a later date.
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Wai Ming Yap