LawFlash
COVID-19 in Malaysia: Regulator Grants Increased Flexibility in Convertible Notes to VC, PE Firms
Authors and contacts
Wai Ming Yap, Claudia Tan
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.
Flexibility Granted
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:
Businesses can now lodge the issuance of their convertible notes directly with the SC without requiring the services of a principal adviser.
Lodgement fees will be waived.
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).
Guidelines on Unlisted Capital Market Products
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 issuance and offering must be solely to a person or persons registered with the SC under the Guidelines on the Registration of Venture Capital and Private Equity Corporations and Management Corporations.
Notes are not transferable save and except to persons registered with the SC under the Guidelines on the Registration of Venture Capital and Private Equity Corporations and Management Corporations.
Notes may only be convertible into shares of the issuer.
The note tenure must not exceed seven years from the date of issuance.
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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If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Wai Ming Yap
Claudia Tan