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Malaysia in Business Today

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(Reuters) – In an otherwise dismal year for Asia’s investment banking industry, a ray of hope has appeared from the most unlikely of places: Malaysia.

State oil company Petronas announced the country’s largest-ever outbound takeover last week, offering to buy its Canadian partner Progress Energy Resources Corp for $4.7 billion to gain control of vast shale gas deposits to supply lucrative Asian markets. The news broke on the same day Malaysian palm oil firm Felda Global listed its $3.1 billion IPO with a 20 percent pop.

Bank of America-Merrill Lynch, Goldman Sachs and J.P. Morgan are among the investment banks benefiting from the deal-making boom at a time when fees are tough to come by. A few key business relationships have paid off for BofA-Merrill, while Goldman’s expanded business and J.P. Morgan’s decades-long operation in Malaysia have been a boon for them.

Another $5 billion to $7 billion of Malaysian stock offerings are expected during the next year, turning the normally sleepy Kuala Lumpur financial hub into one of the most active deal centers in the world.

“I would imagine we’re one of the few markets where head-hunters are paying any interest at the moment by virtue of the fact that things are happening,” said Steve Clayton, senior country officer for J.P. Morgan Malaysia.

Clayton says that headcount at J.P Morgan Malaysia will increase over 50 percent within the next two years. The bank’s franchise in the country dates back to 1964.
Driving the boom is a combination of government-led divestitures, election-year politicking and steady economic growth across Southeast Asia.

“There’s an underlying ASEAN story,” said a top Asia investment banker who did not want to be identified. “The orientation of investment banking fees was always directed more to China. The slowdown of IPOs in Hong Kong has acutely impacted that flow of business. So on a relative basis, ASEAN is seeing a bigger component of the fee pool.”

While credit ratings agencies are concerned about Malaysia’s budget deficit and the country is very exposed to any slowdown in trade finance given its sizable export market, economists remain positive as the local oil industry continues to churn out heaps of cash for the government.

The Petronas deal, one of the biggest outbound deals from Asia this year, will boost Malaysian M&A volume to $19.3 billion. Malaysia’s share of Asian M&A volume doubled to 8 percent so far this year.

Aviva and ING’s planned sale of insurance operations in Malaysia are among the country’s other M&A deals expected to be completed sometime this year.
The burst of deal activity is also part of a trend that began a few years ago when Malaysia’s state firms and privately owned companies started to venture abroad to tap growth outside their saturated domestic market.

The same momentum saw state investor Khazanah acquiring hospital groups in Singapore, Turkey and India. It is now injecting these assets into a business that is seeking to list in Singapore and Kuala Lumpur in a $2 billion deal this year.

Deutsche advised Khazanah on its acquisitions in Singapore and Turkey and is also a key adviser on the IPO.

“Malaysia is small. It’s not like China or India or Indonesia in any way,” said Abdul Jalil Abdul Rasheed, chief executive officer of Aberdeen Islamic Asset Management Sdn. in Kuala Lumpur. “That’s why a lot of them are turning their attention abroad now.”