Key Matters To Look Out For In An IPO – Licences Edition
Companies in different industries have different licensing requirements to operate in Malaysia. Often, these licences come with conditions that are required to be complied with by the licence holders. Failure to comply may result in non-renewal or even revocation of the licences.
As such, companies are reminded to pay attention to the full compliance of these licence conditions to avoid any delays when embarking on an initial public offering (IPO) exercise. This alert summarises the common conditions in licences to look out for prior to or when undertaking an IPO exercise:
1.Foreign Equity Participation
Malaysian companies are regulated and governed by the Companies Act 2016 currently does not stipulate any foreign equity conditions on Malaysian incorporated companies.
However, depending on the activities undertaken by the company, specific foreign equity conditions may be imposed on the approvals, operating licences, permits or registrations by the regulating authority.
As such, it is prudent for the company to take note of the foreign equity participation conditions prior to obtaining foreign equity investments as this may result in a termination / cancellation of licence by the relevant authorities if the said condition is not complied with.
Sample licence condition:
Foreign equity is subject to the approval by the Ministry of Health (MOH)’s Special Committee on Foreign Equity Participation (extracted from a sample MOH licence).
2.Bumiputera Equity Requirements
Aside from the foreign equity requirements, it should also be noted that licences and approvals for certain activities may be subject to Bumiputera equity requirements.
This condition typically states the minimum amount of Bumiputera equity required in the company to apply for / retain the relevant licence.
Sample clause:
(i)Company must have at least 30% Bumiputera equity (extracted from a sample Public Bonded Warehouse Licence issued by the Royal Malaysian Customs Department).
(ii)The company must be 100% owned by Bumiputera and the composition of the board of directors as well key management may only consist of Bumiputera (extracted from the Guidelines for Application of the Open Approved Permit by Companies issued by the Ministry of International Trade and Industry (MITI).
3.Change In Shareholdings
During the IPO process, it is common for the proposed listing group (Group) to undertake a restructuring exercise to incorporate a holding company to be the listed entity (ListCo) of the Group. In doing so, there will be a change in shareholding in the operating subsidiary(ies) of the Group, as these said subsidiaries would then be wholly-owned by the ListCo.
A common condition sighted in licences is that the consent of the relevant authorities would first be required prior to any changes in the shareholdings of the licence holder. There may also be a requirement to notify the relevant authorities prior to or after the restructuring.
Further, there may also be a restriction on the change of shareholdings or board of directors of the licence holder company for a certain period of time.
Sample conditions:
(i)If there is a sale of Company shares, the Company shall inform MITI and the Malaysian Investment Development Authority regarding the sale of shares (extracted from a sample manufacturing licence issued by MITI).
(ii)Newly registered companies are not allowed to make any changes to the shareholding or directors during the period six (6) months from the date the company is registered (extracted from a sample Certificate of Registration with the Ministry of Finance).
4.Workforce Composition
In order to ensure that the employment opportunities for Malaysians are well-protected, it is not rare for workforce composition conditions to be imposed on licence holders.
These conditions will typically state the minimum percentage of the company’s workforce which must consist of Malaysians or a restriction on the maximum percentage of foreign workforce that can be employed by the licence holder.
Sample conditions:
The company’s total additional full-time workforce must comprise of at least 80% Malaysians by 2020 (extracted from a sample manufacturing licence issued by MITI).
5.Renewal Period
Generally, most licences have a validity period during which the licence is valid and would require to be renewed once expired.
However, companies are to take note that certain licences may state a certain period of time whereby the licence holder would be required to apply for the renewal of licence / to have the licence renewed before the expiry. To avoid delays in the IPO process, companies are advised to apply for the renewal of licences earlier on as the issuance of renewal licence might be a lengthy process.
Sample conditions:
Application for renewal of licence must be submitted at least 90 days prior to expiry date (extracted from a sample Public Bonded Warehouse Licence issued by the Royal Malaysian Customs Department).
6.Paid-up Capital Requirements
Companies are also reminded to take note of the minimum paid-up capital requirements that may be imposed on certain licences.
Failure to maintain the paid-up capital of the company as required may result in a revocation of the licence.
Sample conditions:
Licensee must have the minimum share paid-up capital as required by Malaysian Communications and Multimedia Commission (MCMC) to provide courier service. Pursuant to Second Schedule of Postal Services (Licensing) Regulations 2015, the minimum paid-up capital for non-universal licence class Class A is RM 1,000,000.00 (extracted from a sample non-universal service licence [Courier Service (Class A)] issued by MCMC).
In summary, it is prudent for a company to review all the conditions in their licences to ensure compliance. This is to prevent any breach / non-fulfilment of the licences’ condition which may result in such licences being terminated or cancelled.
31 May 2023