ALLIANCE Islamic Bank Berhad (AIS) is aiming to serve as advisor for at least 10% of Bursa Malaysia Bhd’s target of 42 initial public offerings (IPOs) in 2024, capitalising on the positive market outlook.
Alliance Bank Malaysia Berhad, having transferred its capital markets business to its subsidiary AIS in April 2022 following the disposal of Alliance Investment Bank Berhad stockbroking businesses, perceives the capital market space as vibrant due to positive sentiments among investors.
While the bank surrendered its investment banking licence to Bank Negara in December 2023, AIS chief executive officer Rizal IL-Ehzan Fadil Azim stresses that the group has not exited its capital market business but delivers its capabilities under the umbrella of AIS.
Under the Capital Markets & Services Act 2007 (CMSA), AIS is a “registered person” by virtue of it being a licensed Islamic bank under the Islamic Financial Services Act 2013, which allows it to carry out regulated activities set out in CMSA such as advising on corporate finance.
Further, AIS has been recognised by Securities Commission (SC) as a recognised principal adviser, enabling AIS to submit specific corporate advisory proposals to the SC.
AIS is one of the few local Islamic banks with a full suite of in-house capabilities, including comprehensive corporate and capital markets solutions to serve business clients.
By integrating expertise in both areas, AIS delivers a holistic financial strategy that encompasses tailored financial solutions, strategic advisory services and innovative capital market products.
These solutions are designed to not only meet the financial needs of clients but also to help them achieve their long-term business goals, optimise growth opportunities, manage financial risks and ensure syariah compliance throughout their business journey.“We see opportunities in the capital market space. We feel it has connections with the large base of small and medium enterprises (SME) and commercial customers that we have. So, we kept it, and we housed it under AIS.”
In fact, Rizal takes pride in the group’s achievement of having advised four companies on the IPO project over the past two years, since the capital business market came under their purview.
Looking ahead, he says the bank is on track to list a couple more companies and targets to contribute at least four IPOs for the local bourse this year.
He notes that there is continuous robust demand in the IPO market, mainly driven by strong market sentiment, with a focus on the SME space as most of their clients are in this sector.
“It’s the mid-market space, an area we’re comfortable with because it taps into the SME market base. It’s an extension of what we offer on the commercial banking side,” he adds.
Rizal notes the electrical and electronics sector is showing vibrancy, particularly in solar-based or engineering, procurement, construction and commissioning projects.
“The folks who are serving the semiconductor industry are really looking to expand and they’re turning to the capital markets to fund their capacity expansion.”
In contrast, Rizal said sectors facing challenges include property construction and real estate, where sentiment remains relatively soft.
However, he acknowledges the potential for a turnaround, citing developments like the special economic zone in Johor, which could stimulate growth and generate interest in the property and real estate space.Transitioning to technology adoption, Rizal admits the manual nature of the IPO process owing to the personalised approach, but unveils plans for automation of some of the back-end processes.
“We have figured out a model where we can help these folks –IPO seekers – through a structured process, assisting them in identifying and preparing for the essential aspects of their IPO journey.”Rizal points to the variable timeline for IPO readiness, ranging from four to five months for well-prepared entities to potentially years for those lacking essential infrastructure, controls, governance or a suitable track record. He says that the bank collaborates with partners to assist SMEs in developing the necessary prerequisites for a successful IPO, ensuring comprehensive preparation.Additionally, Rizal underscores the importance of a careful approach to pricing and valuations for IPOs to avoid discouraging potential investors.
He suggests a level that allows everyone to perceive an opportunity for favourable valuations.
“The valuation part is the science, the pricing or setting of the IPO price, that is more of an art.”
Shifting focus to the bank’s sukuk advisory services, Rizal expects a potential uptick in sukuk and bond activity amid the anticipated decline in interest rates. To date, AIS has listed four companies on Bursa Malaysia, raising funds of RM144.5mil, of which two companies saw an over-subscription of above 63 times on their respective debuts.
In this financial year, Islamic Capital Markets contributed 29% of AIS’ other operating income.
Looking forward, Rizal anticipates a more vibrant sukuk market with expected decreases in interest rates. He says corporations are also poised to refinance high-priced bonds, capitalising on reduced finance costs.
Additionally, he notes a potential surge in environmental, social and governance (ESG) oriented sukuk globally.
“In the global stage, there’s much more focus on ESG and on ensuring that businesses who participate in certain markets need to do it in the proper way with the right kind of impact, not just the economy but also the people and the environment as well.
Rizal emphasises the focus on assisting customers through the entire ESG adoption journey and for those venturing into sukuk for the first time.
“We want to position ourselves more in the mid-market space. For people who are doing sukuk for the very first time, we want to help them set up their sukuk frameworks or their bond frameworks and help do their median issuances,” he notes.
Incidentally, AIS has been appointed as the joint principal adviser, joint lead arranger, and joint lead manager for Avaland Bhd’s proposed sukuk programme of up to RM1bil (Sukuk Murabahah Programme) with an inaugural issuance of RM300mil Sustainability Sukuk Murabahah.
Despite a vibrant corporate finance business, Rizal acknowledges talent shortages and wage inflation in this challenging market.
“What we try to do with our talent is to keep them on board by exposing them to really good deals that they can sink their teeth into,” he says.
“Looking ahead, the bank plans to elevate the capital market’s contribution to fee income, aspiring to increase it from the current 30% to 40%,” he adds.- The Star
