MALAYSIA Law and Practice Contributed by: Samantha Chiang Xin Li, Yee Yik Shien and Tay Zi Li, Zi Li & Partners
3. Structuring and Documentation 3.1 Restrictions on Foreign Lenders Providing Loans Foreign lenders are not expressly exempted under the Moneylenders Act, however, it is unclear whether the Moneylenders Act would apply to foreign lenders given that the act generally applies only within Malay- sia. In practice, when providing loans to Malaysian entities, foreign lenders typically take the following measures to mitigate the risk of being considered as carrying on money-lending business in Malaysia: • the facility or loan agreement is governed by for- eign law; • the finance documents are executed by contract- ing parties outside Malaysia; and • the loan proceeds are disbursed offshore to a bank account opened by the borrower outside Malaysia. 3.2 Restrictions on Foreign Lenders Receiving Security Generally, there is no restriction on foreign lenders receiving security or guarantees from Malaysian enti- ties. However, when taking security over lands in Malaysia, restrictions on title to lands may either prevent secu- rity interests from being granted directly to a foreign lender or make this conditional upon state authority approval. In this instance, it is common practice for a Malaysian bank to act as a security agent to hold and enforce the security interests on the foreign lender’s behalf. 3.3 Restrictions and Controls on Foreign Currency Exchange All foreign exchange transactions are prohibited under the FSA unless: (i) permitted under the Foreign Exchange Policy Notices (the “FEP Notices”) issued by the BNM; or (ii) prior written approval has been obtained from the BNM. In terms of loans or debt securities, a resident entity is allowed to borrow up to MYR100 million equivalent in aggregate in foreign currency (computed based on the aggregate borrowing in foreign currency by the bor- rower and other resident entity with parent-subsidiary
relationship) from foreign lenders. The borrower must obtain the prior written approval of the BNM for any borrowing that exceeds the MYR100 million limit. There is no restriction on a resident entity providing security or a guarantee if the security or guarantee is to secure a borrowing obtained by a resident entity that is permitted under the FEP Notices or otherwise approved by the BNM. However, if the security or guarantee is to secure a borrowing obtained by a for- eign entity, the BNM’s written approval will be required if: (i) the borrower is a special-purpose vehicle or if the borrowing is being utilised by the resident entity; or (ii) the resident entity is required to repay the borrowing in foreign currency other than under a call-upon by the lender in the event of default. 3.4 Restrictions on the Borrower’s Use of Proceeds A borrower’s use of proceeds from loans or debt securities is subject to the terms of the underlying loan documentation and applicable regulatory require- ments, including that: • the proceeds will not be used for unlawful activities as described under the Anti-Money Laundering, Anti-Terrorism Financing and Proceeds of Unlawful Activities Act 2001; and • for debt securities, the use of proceeds will comply with the relevant guidelines issued by the SC. 3.5 Agent and Trust Concepts Agent and trust concepts are recognised in Malaysia and are commonly used in both syndicated loan and debt securities transactions. 3.6 Loan Transfer Mechanisms Loan transfer mechanisms in Malaysia include: • Assignment – the lender assigns its rights to receive loan repayments and its rights to the secu- rity interest created in its favour to the assignee. A notice of assignment must be given by the lender to the borrower for the assignment to be effectual at law. Obligations under the loan remain with the original lender. • Novation – the lender transfers all its rights and obligations under the loan agreement and security
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