MALAYSIA Law and Practice Contributed by: Samantha Chiang Xin Li, Yee Yik Shien and Tay Zi Li, Zi Li & Partners
documents to the transferee, subject to the bor- rower’s consent. The transferee becomes the new lender of the loan. • Sub-participation – the lender transfers all or part of its risks under the loan to the sub-participant. There is no transfer of rights and/or obligations under the loan and security documents from the lender to the sub-participant. 3.7 Debt Buyback Debt buyback is permitted, subject to the prepayment or early redemption terms in the loan documentation. 3.8 Public Acquisition Finance Under the Rules on Take-Overs, Mergers and Com- pulsory Acquisitions (the “Take-Over Rules”) issued by the SC, an offeror must have “certain funds” financing in place for public takeovers. Rule 9.10 (4) of the Take- Over Rules requires the announcement of an offer in respect of a listed corporation to include confirma- tion by the main adviser that resources available to the offeror are sufficient to satisfy full acceptance of the offer. In practice, the main adviser would typically require the lender to provide a commitment letter and/ or facility agreement or at least the facility agreement as evidence, and while there is no legal requirement for such documents to be publicly filed, the SC may require it to be provided as supporting evidence. Outside of public deals, “certain funds” financing is neither legally required nor common, but it may be seen in complex private mergers and acquisition deals. 3.9 Recent Legal and Commercial Developments Notable legal developments in Malaysia in recent years which have impacted upon legal documenta- tion include the following: • the transition from KLIBOR to MYOR/MYOR-i as the primary reference rate will now require legal documentation to replace KLIBOR references with MYOR (or MYOR-i for Islamic facilities or sukuk), using compounded-in-arrears calculations instead of term rates, and to include robust benchmark replacement and fallback clauses; and
• the introduction of SRI Sukuk and SRI-Linked Sukuk, which requires sukuk terms to include sustainability-linked covenants and performance targets. 3.10 Usury Laws The Moneylenders Act provides that interest for a secured loan will not exceed 12% per annum and interest for an unsecured loan will not exceed 18% per annum. However, the Moneylenders Act does not apply to financial institutions licensed under the FSA, or to foreign lenders which do not carry out money- lending business in Malaysia. While there is no statutory rate restriction applicable to foreign lenders, default interest which is exorbitant and punitive in nature may be challenged under Sec- tion 75 of the Contracts Act 1950, particularly if it was not agreed upon by the parties. 3.11 Disclosure Requirements Generally, there is no legal requirement for a Malaysian entity to disclose its loans or debt securities transac- tions to the public, unless it is a listed company or a subsidiary of a listed company. Borrowing of funds is considered as an event which may require imme- diate disclosure by the listed company under the listing requirements issued by Bursa Malaysia Secu- rities Berhad (the “Listing Requirements”). For issu- ance of debt securities, the listed issuer is required to announce certain information pursuant to the Listing Requirements, including any change in the terms of the debt securities, any redemption or cancellation of the debt securities, and any occurrence of an event of default. 4. Tax 4.1 Withholding Tax Payments of principal to resident or non-resident lenders are not subject to withholding tax. Interest derived from Malaysia and paid to a non-res- ident lender is subject to withholding tax, currently at the rate of 15% (or any other rate as prescribed under the double-taxation agreement between Malay-
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