MALAYSIA Law and Practice Contributed by: Samantha Chiang Xin Li, Yee Yik Shien and Tay Zi Li, Zi Li & Partners
Foreign Ownership Limitations or Restrictions Typically, policies on foreign investment participa- tion in Malaysia are in the form of equity ownership restrictions. There is no general limitation imposed on Malaysian incorporated companies, but certain sec- tors or industries may impose restrictions on mandat- ing minimum or majority equity ownership to be held by either local Malaysians or Bumiputera . Foreign Exchange Considerations Under the FEP Notices, a non-resident investor is free to undertake any type of investment in MYR assets in Malaysia (direct or portfolio investment) without any restriction, and to repatriate divestment proceeds, profits, dividends or any income arising from the investments in Malaysia, provided that repatriation is made in foreign currency. The equity financing pro- vided by foreign project sponsors by way of capital injection into the project company constitutes a form of investment into MYR assets and is permitted under the FEP Notices. As for the debt financing proposed to be provided to the project company, see 3.3 Restric- tions and Controls on Foreign Currency Exchange for the applicable foreign exchange rules. Licences and Approvals A project company must ensure that all licences and approvals required for development and construc- tion activities have been obtained, such as the plan- ning permission, development order or environmental impact assessment (EIA) approval (see 8.8 Environ- mental Health and Safety Laws ). Where there is a proposal to erect a building, the building plan must be submitted to the local authority for approval and the certificate of completion and compliance must be obtained. The contractor engaged in carrying out the construction work must be registered with the Con- struction Industry Development Board (CIDB) and the project awarded must be declared to the CIDB. 8.6 Common Financing Sources and Typical Structures The following types of project financings are permitted in Malaysia. Bank Financings Bank financings (bilateral or syndicated) remain the most common form of project financing in Malaysia.
Other than commercial banks, projects in targeted strategic sectors such as infrastructure development are often funded by development financial institutions established by the Government of Malaysia with a specific mandate to develop and promote the targeted strategic sectors. Project Bonds/Sukuk Malaysia has one of the largest and most liquid sukuk markets globally and sukuk are the dominant form of project bonds in Malaysia, though conventional bonds are also common. Bonds/sukuk are frequently issued to fund projects in the energy sector, as well as large infrastructure and utility projects, and are typically rated and secured with project assets. ESG-labelled bonds/sukuk are increasingly common for issuers that aim to show their commitment to sustainability to the market. Export Credit Agency Financings Export credit agency financing in Malaysia is primarily offered through the Export-Import Bank of Malaysia, a government-owned institution, as an alternative short- term, pre and post-shipment financing to Malaysian direct/indirect exporters. This provides buyers’ credit, suppliers’ credit and guarantees for Malaysian con- tractors in overseas projects and for domestic pro- jects with export links. 8.7 Natural Resources Natural resources projects in Malaysia are attractive, given the country’s diverse commodities, but inves- tors face different issues and limitations depending on the type of natural resources. Regulatory Complexity Malaysia operates a dual federal-state regime in rela- tion to natural resources. Under the Petroleum Devel- opment Act 1974, the federal government controls all petroleum resources via Petroliam Nasional Berhad (“PETRONAS”). Minerals other than petroleum fall within the jurisdiction of the states pursuant to the Mineral Development Act 1994 and relevant state min- eral enactments. Licensing, leases and approvals are therefore granted at the state level. Forestry activities are regulated under the National Forestry Act 1984, though the states retain control of forest land. Agri- cultural commodities, particularly palm oil, are sub-
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