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8 Oct 2024
Insight
Malaysia
Our Malaysia lead partners Gitta Satryani, Glynn Cooper and Anthony Patten outline five key trends they are hearing from Malaysian clients.
Energy transition continues to drive growth
Driven by a desire to diversify portfolios and investor appetite for impact investments, the increasing trend of private capital investment in the region is focused on growth sectors like renewable energy. Traditional energy players in Malaysia too are increasingly focusing on renewable energy sources such as wind, solar, and hydrogen. Some have set up specific vehicles to invest in these businesses, separating them to expedite approval processes and move more quickly on deals. Those traditional energy players remain focused on LNG/natural gas as well. “The LNG story in Asia is about the opportunity for gas to replace coal and act as bridge fuel – as an LNG producer Malaysia continues to play a big part in that switch.” – Anthony Patten, Partner.
Two worlds form an uneasy alliance
The cultural differences between private capital investors and the traditional energy players could be a major factor for investment in the energy transition in Malaysia. Many traditional businesses in Malaysia are partnering with private capital investors for the first time (and vice versa). Traditional Malaysian energy players are entering the renewable energy sector to decarbonise and future-proof their overall portfolios. Private capital investors however invest to achieve an investment return typically within a five-to-seven-year horizon from initial investment. Within that time horizon, private capital investors have a lower risk appetite than traditional energy players who can take a longer-term view. Considering the risk involved in energy transition investments, this may call for innovative risk-sharing arrangements. “Partnering up may be more about sharing risks.” – Glynn Cooper, Partner.
New corridors could change the game
There is a growing trend of intra-ASEAN investments, with Malaysian investors looking for projects in countries closer to home, such as in Indonesia, Vietnam, and the Philippines (and vice versa) in addition, and sometimes in substitution of, the traditional North-Southeast Asian corridor. There is also a significant influx of Middle Eastern investment into Southeast Asia, including into Malaysia. “ASEAN investors are becoming more comfortable investing within Southeast Asia with the rise of the middle class in many of these countries and increased stability in the governments in the region.” – Gitta Satryani, Partner.
Outbound investment is nearing a new cycle
Malaysian asset managers and pension funds materially increased their overseas investments a little less than a decade ago. Many of these investors are coming to the end of their intended holding periods and are looking to refresh and realign portfolios. For many of these investors this is the first asset cycle and they will be looking for exit opportunities and will also need to decide how best to reinvest. There is potentially a wave of transactions coming which offers opportunities for secondary investors and international investment partners.
Is further infrastructure investment on the horizon?
There is perceived need for further improving regional connectivity and infrastructure in Southeast Asia. Such projects are capital intensive and this may be another testing ground for public-private partnerships and innovative financing solutions. “Affordability will be a big issue and government support (both financial and non-financial) will be needed to ensure long-term success” – Gitta Satryani, Partner.
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© Herbert Smith Freehills 2024