By Ayisy Yusof February 9, 2020 @ 11:39am
KUALA LUMPUR: Experts are mixed over the country’s foray into digital tokens offering via initial exchange offerings (IEOs) as many investors remain sceptical on this investment platform.
Some market observers and investors said they were concerned whether the return on investment (ROI) would be favourable, adding that the economy was continuing to show signs of a downturn and that people were more cautious about their spending.
Others believe the initial take up rate for the IEOs will not be encouraging as investors are adopting a ‘wait and see’ approach to evaluate this mode of investment and rate of return.
Farringdon Asset Management principle officer Stuart Yeomans said IEOs would benefit small and medium enterprises, especially those in the technology sector.
“An initial public offering (IPO) is a lot more complicated in raising money.An IEO is a strong platform, but there are many concerns related to unscrupulous for this investment platform,” he told the New Straits Times (NST) recently.
Yeomans described the Securities Commission’s (SC) move to regulate the IEO market as ‘fantastic’ in monitoring the development.
He said the commission should also provide a solid framework for IEOs to attract more foreign investors, while instilling confidence in the securities market.
“Businesses should practise due diligence to ensure that an investment fund was from a reputable brand amid the high-rish nature of IEOs.
“Hence, it is important for the SC to regulate the framework with stringent regulations to protect investors,” he said.
Areca Capital Sdn Bhd chief executive officer Danny Wong Teck Meng believes IEOs could help businesses to attract foreign investors.
“Digital assets may have its own market place.The demand for IEOs will depend on the investor’s liquidity, as well as their perception on the risks and ROI of Malaysia’s digital platform,” he said.
An IEO allows a company with an innovative business proposal to raise capital before it is able to do so through venture capitalists or lenders.
Last month, the SC published guidelines on digital assets, outlining the framework for IEO.
The guidelines would be effective in the second half of 2020, thus allowing potential issuers, platform operators and investors to familiarise themselves with the requirements.
A market observer said due to the soft domestric consumer sentiment, not many people would be willing to invest in OEPs mpw as they could not afford to lose their investments.
“Even before the novel coronavirus outbreak, people did not see the growth potential of IEOs,” he told NST on condition of anonymity.
However, individual investors would prefer to wait until the economy outlook is promising before willing to allocate sum for investment.
Another crypto-currency observer said companies involved in high-technology manufacturing such as sensors for auto-driving, facial recognition, motion sensor, renewable energy, telecommunication and Industry 4.0-related projects would benefit from IEOs.
IEO will also be suitable for technology companies however, he said Malaysia still lags in terms of having bigger tech-savvy community.
“IEO has higher investment risk than the stock market.But it is still early for investors to determine the ROI for this investment platform,” he said.
Although IEOs would be suitable for tech companies, he said Malaysia lagged behind due to the size of its small tech-savvy community.
“The current sentiment on technology sector is not strong as Malaysia primarily involves in the third or fourth tier supply value chain for electronics products such as smartphones and computers or certain electronic components in vehicles.
“We only manufacture some components and not involve in high-value manufacturing such as for central processing unit or important components,” he said.
He added SC’s capping it to RM100 million for an issuer to raise capital will likely insufficient for investor to expand its business through IEOs.
“It is better for investors to raise fund via ACE or Leading Entrepreneur Accelerator Platform markets in Bursa Malaysia or through conventional equity crowdfunding,” he said adding that the local bourse had registered small number of initial public offerings (IPOs) involving 20 companies last year.
“This reflected weaker market sentiment due to US-China trade war, geopolitical tension and softer corporate earnings.
“We expect weaker sentiment will be continued for the IPO trend this year,” he said.
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