The potential of business trust listings

By Star Online: Business
13 June 2012

BY the fourth quarter of this year, the listing rules for business trusts would have been published and this would pave the way for a new listing mechanism for companies as well as affording investors with a new type of product. It will be interesting to see what asset will take the honours of becoming the first business trust listed on Bursa Malaysia.

On that score, the jury is still out on whether the local bourse has lost out big time from the choice of Berjaya Sports Toto Bhd (BToto) to list its business trust in Singapore. On the one hand, there is one theory that the local regulators have been slow to come up with the rules to faciliate the listing of such trusts in Malaysia. Hence BToto could not wait.

On the other hand, industry players say local investment banks have already been briefed by the Malaysian regulators on the outline of the various business trust models they are considering and expected timelines for the rules to come out.

Then again, there could be more reasons why BToto is looking offshore, such as making the Singapore listing its beachhead for growing its gaming businesses internationally.

In any case, BToto has clarified that it is keen to have a secondary listing of its business trust in Malaysia once the rules are firmed up here.

Significantly, the process of allowing new listing mechanisms should be done with the right levels of checks and balances in place. For example, assets that don't meet the usual qualitative listing requirements should not be allowed to easily get listed via business trusts or SPACS (special purpose acquisition companies) for that matter.

On a positive note, business trusts will certainly have an appeal both to issuers and investors.

A business trust uses most of the underlying asset's cash flow to pay dividends, making the stock more attractive to long-term investors seeking steady income. It is also a way for companies, typically large ones, to raise money from putting some of their hard assets into a business trust.

For example, airline companies could put their planes into a business trust and sign a lease agreement with the trust for use of those planes. The trust in turn will be focused on owning planes and distributing to shareholders the cash flow it gets from the lease agreements.

Similarly, a conglomerate with power generation assets may wish to spin off those assets into a business trust.

However, in many of these scenarios, there are likely to be significant related party transactions. Hence business trusts need to have sufficient protection mechanisms to ensure those who are managing the assets are working in the best interests of all the unit holders of the trusts.

Just like SPACs and real estate investment trusts, business trusts are bound to add some excitement to the market.

[Source]