Advising on Corporate Finance
The advisory role
Advising on corporate finance covers advice on corporate proposals: initial public offerings, rights and bonus issues, restructurings, mergers and acquisitions, take-overs, valuations and related-party transactions. The exam tests who may act, the standards of diligence and independence, and the take-over rules.
- A CMSL for advising on corporate finance is required, with CMSRs for the individuals. Advising on whether a transaction is sound differs from investment advice on whether to buy a listed security.
- Framework: CMSA and SC guidelines (equity, asset valuation, take-overs), the Companies Act 2016, the Bursa Listing Requirements, and the Malaysian Code on Take-overs and Mergers 2016.
- Take-overs: the mandatory general offer obligation is triggered when a person acquires more than 33% of the voting shares, or, holding between 33% and 50%, acquires more than 2% within six months. The offer then goes to all shareholders, at a price no lower than the highest price paid by the offeror or persons acting in concert during the period specified in the Code.
- Independence: an independent adviser must be independent of both offeror and offeree, disclose conflicts, and give a reasoned opinion on whether the offer is fair and reasonable to minority shareholders.
- Due diligence: verify factual claims, ensure disclosure is complete and not misleading, keep a diligence file, and disclose valuation assumptions.
- Related-party transactions need an independent opinion and shareholder approval, with the interested party abstaining.
Worked example
A shareholder holding 30% buys a further 5% of a listed company. At 35% the mandatory offer obligation is triggered: an offer to remaining shareholders, appointment of a CMSL holder advising on corporate finance as independent adviser, and a reasoned fairness opinion delivered on the SC-supervised timetable. Structuring the same acquisition as an off-market block trade does not avoid the rule.
Traps
- Acting as 'independent' adviser while holding another fee mandate from the offeror.
- Treating the role as document drafting rather than testing the proposal.
- Confusing the 33% trigger with the 50% shareholding level.