IFLR 1000
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Practitioners anticipate an opening and liberalisation of Malaysia's legal market following the tabling of amendments to the Legal Services Act in May 2012 in the Dewan Rakyat, Malaysia's lower house. Under the present system, foreign firms are unable to open up in Malaysia and foreign lawyers are not allowed to practice, but that will change in West Malaysia with the passage of this law....

Practitioners anticipate an opening and liberalisation of Malaysia's legal market following the tabling of amendments to the Legal Services Act in May 2012 in the Dewan Rakyat, Malaysia's lower house. Under the present system, foreign firms are unable to open up in Malaysia and foreign lawyers are not allowed to practice, but that will change in West Malaysia with the passage of this law.

If passed, the amendments will allow firms to either apply for a Qualified Foreign Law Firm (QFLF) license to operate independently, form an international partnership with a Malaysian firm or practice through employment in a Malaysian law firm. These are the only vehicles through which foreign lawyers will be able to practice in West Malaysia.

The changes are likely to be positive for buyers of legal services as one in-house counsel explains: "Foreign law firms invite increasing competition and good quality firms will need to compete with local firms to get business. We always look for the best specialists to help on deal-specific issues."

Malaysian firms are confident in their ability to survive this drastic change, primarily because of their lower fees and local expertise. "The only difference with these amendments is whether domestic Malaysian work will invariably involve Malaysian law firms. I don't think that will decrease, mainly because our fees are very competitive," says a partner at a large Malaysian firm.

However, it is important to note that these amendments will only apply to West Malaysia. The states of Sabah and Sarawak, recently popular for resort development and tourist attraction projects, manage separate legal systems and are unaffected by this change. In these regions it is necessary to hire a local Sarawak or Sabah counsel.

CONTEXT AND TRENDS
Though the rest of the Asia-Pacific has been affected by Basel III's capital requirements and the slowing global economy, Malaysia's banking and project finance areas have remained buoyant. Practitioners say that the banks have so far been unaffected by Basel III and that the strong local markets are holding up the economy....

CONTEXT AND TRENDS

Though the rest of the Asia-Pacific has been affected by Basel III's capital requirements and the slowing global economy, Malaysia's banking and project finance areas have remained buoyant. Practitioners say that the banks have so far been unaffected by Basel III and that the strong local markets are holding up the economy.

Islamic banking structures such as murabaha (deferred sale) and musharaka (partnership finance) remain popular, especially with government-linked companies. The Malaysian government's aim is to become the global leader in Islamic banking and market participants appreciate its strong tax incentives and the frequent introduction of new structures. This year Bank Negara introduced the collateralised murabaha to encourage inter-bank lending, replacing a former structure that was not accepted in most Middle Eastern countries. Given its heavy focus on Islamic finance, it is unsurprising that Middle Eastern investors are looking carefully at Malaysia.

On the project finance side, projects are coming over the horizon at a remarkable rate, with the Iskandar Development Region in Johor especially popular. Iskandar, modelled after China's Pearl River Delta Special Economic Zone, is close to the Singapore link and is a crucial growth development corridor. In one example, Malaysian sovereign wealth fund Khazanah and Singapore sovereign wealth fund Temasek formed two joint ventures to develop parcels of land in each country and lawyers say that this was an important catalytic development.

Though it is impossible to discount the influence of the sovereign wealth funds, developments in Iskandar had already been planned, such as the development of Educity, an area devoted to institutions of higher education such as Newcastle Medical College.

Malaysia's need for upgraded infrastructure means that practitioners are also expecting to see projects relating to roads, hydro-electric dams and power plants come online in the next two to three years. A practitioner notes: "In projects, we are seeing big developments, but only in selected projects. There are a lot of international investors coming in from Korea, China, Japan and the Middle East."

Project financings are often completed with both Islamic and conventional elements. A Singapore-based lawyer at a magic circle firm notes, "These bonds are often financed in sukuk (Islamic bonds) or other Islamic structures, but also have a US dollar-denominated tranche to open the financing up. As a whole, Malaysia seems to be opening up to international sponsors and international finance."

MAJOR LATERAL HIRES

Hanisah Hamzah
From: Abdul Rahmat Saad & Associates
To: ZICOlaw

CONTEXT AND TRENDS
Malaysia's equity capital markets have remained popular amid market crises elsewhere. While Hong Kong has seen a precipitous drop in the amount and value of IPOs and Singapore's much-anticipated Manchester United offering has been moved to the New York Stock Exchange, Bursa Malaysia saw the second-largest IPO this year of palm oil firm Felda Global Ventures....

CONTEXT AND TRENDS

Malaysia's equity capital markets have remained popular amid market crises elsewhere. While Hong Kong has seen a precipitous drop in the amount and value of IPOs and Singapore's much-anticipated Manchester United offering has been moved to the New York Stock Exchange, Bursa Malaysia saw the second-largest IPO this year of palm oil firm Felda Global Ventures.

However, a partner warns, "There appear to be a lot more companies going private than going for IPOs. A lot of corporates are privatising rather than listing and the ones listing are in Reits (Real Estate Investment Trusts)."

The industry is optimistic about Reits, which have been popular in Singapore. "We're still looking at Reits as a growth sector for the equity capital markets," comments a practitioner. "We see that they will trend upwards following their success in Singapore."

On the debt side, offerings under Regulation S and Rule 144A remain popular, and Malaysian firms are building their practices accordingly. Though the government strongly encourages sukuk (Islamic bond) issuances, practitioners privately acknowledge that it is government-linked companies who generally use them.

Though the Malaysian government offers tax incentives for domestic corporates who participate in the Islamic capital markets, lawyers believe that the incentives barely equal the cost for the increased documentation required in Islamic finance transactions. Instead, practitioners are expecting a rise in sovereign sukuks listed in Malaysia. Lawyers at international firms outside Malaysia would like to see shariah-compliant international issuances, and are encouraging an expansion into the Euro, Sterling and the US dollar markets.

CONTEXT AND TRENDS
Like other aspects of the economy, Malaysia's M&A market has remained strong throughout the Euro crisis and the implementation of Basel III. Though practitioners in other jurisdictions have encountered difficulties with acquisition financing, Malaysian acquirers have been able to obtain funding via Islamic structures....

CONTEXT AND TRENDS

Like other aspects of the economy, Malaysia's M&A market has remained strong throughout the Euro crisis and the implementation of Basel III. Though practitioners in other jurisdictions have encountered difficulties with acquisition financing, Malaysian acquirers have been able to obtain funding via Islamic structures. "The large majority of transactions are being financed through Islamic structures," says a practitioner. "The Malaysian government encourages the use of Islamic structures through tax incentives such as stamp duty incentives."

In the last year, there have been several blockbuster M&A transactions. There were two groundbreaking joint ventures between Malaysian sovereign wealth fund Khazanah and Singaporean contemporary Temasek to develop $9.8 billion in property projects in Iskandar and downtown Singapore. There was also the merger of oil and gas providers Sapuracrest Petroleum and Kencana, creating Malaysia's largest oil and gas service provider, SapuraKencana Petroleum.

Though practitioners had been anxious about the introduction of the Competition Law, which came into force on January 1 2012, it has had little effect on M&A deal flow. "Businesses have to prepare documents and need to be interviewed to ensure they comply with the competition act. There's a lot of work for law firms there," says one practitioner.

However, though there is work for firms, the law has not yet been interpreted in Malaysia's courts so there is still a lot of ambiguity. "To be honest, the market hasn't been affected by the competition law at the moment, but practitioners will be wary of the scope of the Competition Act when they render opinions in M&A transactions," says a Malaysian lawyer. "Because of the lack of certainty on how it operates and because not many guidelines have been provided, it's still business as usual. Instead, we're focusing more on corporate activities, such as operative agreements that would infringe due to price fixing or rigging."

MAJOR LEGISLATION CHANGES

Malaysia Competition Law
In effect as of January 2012