Potential of corporate advisers not fully tapped
Cheah Chor Sooi 
No absolute advantage between banks and non-bank corporate advisers, says SIERAC Corporate Advisers Sdn Bhd executive director Teh Sew Hong

MANY boutique advisory firms are finding that their true potential have never been tapped to the fullest as there are limitations as to what they are allowed to do.

Only investment banks – who already enjoy the competitive advantage of reputation and balance sheet to provide funding – and universal brokers are allowed to undertake initial public offerings (IPOs), manage a reverse takeover exercise and submit additional listing applications (ALA) for new issues of securities, among others.

As boutique advisers are unable to submit ALA, they are not allowed to act as advisers for private placement of shares, issuance of employees stock option scheme, rights issue, bonus issue and acquisitions via shares issues.

Often enough, boutique firms are entrusted with early stage support which entails low fees such as providing advice on cash transactions or independent advice on fairness and reasonableness of transactions.

Such situation is seen as unfavourable for the development of the capital market, according to SIERAC Corporate Advisers Sdn Bhd executive director Teh Sew Hong.


Choosing the right adviser

“This may result in boutique advisory firms occasionally losing a prospective client who are looking for a one-stop solution in their service providers,” she tells FocusM.

“Similarly, many clients complain to us that they face difficulty securing corporate advisers as the investment banks are too expensive, while boutique firms are too elusive due to the clients’ limited capital market network.”

A look at the Hong Kong Exchange shows that there are 106 licensed sponsors and advisory firms working for 2,068 listed companies, which works out to 19.5 listed companies per sponsor.

This is in stark contrast to only 14 approved principal advisers on the Bursa Malaysia Register of Sponsors and the Securities Commission’s (SC) Approved List of Principal Advisers working for 902 listed companies, which translates into 64.4 listed companies per sponsor.

On a bigger picture, Teh further points out that there is no absolute advantage between banks and non-bank corporate advisers given the founders or principals of the latter – who are often from ex-investment bank backgrounds – are just as well-qualified to advise on corporate exercises.

“What is more important is matching the requirement of the listed entity and the value proposition of the corporate adviser,” she argues. “In fact, listed companies may find that they have need for both bank-based and non-bank based advisers given both are able to play different roles, thus complementing each other in a corporate exercise.”

A case in point is the recent announcement by HSS Engineering Bhd acquiring SMHB Engineering Sdn Bhd where Maybank Investment Bank Bhd is appointed as the principal adviser while Newfields Advisors Sdn Bhd fills the role of financial adviser.

Moving forward, Teh acknowledges that the best way to tackle this challenge is to pursue on-going dialogue with the authorities to outline the case for opening up the scope of activities permitted for non-bank corporate advisory firms.

“On the bright side, the SC and Bursa Securities have in recent years, been stepping back into a more overseeing function, and may be willing to consider proposals to open up the industry provided that candidates are vetted to determine suitability and capacity of their boutique advisory firms to undertake additional activities,” she notes.

Ironically, instead of emulating Hong Kong and Singapore in opening up the capital market to boutique corporate advisory firms, the SC has taken a different path to fill up the talent gap.

In March, it released a public consultation paper which, among others, proposes the admission of lawyers and reporting accountants with relevant experience as qualified senior personnel to alleviate challenges faced by the 14 existing approved principal advisers.


Finding the right match

As a comparison, PrimePartners Group, an independent non-bank advisory firm licensed by the Monetary Authority of Singapore, has grown to be a market leader for the corporate finance and capital raising activities in the Southeast Asian region and China.

While bank-based advisers may possess greater resources to undertake “bigger” jobs or a more diverse mix of expertise, these same traits may at times make them more bureaucratic and less responsive to clients’ needs, according to Awesome Advisory Sdn Bhd adviser Ong Yih Ching.

Bank-based advisers may possess greater resources to undertake 'bigger' jobs but such traits may make them more bureaucratic and less responsive to clients’ needs, says Ong

“This also means that there is a greater variance in the effectiveness or quality of the team that actually provides the service to the client,” he attests. “Bank-based corporate advisers are often more restricted with other specialist service providers they can work with to provide the service to the client.”

At the end of the day, Ong says that it is in the client’s interest to choose the corporate adviser – or the team within the corporate adviser – which best suits their needs given each listed company has different needs under different circumstances.

In so doing, he suggests that companies should conduct a two-stage assessment. The first stage requires the company to ask themselves which are the specific areas that require the expertise of a corporate adviser and searching for the right corporate adviser to fulfill that specific need.

Impartial and practical advice

In Ong’s view, a good corporate adviser understands their clients’ needs, core values and aspirations. He gives impartial and practical advice and goes through options and possible solutions with clients in an objective and professional manner.

“Of course, being responsive, communicates well with all the levels of staff of the client, having the service team comprising qualified personnel suitable for each individual case and being reasonably priced [does not mean being the cheapest] would also be important considerations,” he adds.

ZJ Advisory Sdn Bhd partner Poi Koon Hwee is of the view that the ideas/solutions and deal execution is mission critical, rather than the focus on backing/personalities behind the deals. To him, the team that can originate the ideas, staying ahead of the curve, providing the best solutions and seeing it through to completion will have advantage over the rest.

“That being said, advisers who are product-neutral – ie not pushing any certain corporate finance products but rather calling it in the best interest of the client – will stand out,” he asserts. “It’s about providing what the client need.”

On common challenges encountered by corporate advisers in their quest to meet the demand of their listed clients, Poi ranks readiness and ability to provide required information as commonly lacking.

“Such information is always critical in order to craft an optimal deal structure for the client,” he suggests. “The said corporate adviser must have sufficient experience to extract or assist the client to extract the required information to facilitate the transaction.”

Finding the right corporate adviser

THE legitamacy of the adviser tops the checklist when one is scouting for the right corporate adviser. Towards this end, it is vital to ensure that the adviser is licensed with the Securities Commission (SC) as well as authorised to carry out whatever services it is proposing.

“Individuals and advisory firms licensed with the SC are required to go through a licensing exam which ensures – to some extent – their technical expertise,” SIERAC Corporate Advisers Sdn Bhd executive director Teh Sew Hong says. “Further, it ensures that the adviser is legitimate, and provides a recourse in the event of fraud or other intentional misconduct.”

Other criteria are as follows:

• Expertise and integrity of the adviser: Listed companies should always enquire who is the principal overseeing their corporate exercise. Although much of the work is delegated to junior employees at investment banks, it is the quality of the team leader that determines the ultimate quality of the service provided. Boutique firms may have the upper hand at this stage as more often than not, the firm’s founder or the principal himself/herself will be involved in the clients’ projects;

• Capacity of the adviser: Does the adviser have sufficient capacity to see the project through, while providing the necessary support for the listed company so that the latter is aware of the whole process?;

• Costs involved: Boutique firms usually quote lower fees due to their lower operating overheads; and

• Reputation of the adviser: Big names are more expensive, but lend credibility to the corporate proposal. In the end, it depends on the target market of the proposal (eg is the corporate exercise targeted at overseas investors) and what is the marginal value of getting a big name involved (eg an investment bank may be able to provide loan facilities to support the funding requirements of a corporate proposal, thus smoothing the process of implementing the corporate exercise).

This article first appeared in Focus Malaysia Issue 260.