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(Bloomberg) — In a tough year for dealmaking in the Asia-Pacific, Malaysia is proving to be a bright spot.

The volume of mergers and acquisitions has surged 87% from a year ago to $8.3 billion, while APAC as a whole is down 15%, data compiled by Bloomberg show.

Top of the pile is a 12 billion ringgit ($2.6 billion) buyout of Malaysia Airports Holdings Bhd. involving Global Infrastructure Partners and Abu Dhabi Investment Authority, though the deal has faced opposition in Muslim-majority Malaysia due to BlackRock Inc.’s ties to Israel. BlackRock agreed to buy GIP in January. 

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Senior investment bankers expect deal activity to be elevated as both local and international buyers pounce on opportunities.

Tech is alluring. Big names including Alphabet Inc.-owned Google, Microsoft Corp. and Nvidia Corp. have announced plans to invest billions into helping Malaysia’s ambitions in artificial intelligence. And the government has pledged at least 25 billion ringgit for the semiconductor industry.

“We are seeing a lot of inbound interest from regional and international clients wanting to discuss opportunities in Malaysia,” said Harry Naysmith, a managing director at Citigroup Inc.’s investment banking unit.

Malaysia, a member of the Association of Southeast Asian nations, has drawn interest as investors consider alternatives to China. The country attracted 83.7 billion ringgit of approved investment in the first quarter, up 13% from a year earlier. More should come, helped by an agreement with Singapore to develop Southeast Asia’s first cross-border special economic zone.

Chinese firms are also branching out and eyeing acquisitions, said Ai Chin Tan, a managing director and head of investment banking for Oversea-Chinese Banking Corp. in Malaysia. Strong links between the two countries make Malaysia a good hunting ground for deals by Chinese firms, particularly in areas such as advanced manufacturing, renewable energy and electric vehicles, she said.

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“Malaysia has prospered through the proliferation of many entrepreneurs who own small-to-mid-sized firms as well as larger companies and conglomerates, presenting good opportunities for M&A,” Tan said.

Now is a favorable time thanks to Malaysia’s recently-achieved political stability and the strong performance of local equities, said Naysmith, who is based in Singapore and focuses on clients in Asean. The FTSE Bursa Malaysia KLCI Index has risen 12% in 2024, outperforming the MSCI Emerging Markets Index, which is up 9.7%. 

“Sponsors have been looking for the right window to exit companies, and with the current economic and political stability, the timing is ripe,” said Naysmith.

Some other countries are still grabbing more international attention due to their size and depth of markets, including India and Japan, where dealmaking activity is booming. South Korea is another busy market, while transactions in Singapore have recently picked up too.

Then there’s the ringgit, which is closely watched by investors and dealmakers as volatility in the local currency impacts transactions. Still, the currency has been resilient recently and is near its strongest in six months. 

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The government plans to build advanced manufacturing capabilities and increase the country’s renewable energy capacity. While initial public offerings are muted globally, share sales in Malaysia this year have risen 35% from a year ago, led by Johor Plantations Group Bhd., according to data compiled by Bloomberg.

“There is a growing pipeline of activity in the country and we should begin to see bigger IPO deals from Malaysia in the next 12-18 months, particularly around government-owned entities and sectors such as consumer, health care, telecom infrastructure and technology,” Naysmith said.

Meanwhile, tycoon Vincent Tan is considering taking private Kuala Lumpur-listed Berjaya Food Bhd., the owner of Starbucks Corp.’s Malaysian business, Bloomberg has reported.

Malaysia, with a population of about 34 million, has attracted private equity firms including CVC Capital Partners Plc, which has invested in areas such as financial services and retail, and TPG Inc. in health care and education.

“With a more stable macroeconomic environment, including interest rates and improving financing conditions, we do expect to see M&A activity remaining strong,” said Tammi Yong, JPMorgan Chase & Co.’s head of investment banking for Malaysia.

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Malaysia is the world’s second-biggest palm oil producer after Indonesia and home to companies including Petroliam Nasional Bhd., known as Petronas, and other industry leaders such as Top Glove Corp., Axiata Group Bhd. and sovereign wealth fund Khazanah Nasional Bhd.

Digital infrastructure assets, particularly data centers, have attracted interest. GDS Holdings Ltd. agreed to sell a stake in its data-center business outside of China, which includes assets in Malaysia, to alternative asset managers Hillhouse Investment and Boyu Capital for $587 million. Last year, DigitalBridge Group Inc. bought a controlling stake in Aims Group from Time Dotcom Bhd. 

“This is likely going to remain a hot topic in the coming years due to Malaysia’s proximity to Singapore and because it has the resources needed to run data centers, including water and electricity,” said Roe Seann Chong, an executive director at Deutsche Bank AG’s investment arm in Malaysia.

”Malaysian corporates with existing diversified operations are also reevaluating their strategy,” Chong said. “Some that have expanded across many countries and sectors may want to re-optimize their operations, creating market leaders in more focused businesses.”

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Axiata plans to merge its telecom operations in Indonesia with conglomerate PT Sinar Mas Group, Bloomberg has reported. AirAsia in April announced a 6.8 billion ringgit deal to create a listed entity that will combine its airline units, with long-haul carrier AirAsia X Bhd. acquiring AirAsia Aviation Group and AirAsia Berhad from sister company Capital A Bhd.

Malaysian firms are also keen to expand abroad via M&A, according to Hsu Jen Chin, who leads investment banking in Malaysia for CLSA Ltd.

“A lot of the corporates that we talk to have overseas expansion aspirations,” she said. “They want to be at the same level as all the other international players and they’re always looking for opportunities to grow.”

—With assistance from Joy Lee.

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