Short Position – PSPC Rules, Digital Currency, CPO Request

New SPACO rules It was known for a long time that the rules which allowed the listing of ad hoc acquisition companies or SAVS had certain weaknesses.

Since SPACs or cash shells were first introduced to the Malaysian capital market in 2009, a rule required 75% of uninterested shareholders to approve the first PSPC transaction, known as a qualifying acquisition or QA.

However, this rule inadvertently led to a situation where some opportunistic investors were buying PSPC shares and trying to appeal to management to lend their support to vote for QA.

There were also situations where funds would buy shares of the SAVS if they were less than their cash value, and choose to reject QA as that would mean distributing all that money to shareholders.

This was easy to accomplish when the QA voting threshold was 75%.

Finally, the Securities Commission (SC) announced this week that the rules are changed to require only a simple majority of shareholders to vote in favor of QA, which would make it much more difficult for opportunistic investors to achieve their goals. exploits on PSPCs.

There are other improvements to the rules, including allowing SPACs to issue new shares to pay for QA (as opposed to the current cash-only rule) and obtain additional funding through private placements for the AQ. This is also a lowering of the minimum amount of funds required to be raised by a PSPC to RM100mil from RM150mil.

However, one area where more clarity is needed concerns the more subjective criteria that are used when evaluating SPAC, as some of those who have already lived the experience feel that there is a lack of standardization of the rules in the process. this approval process.

Caution on digital currency

The growing interest in cryptocurrency has raised the question of whether central banks should consider issuing official digital currencies or central bank digital currency (CBDC).

While several central banks around the world are already at an advanced stage of developing their own CBDCs, Malaysia is taking a cautious step in this direction.

Deputy Finance Minister II Yamani Hafez Musa said on Wednesday that Bank Negara had no immediate plans to issue CBDC.

This is because national payment systems, including the Real-Time Retail Payment Platform (RPP), are able to continue to operate securely and efficiently to meet economic needs and enable payments. digital in real time.

However, Bank Negara will actively assess the potential value proposition of the CBDC in light of developments in digital assets and payments.

While it appears central banks are leaning more into the CBDC given its potential benefits such as faster settlement and easier accessibility, it is not without its risks.

On the one hand, CBDC is vulnerable to cybersecurity attacks, account and data breaches and theft, counterfeiting and even more distant challenges of quantum computing, according to the World Economic Forum.

And depending on how the CBDC is deployed, this may have implications for monetary policy and the financial system.

If there was a large transfer of bank deposits to the CBDC, for example, it could undermine the financing of commercial bank deposits and potentially affect the supply of credit to the economy.

More importantly, CBDC’s issuance shouldn’t be just for the purpose of keeping up with the digital trend.

It needs to have solid use cases and be ubiquitous to deliver real value.

Bank Negara believes that issuance of CBDCs should complement existing payment instruments, including physical cash, to ensure that all Malaysians, especially underserved communities, have continued access to safe and secure payment solutions and effective.

With a lot to consider, the decision to issue a CBDC, really, shouldn’t be rushed.

CPO demand in jeopardy

HISTORICALLY, Crude Palm Oil (CPO) has often traded for less than US $ 100 and US $ 150 (RM 421.05 and RM 631.57) per tonne compared to its close competitor, the Soya oil.

However, the current bullish CPO prices have seen the commodity now trading at a premium of around $ 13 (RM 54.74) per tonne against soybean oil, compared to $ 25 (RM 105.26). per ton last month.

This latest development raises concerns that short-term demand for palm oil is threatened in major importing countries such as India and China.

palm oil factorypalm oil factory

Export demand is also the key to ensuring the profitability of the domestic oil palm industry in the first quarter of 2022, especially with the projected higher production from December 2021.

However, the narrowing price differentials between soybean oil and palm oil suggest that buyers of palm oil may switch to soybeans or other edible oils in the short term.

This is especially true for price-sensitive countries such as India, which is also the world’s largest importer of palm oil.

Palm oil traditionally accounts for around two-thirds of India’s annual edible oil imports between 13 million and 15 million tonnes, mostly from Malaysia and Indonesia.

In 2020, India maintained its position as the largest Malaysian palm oil export market for the seventh year since 2014, with 2.75 million tonnes or 15.8% of total palm oil exports. Malaysian.

China is next with 2.73 million tonnes and the European Union (EU) with 1.94 million tonnes.

Another concern is the European Commission in its Agricultural Outlook 2021-2031, which forecast that palm oil imports into the EU are expected to drop to four million tonnes by 2031, from 6.5 million in 2021.

This is well reflected in Malaysia’s palm oil exports in the first 11 months of 2021 to the EU, which fell 18.2% year-on-year to 1.5 million tonnes.

On the other hand, the weak demand factor could push local palm oil stocks to over two million tonnes by early 2022, putting downward pressure on the price of CPO.

Other factors to watch out for include the delay in the global economic recovery due to the protracted Covid-19 pandemic as well as unfavorable government policies, which could also affect demand for palm oil next year.

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