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Business trends

Most SE Asian companies plan divestments over next 24 months

Rapid developments in technology have led to business model adjustment

The majority of divestments are happening in Malaysia.   © Reuters

SINGAPORE -- There is a strong intention among Southeast Asian companies to divest parts of their businesses, with rapid technological developments putting pressure on them to change existing business models in order to remain competitive, according to a report released by consultancy firm EY on Monday.

The report found that Southeast Asia's divestment appetite has more than doubled, from 26% of companies in 2017, to 88% which are planning divestments over the next 24 months.

More than two thirds of companies surveyed said their decision to divest was "directly influenced by the evolving technological landscape." Over half of the respondents said they would use the proceeds from divestments to improve operating efficiency and address the changing needs of customers in their core businesses.

The report was based on more than 900 interviews with corporate executives and 100 private equity executives globally, including over 70 in Southeast Asia. It focuses on how companies approach their portfolio strategy and improve their divestment execution.

Abhay Bangi, transaction advisory services partner of Ernst & Young Solutions, noted that the industries that were likely to divest in Southeast Asia included "capital intensive" sectors such as real estate and resources.

The majority of divestments are happening in Malaysia, "more than anywhere else in the region," according to Bangi. Institutional investors in Malaysia, he noted, were "playing the role of shareholder activists and are pushing for stronger corporate governance and focusing on extracting value."

"There's a need to reduce complexity while at the same time require expertise or new management style for certain business units," he said.

Malaysia has already seen a wave of divestments in March. Hap Seng Consolidated, a Malaysia-based plantation-to-automotive conglomerate, said this month that it planned to sell its financial services unit for $196.50 million (771.16 million ringgit) and dispose of a 20% stake in a money lending unit for 906 million ringgit. Malaysia airline AirAsia also announced this month plans to sell its cargo and food businesses as well as its stake in travel booking website Expedia as part of efforts to shed non-core assets.

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