On 30 March 2026, the Securities Commission Malaysia (“SC”) revised its Guidelines on Unlisted Capital Market Products under the Lodge and Launch Framework (“UCMP Guidelines”, commonly the “LOLA Guidelines”) to introduce private debt notes and Islamic private debt notes. The revision recasts Part 5 of Section B, previously confined to convertible notes, into a broader regime accommodating both convertible and non-convertible debt issued by private companies to specified sophisticated investors. Notwithstanding its familiar-sounding name, a private debt note is a distinct regulatory construct[1] situated within the wider category of “corporate bonds”, and by extension “debentures”, under the Capital Markets and Services Act 2007 (“CMSA 2007”).

The amendment advances the SC’s Capital Market Masterplan 2026-2030 (“CMP4”) objective of widening access to the debt capital market for micro, small and medium enterprises (“MSMEs”), for which a conventional bond or sukuk issuance is often structurally impractical or prohibitively costly, and of developing the private credit ecosystem as a distinct asset class. For private companies and fund managers, the significance lies in the substance: the revised Part 5 opens a compliant route to straight, non-dilutive debt financing, subject to the funding being confined to eligible investors.

The Revised Part 5 Regime

The lodge and launch framework in brief

Private debt notes are regulated under the UCMP Guidelines, which govern the offering of unlisted capital market products to sophisticated investors. Each product occupies a dedicated Part under Section B of the guidelines. Consistent with the design of this framework, a qualifying product is lodged with the SC and launched (that is, offered or issued for subscription or purchase) without formal authorisation, provided the requirements applicable to its category are satisfied.[2]

The Part 5 exemption regime

Part 5 of Section B houses a lighter-touch regime for a defined subset of corporate bonds and sukuk. An issuance falling within it is relieved of the requirements that Part 3 of Section B otherwise imposes on corporate bonds and sukuk: the appointment of principal advisers, a credit rating and trustees, and the continuing obligations owed to bond or sukuk holders ( “Part 5 Exemption Regime”).[3] Prior to the 2026 amendment, the exemption regime was a narrow carve-out, available only in respect of convertible corporate bonds and sukuk offered to venture capital (“VC”) and private equity (“PE”) firms registered with the SC.

Expansion of the category

The 2026 revision widens the category in two respects. First, the permitted instrument now extends beyond convertible notes to straight, non-convertible debt. Second, the class of eligible investors is enlarged beyond registered VC and PE firms to encompass VC and PE funds, wholesale funds and fund management companies[4]:

In one respect, however, the regime narrows. Whereas the earlier wording contemplated issuance by “corporations”[5] generally, the revised definition confines the issuer to a “private company”. The net effect is a wider instrument and a wider investor base, but a narrower class of eligible issuers, which may now raise straight debt without the conversion feature that was previously a strict requirement.

Conditions of the exemption

To qualify, an issuance must satisfy each of the prescribed conditions below:

• 1. issued solely to eligible investors;
• 2. not tradable;
• 3. transferable only among eligible investors; and
• 4. any conversion right is limited to shares of the issuer.[6]

These conditions are cumulative. An issuance departing from any of them falls outside Part 5 and attracts the full corporate bond and sukuk requirements. As the regime does not presently accommodate a programme structure of the kind available to corporate bonds or sukuk under Part 3, each lodgement should be regarded as a one-off standalone issuance.[7]


Procedural and continuing requirements

Where the exemption applies, the issuer lodges the requisite information and fees[8] with the SC, furnishes subscribers with the lodgement acknowledgement, and issues the notes within 90 business days of lodgement; an Islamic issuance must additionally observe the Guidelines on Islamic Capital Market Products and Services.[9] Apart from clearly articulating the intended use of funds at the time of issuance, any lodgement must also be accompanied by disclosures extending to substantial shareholders, directors, conflicts of interest and specified antecedents.[10]

On the investor side, the participant acquiring the notes must maintain standalone risk management policies[11] and notify the SC of its intention to invest beforehand.[12] The timing of that notice depends on how the investment is made:

• • a fund management company investing through a wholesale fund, before lodging the fund;
• • a fund management company investing under an investment mandate, before entering into the mandate with the issuer; and
• • a VC or PE firm, before deploying its fund’s committed capital.

The compliance burden here also falls on the issuer: the lodgement form requires it to record the date of each such notice.[13]

The “Ordinary Lending” Grey Area

Part 5 regulates a private debt note as a debenture, and so as a capital market product subject to the SC’s oversight. An ordinary bilateral loan is not a debenture and falls outside that perimeter entirely.[11] Between the two lies a grey area, and it is there that the 2026 amendment may have an unintentional effect.

A direct-lending fund does not always know on which side of the line a given advance falls. Where its lending is not clearly in the ordinary course, or where it takes a note rather than documenting a conventional bilateral loan, the arrangement may or may not amount to a debenture. If it does, the issuance must meet the full corporate bond requirements of Part 3 unless it can be brought within the Part 5 exemption; if it does not, no capital market regulation applies at all. Faced with that uncertainty, the safer course is often to lodge under Part 5. In our view, an exemption meant to ease private debt issuance may thus widen the regulatory net, drawing arrangements that might otherwise have passed as ordinary, unregulated loans into the lodgement regime.

Conclusion

The introduction of private debt notes marks a meaningful step in the development of Malaysia’s private credit ecosystem. By expanding the former convertible notes framework to accommodate straight debt instruments and a wider pool of institutional investors, the SC has created a more practical route for private companies, particularly MSMEs, to access non-dilutive financing without the full cost and complexity of a conventional bond or sukuk issuance. However, the framework is not a free-standing shortcut: it remains a regulated capital market route, confined to eligible investors, subject to specific transfer and issuance conditions, and dependent on proper lodgement and disclosure. For issuers and fund managers, the opportunity lies in using this new framework thoughtfully as a flexible financing tool, but one that still demands careful structuring, regulatory discipline and robust credit risk management.

[1]Distinct from “private debt securities”, the previous name of “corporate bonds”. The terminology change was effected in 2016 across all SC guidelines and publications.

[2]Section 212(8) read with paragraph 1, Part 1, Schedule 5 of the CMSA 2007.

[3]The exemption relieves a qualifying issuer of the obligation to identify all responsible parties in the product’s lifecycle and to have those parties declare their respective roles (paragraphs 3.04, 3.05, 3.06 and 3.08 of Part 1, Section A of the UCMP Guidelines), and of the whole of Part 3, Section B (the specific requirements applicable to corporate bonds and sukuk, including principal advisers, credit rating, trustees where applicable, and continuing obligations to holders).

[4]Paragraph 1.01, Part 5, Section B of the UCMP Guidelines.

[5]“Corporation” is defined under the CMSA 2007 to include any body corporate formed or incorporated within or outside Malaysia, including any foreign company, but generally excludes government agencies, corporations sole, societies and trade unions.

[6]Paragraph 2.01, Part 5, Section B of the UCMP Guidelines.

[7]Paragraph 2.02(2)(a), Section 2, Part 5 of SC’s revised Lodgement Kit: Unlisted Capital Market Products under the Lodge and Launch Framework (“Lodgement Kit”). The Part 5 Exemption Regime does not presently accommodate debt notes with a programme structure; such an issuance would attract the full corporate bonds and sukuk requirements.

[8]Minimum RM10,000 and tiered by size, with the SC granting a 20% fee reduction during the 2026-2028 transitional period (“Intro” tab of the SC prescribed lodgment form for private debt notes (“Lodgement Form”)).

[9]Paragraph 1.03, Part 5, Section B of the UCMP Guidelines.

[10]Disclosure extends to shareholders holding more than 5% of issued shares, directors’ identification details, conflict of interest situations (with the board’s agreement to proceed on mitigating measures), any convictions or charges involving fraud or dishonesty against the issuer or its board within the preceding 10 years, and any stock exchange enforcement action against the issuer within the preceding 5 years (“CorpInfo” and “Disclosures” tabs of the Lodgement Form; paragraph 2.02(3), Section 2, Part 5 of the Lodgement Kit).

[11] Paragraph 9.07A of the SC’s revised Guidelines on Compliance Function for Fund Management Companies (“FMC Guidelines”) and paragraph 9.01A of the revised VCPE Guidelines. The policies must take the form of a standalone document, which need not be lodged, though the SC may request further information.

[12] Paragraph 9.07B of the FMC Guidelines and paragraph 9.01B of the VCPE Guidelines.

[13]Section 2(1) of the CMSA 2007. “Debenture” includes debenture stock, bonds, notes and any other evidence of indebtedness of a corporation for borrowed monies, whether or not secured on its assets, subject to the statutory exclusions for trade debts, banking and payment instruments, and ordinary bilateral loan arrangements. An ordinary bilateral loan agreement is not, on its own, a debenture.

About the authors

Shaun Lee Zhen Wei
Principal Associate
Corporate & Investor Services
Halim Hong & Quek
shaun.lee@hhq.com.my

.

Sherzanne Lee
Senior Associate
Corporate & Investor Services
Halim Hong & Quek
sz.lee@hhq.com.my

.

Carmen Lee Kar Mun
Associate
Corporate & Investor Services
Halim Hong & Quek
carmen.lee@hhq.com.my

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