Understanding Use of Proceeds
Learn how to evaluate what a company plans to do with the money raised from its IPO, and why it matters for your investment decision.
Published 2026-06-26
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Understanding Use of Proceeds
The Use of Proceeds section is one of the most critical parts of a Bursa Malaysia IPO prospectus. It serves as a financial roadmap, detailing exactly how the company intends to spend the capital raised from investors.
Before committing your funds, analyzing this breakdown helps you determine whether the company is raising capital to grow, to clean up its balance sheet, or to simply fund day-to-day survival.
Key Allocation Categories
In a Malaysian prospectus, the utilization of proceeds is typically categorized into four main areas:
| Category | Typical Uses | Strategic Value |
|---|---|---|
| Capital Expenditure (Capex) | Factory construction, purchasing machinery, geographical expansion, tech infrastructure. | High Growth — Directly increases production capacity and revenue potential. |
| Repayment of Borrowings | Settling outstanding bank loans and credit facilities. | Balance Sheet Cleanup — Reduces gearing ratio and finance costs (interest payments). |
| Working Capital | Raw materials, inventory, marketing campaigns, day-to-day operational staff salaries. | Operational Fuel — Necessary for scaling, but should not absorb the majority of funds. |
| Listing Expenses | Professional fees (advisers, auditors, lawyers), underwriting fees, printing, and regulatory charges. | Frictional Cost — Unavoidable cost of going public. Typically ranges from 5% to 10%. |
Evaluating the Allocation Mix
There is no single "perfect" allocation, but the proportion of funds dedicated to each category tells a clear story about the company's current stage and immediate priorities.
1. The Expansion Story (Capex-Heavy)
A growth-oriented company will typically allocate 50% or more of its proceeds to Capex. This indicates a forward-looking strategy where management is investing in physical or digital assets to scale the business.
- What to verify: Look at the utilisation timeline in the prospectus. Ensure the expansion plans have concrete start dates and realistic completion timelines (typically 12 to 24 months).
2. The Debt Reduction Story (Borrowings-Heavy)
It is common for companies to allocate a portion of proceeds to pay off bank borrowings. In high-interest-rate environments, reducing debt immediately boosts the company’s net profit margin by lowering interest expense.
- What to verify: Compare the interest savings against the company's historical earnings. If a company allocates 80%+ to debt repayment, it may suggest they are listing out of financial distress rather than growth opportunities.
3. The Working Capital Buffer
Working capital is essential for support, but it should align with expansion. If a company raises RM 30 million and designates RM 20 million to working capital without specific details, it raises questions about management's strategic plans.
Typical Allocation Example
Here is a standard, healthy utilization table for a manufacturing company listing on the ACE Market:
| Purpose of Utilisation | Estimated Timeline | Amount (RM '000) | Percentage (%) |
|---|---|---|---|
| Construction of new warehouse | Within 24 months | 18,000 | 45.0% |
| Purchase of automated machinery | Within 18 months | 10,000 | 25.0% |
| Repayment of term loans | Within 6 months | 6,000 | 15.0% |
| General working capital | Within 12 months | 3,500 | 8.75% |
| Estimated listing expenses | Immediate | 2,500 | 6.25% |
| Total Estimated Proceeds | — | 40,000 | 100.0% |
This structure shows a balanced, growth-oriented allocation: 70% goes directly into scaling capacity (warehouse + machinery), while debt repayment and listing costs remain at reasonable thresholds.
Investor Checklist
When analyzing the Use of Proceeds table on ipotracker.my, run through these checks:
- Check the Interest Savings: If a large portion goes to debt repayment, look for the estimated interest savings in the prospectus. Reducing debt immediately cuts down interest expenses, boosting the company's future profitability once listed.
- Review the Timeline: Is the company planning to sit on the cash for 36+ months? Delayed utilization drags down return on equity (ROE).
- Audit the Listing Expenses: Listing expenses are sunk costs. For smaller IPOs, ensure these expenses do not exceed 10%–12% of the total fundraise.