Not a Renong 2.0, please

Khazanah should not be forced to dispose of assets to individuals

M Shanmugam, The Star

PRIME Minister Tun Dr Mahathir Mohamad commanded the support of the majority in forming a new Malaysia. A sizeable number in government-linked companies (GLCs) were and are still with the 93-year-old prime minister in his mission to reform the government and reduce excesses.

But his plan to change the way some GLCs and their parent company work would not draw the same support as he had garnered during the 14th general election.

Corporate Malaysia still remembers what went wrong during Dr Mahathir’s previous reign as Prime Minister.

In an interview with a foreign online news portal, Dr Mahathir did not hide his disdain for the remuneration that executives in GLCs receive.

He also said that the ownership of companies under Khazanah was supposed to be only temporary on behalf of bumiputras but has become a permanent feature in the sovereign wealth fund (SWF).

If one remembers Malaysia’s corporate history, one of the reasons Khazanah has evolved in the last 15 years to become what it is today is because of the failed strategies to increase bumiputra equity ownership previously.

In the early days, bumiputra individuals were given shares in companies during listing. But the individuals sold out when the prices appreciated.

Hence, no matter how many new shares bumiputra individuals were allocated, the share of ownership in listed companies failed to meet the 30% target set by the government.

Then, the government adopted the strategy to create bumiputra “champions” by giving individuals opportunities in business.

The individuals, known as the coterie of corporate kingpins groomed by former Finance Minister Tun Daim Zainuddin, controlled large companies such as Renong Bhd, TRI Resources Bhd that owned Celcom, Malaysia Airlines Bhd (MAS) and Land & General Bhd. Their corporate ownership of these companies contributed to the increase in bumiputra ownership among listed companies.

When Datuk Seri Anwar Ibrahim took over as Finance Minister in 1991, he had his own set of bumiputra “champions”. They controlled the likes of Malaysian Resources Corp Bhd (MRCB) and the media companies under Umno.

The 1998 economic crisis was a watershed year for corporate Malaysia. Many companies fell under the weight of debt and exposure to the sudden depreciation of the ringgit.

The majority of companies owned by bumiputra “champions”, despite being awarded the best of government contracts and concessions from toll highways to power plants, succumbed under the weight of debts.

The individuals owning the companies relied on the stock market to get funding for their ownership of shares. When the stock market collapsed in 1997/98, it was a double whammy for the bumiputra champions. They were in trouble individually and so were their companies.

Worse still, the companies severely lacked corporate governance, something that did not go down well with both local and foreign investors. There were several instances where the major shareholders had violated basic rules of governance for their benefit or for those close to them.

It was a drag on the stock market as a whole.

In stepped Khazanah to take over the assets of the companies owned by the bumiputras. Among them were the likes of Renong, MAS and TRI, which is now part of Axiata Group Bhd.

The Employees Provident Fund (EPF) landed a majority stake in MRCB, while Boustead Holdings Bhd took over PSC Industries Bhd.

The takeovers were deemed as necessary because these companies held national assets and were viewed as “too big to fail”. Also, companies such as Renong, although asset-heavy, had debts of RM20bil and were viewed as posing a systemic risk to the banking system.

After taking over the assets, Khazanah led a 10-year programme to re-engineer the GLCs starting from 2005. Governance improved by leaps and bounds and professional managers were brought in to manage the companies.

The net worth of companies under Khazanah was RM125.6bil as of the end of last year. It has been declaring dividends to the government as and when the government requires it. Unlike some of the SWFs within Malaysia and neighbouring countries, Khazanah has not gone into disastrous investments.

There are no scandals like what happened in 1Malaysia Development Bhd.

There are some tough investments such as those in MAS and Proton Holdings Bhd, both legacy assets. Khazanah has disposed of Proton while the airline is slated for a listing within the next two years despite the tough environment it operates in.

On the same score, Khazanah has nurtured several regional companies such as Axiata, IHH Healthcare Bhd and the CIMB group.

It has a large team looking at investments in technology and some have reaped benefits such as its stake in Alibaba.

Khazanah is also an employer to a host of young and talented bumiputras who would otherwise not easily find opportunities to gain experience in the corporate world.

As a policy, most Khazanah companies such as Tenaga Nasional Bhd restrict the award of jobs to only companies that are majority bumiputra-owned.

So, the wealth is distributed to a whole lot of bumiputra companies instead of being concentrated with individuals.

The grouses against Khazanah are that it is slow in disposing of its assets to the private sector and that the professional managers are too highly paid.

The view among some such as Daim is that the success of companies under Khazanah is due in part to the government and that the professional managers should not earn real “private sector” salaries.

To rectify the problem, the new government can set a benchmark on what is the acceptable level of remuneration the executives in GLCs they want to retain should earn. The choice should be left to the executives if they want to stay on.

There could be many who want to opt out. And hopefully, the replacements are just as good or better.

As for Khazanah’s disposal of assets, there are some basic principles that the SWF has adhered to so far.

Firstly, the acquirer has to be a company that is majority-controlled by a bumiputra. Secondly, the disposal exercise has to go through a competitive tender process.

So far, among others, Khazanah has sold its stakes in Time dotCom Bhd, Proton and Pharmaniaga Bhd.

Among the notable assets of Renong and the UEM Group that Khazanah took over and still holds are the PLUS highways, a cement plant, a property and construction arm and a company that provides environmental services,

The gem is obviously PLUS Expressways Bhd that has drawn interest from a few parties in the past. But its disposal is something that the government has to consider carefully because the highways are an essential part of the national transport system.

Khazanah currently owns 51% of PLUS Expressways, with the EPF owning the other 49%. Whatever benefits PLUS Expressways derives, it goes back to the government and members of the provident fund.

One must remember that toll rates for the national highway have not been increased since 2008 despite PLUS Expressways putting in several requests. It, however, got extensions to the concessions.

Taking cognisance of the fact that the Pakatan Harapan government wants to abolish toll rates, Khazanah would have a proposal on how to achieve the objectives of the new government. It would not harbour any hopes for toll rate hikes now.

Nevertheless, should PLUS Expressways fall into the hands of individuals or private companies, would the government be able to exert influence on the company? Would it garner the same confidence from bankers should there be a freeze or removal of toll rates?

The new government should not force Khazanah to dispose its assets. By merely stating that Khazanah was supposed to hold the assets on behalf of bumiputras is not good enough because that was never the case to begin with.

The assets had to be taken over using taxpayers’ money post the 1998 crisis because these companies and their owners were deemed as “too big to fail”.

The disposal, if any at all, should be for the greater good of the bumiputras in the new Malaysia as a whole and not to benefit any individuals. The return of crony capitalism is something that is not desired.

The last thing we need now is to go back to the old ways of creating another Renong-styled company owned by individuals with sweetheart deals aided by lop-sided contracts.