The mainstream media has been trumpeting liberalization measures announced by Prime Minister Datuk Seri Najib Razak at the InvestMalaysia Conference on Tuesday.
Amid the plethora of measures, the one that stands out is removal of the 30% bumiputera quota for companies seeking listing in Malaysia. It is a bold political move indeed, to eliminate this “something for nothing” crutch.
Having said that, the actual impact to bumiputeras is minimal. The pipeline of new listings has hardly been inspiring in recent years. I challenge you to name even one recently-listed prominent company. Also, the policy had been a huge failure in terms of its intention to build bumiputera wealth. PM Najib said RM54bn had been allocated to bumiputeras (I think it is a lot more), but only RM2bn remains. So, bumiputeras kept less than 5% of the amounts allocated to them!
But it is good news, in that it removes a huge impediment to listing. Many owners of successful businesses shied away when told they had to offer 30% of their company to a new “partner” at a large discount. Let’s hope this results in more and better quality listings on Bursa, which would make the stock exchange more attractive and help fuel trading volume.
I am dismayed though, that replacing this 30% quota is another new fund. The RM10bn Ekuinas fund is supposed to invest in “bumiputera companies and entrepreneurs, based on merit”. Such government-run funds have awful records. And what is Ekuinas going to do that existing institutions do not?
A better approach would be to work with the private sector. For example, the government could offer to share the risks of such loans and investments with banks and venture capitalists. It could agree to bear, say, half the losses if the entrepreneurs fail. That way, the process of credit allocation is still primarily private sector driven, which should be more efficient and it saves the government having to build a duplicate infrastructure of officers to administer and monitor the investments.
As for “watch the implementation”, I am referring to the “stern” directives to:
1. Government-investment corporations (GICs) to reduce their stakes in the government-linked corporations (GLCs), in the name of raising free-floats and market liquidity; and
2. The GLCs to divest non-core businesses.
All sensible reasons, and if properly done, will be good for the economy. “Properly” is of course the crucial word. In particular, I want to see:
1. Transparency in the appointments of the brokers and the fees and commissions paid when the GICs reduce their stakes; and
2. Similarly, transparency when the GLCS sell their non-core businesses. Valuations must be fair – the businesses must not be sold at unduly cheap prices to influential parties – and all the costs, including commissions and advisory fees disclosed.
Thursday, July 2, 2009
Thursday, June 25, 2009
Top leaders engrossed in child’s play as economy wanes
Deputy prime minister Tan Sri Muhyiddin Yassin and Khazanah Nasional managing director Tan Sri Azman Mokhtar took time out from their busy schedules on Tuesday to launch Kidzania, a RM50 million “educational theme park from Mexico” that will create 400 jobs, reported the Business Times.
Strip away the usual marketing hyperbole and Kidzania appears to be just a glorified play centre and property development project.
“Theme park” for me conjures visions of acres and acres of space a’la Disneyland and Universal Studios. The Kidzania “theme park” will take up merely 60,000 square feet of space in a new mall. That’s equivalent to about 40 modest terrace (link) houses. Not 40 bungalows or mansions, just normal terrace houses.
Also, the project entails
the construction of a seven-storey new building. Khazanah is in an 80:20 joint-venture with Boustead Holdings to develop this project. Boustead, developer of the Mutiara Damansara area and owner of the Curve mall in Selangor, will build a seven-storey structure to house KidZania (Picture from Malaysia Insider). KidZania needs only two floors of space, Petaling Jaya really does not need another mall. So why build a completely new property?
Furthermore, I am sure the bulk of the 400 jobs will likely be low-skilled and low-paid. Those who have been to Disneyland, whether at your own or taxpayer expense, know most of the jobs are routine, menial and fulfilled by young people on a temporary basis. Hardly highly-skilled and certainly not creatively or intellectually challenging nor highly-paid.
Still, a job is a job, But, in this case, does it warrant the attentions of not one, but two luminaries? None less than our deputy prime minister himself and the MD of Khazanah, who presides over TENS of billions of investments saw it fit to launch this project. In the meantime, tens of thousands of Malaysians are being thrown out of work, the government deficit is expected to hit a high 10% and sorely-needed capital is fleeing Malaysia, just to name a few items of great import.
On the subject of Khazanah and its multi-billion portfolio, I have three key questions:
1) Khazanah, in its own words, is “committed to building a globally competitive Malaysia by developing the right human capital”. What human capital does Kidzania really develop?
2) Why is Khazanah taking such a large 80% stake in this project? I doubt whether children’s play-centres can be considered among the “sectors that are deemed strategic to the nation's economy” that are supposed to be Khazanah’s focus.
3) What is Khazanah’s expected investment return on this project?
Strip away the usual marketing hyperbole and Kidzania appears to be just a glorified play centre and property development project.
“Theme park” for me conjures visions of acres and acres of space a’la Disneyland and Universal Studios. The Kidzania “theme park” will take up merely 60,000 square feet of space in a new mall. That’s equivalent to about 40 modest terrace (link) houses. Not 40 bungalows or mansions, just normal terrace houses.
Also, the project entails
the construction of a seven-storey new building. Khazanah is in an 80:20 joint-venture with Boustead Holdings to develop this project. Boustead, developer of the Mutiara Damansara area and owner of the Curve mall in Selangor, will build a seven-storey structure to house KidZania (Picture from Malaysia Insider). KidZania needs only two floors of space, Petaling Jaya really does not need another mall. So why build a completely new property?Furthermore, I am sure the bulk of the 400 jobs will likely be low-skilled and low-paid. Those who have been to Disneyland, whether at your own or taxpayer expense, know most of the jobs are routine, menial and fulfilled by young people on a temporary basis. Hardly highly-skilled and certainly not creatively or intellectually challenging nor highly-paid.
Still, a job is a job, But, in this case, does it warrant the attentions of not one, but two luminaries? None less than our deputy prime minister himself and the MD of Khazanah, who presides over TENS of billions of investments saw it fit to launch this project. In the meantime, tens of thousands of Malaysians are being thrown out of work, the government deficit is expected to hit a high 10% and sorely-needed capital is fleeing Malaysia, just to name a few items of great import.
On the subject of Khazanah and its multi-billion portfolio, I have three key questions:
1) Khazanah, in its own words, is “committed to building a globally competitive Malaysia by developing the right human capital”. What human capital does Kidzania really develop?
2) Why is Khazanah taking such a large 80% stake in this project? I doubt whether children’s play-centres can be considered among the “sectors that are deemed strategic to the nation's economy” that are supposed to be Khazanah’s focus.
3) What is Khazanah’s expected investment return on this project?
Wednesday, June 24, 2009
The startling lack of integrity at the very top
Should a scholarship defaulter even be considered for the position of director of Petronas, our national oil company?
PM Datuk Seri Najib Razak seems to see no problem. He is reportedly seeking to appoint his special officer, Omar Mustapha, to the board of Petronas. But, the appointment hit a snag when the board of Petronas raised reservations as Omar had reneged on his scholarship obligations.
Omar apparently graduated from Oxford on a scholarship from Petronas in the mid-1990s and worked briefly with the national oil corporation and another government-linked corporation before moving on to join prestigious global consultants McKinsey & Co.
Malaysia Insider carries the article.
Not fulfilling scholarship obligations betrays a lack of integrity and ethics. The scholar owes his fancy degree to contributions from the rakyat. The least he can do is repay that obligation, making good on his debt to the people of Malaysia. Instead, he gallivants of to more lucrative pastures.
Omar can hardly plead financial constraints for reneging on his scholarship commitments. McKinsey consultants are famously well-paid. So, what can the reason be? A misplaced sense of entitlement? Such is the quality of people advising our very top leadership …
PM Datuk Seri Najib Razak seems to see no problem. He is reportedly seeking to appoint his special officer, Omar Mustapha, to the board of Petronas. But, the appointment hit a snag when the board of Petronas raised reservations as Omar had reneged on his scholarship obligations.
Omar apparently graduated from Oxford on a scholarship from Petronas in the mid-1990s and worked briefly with the national oil corporation and another government-linked corporation before moving on to join prestigious global consultants McKinsey & Co.
Malaysia Insider carries the article.
Not fulfilling scholarship obligations betrays a lack of integrity and ethics. The scholar owes his fancy degree to contributions from the rakyat. The least he can do is repay that obligation, making good on his debt to the people of Malaysia. Instead, he gallivants of to more lucrative pastures.
Omar can hardly plead financial constraints for reneging on his scholarship commitments. McKinsey consultants are famously well-paid. So, what can the reason be? A misplaced sense of entitlement? Such is the quality of people advising our very top leadership …
Thursday, June 18, 2009
PKFZ – Should we throw good money after bad?
As it stands, the cost of PKFZ is RM7.5bn.
Where do we go from here? The emotional will say we have spent too much to abandon the project.
But rational, standard investment practice is to look forward. Forget the costs already incurred. They are already sunk. What matters is what you can get in the future. And the future, based on Port Klang Authority’s “optimistic” assumptions is a further outlay of RM8.5bn over the next 42 years. We will start making money only in 2051.
Is it worth it? I can’t imagine any sane businessman, or government, for that matter, embarking on an investment with a 42 year payback period, and that too on optimistic projections.
So, the government really should consider an exit strategy. There are many alternatives for RM8.5bn. RM8.5bn is sufficient to build 340,000 low-cost houses. Or 30,000 students can have full scholarships for overseas studies. Or PLUS and LITRAK can be privatized, saving the government billions in compensation to the toll concessionaires and reducing the burden on motorists.
Transport Minister Ong Tee Keat, who is away in France for unspecified reasons, has characterized the proposal that the government cut losses and close down PKFZ as “a premature statement by politicians who think they can make well-informed financial decisions based on a few hours of looking through the PKFZ report”. He said he will let “the financial consultants and management experts work out a more viable solution based on further in-depth studies before a more structured approach and solution is implemented”.
So, another round of studies and fees. But you can’t conjure money from nothing. The fact is based on Port Klang Authority’s own forecasts, a cashflow deficit to 2051 is projected, and that is based on assumptions deemed ‘optimistic’ by reporting accountants PricewaterhouseCoopers.
The core problem is PKFZ was built too fast and at inflated costs. So you have underutilized facilities and punitive interest payments, including on the instalments due to turnkey developer Kuala Dimensi Sdn Bhd (KDSB). The cost base could be addressed if turnkey developer KDSB is taken to task. I would expect the legal team to comb through the various agreements and find a way to reduce the payments due to KDSB.
Doing so, though, would likely result in KDSB not being able to meet its own debt obligations. Bondholders will scream because these bonds were rated investment-grade “AAA” based on the government “guarantees”. But they can seek redress from the bankers and rating agency. We have established that the “guarantees” were really “letters of support” signed by the Minister of Transport. No doubt, they could be “construed as guarantees” but the Ministry of Transport has no authority to issue government guarantees. Only the Ministry of Finance can do that. Surely the bankers and rating agency were aware of this fact? Without the “guarantee”, the bonds would have warranted a much lower rating.
For newcomers, click here for earlier posts on the PKFZ scandal.
Where do we go from here? The emotional will say we have spent too much to abandon the project.
But rational, standard investment practice is to look forward. Forget the costs already incurred. They are already sunk. What matters is what you can get in the future. And the future, based on Port Klang Authority’s “optimistic” assumptions is a further outlay of RM8.5bn over the next 42 years. We will start making money only in 2051.
Is it worth it? I can’t imagine any sane businessman, or government, for that matter, embarking on an investment with a 42 year payback period, and that too on optimistic projections.
So, the government really should consider an exit strategy. There are many alternatives for RM8.5bn. RM8.5bn is sufficient to build 340,000 low-cost houses. Or 30,000 students can have full scholarships for overseas studies. Or PLUS and LITRAK can be privatized, saving the government billions in compensation to the toll concessionaires and reducing the burden on motorists.
Transport Minister Ong Tee Keat, who is away in France for unspecified reasons, has characterized the proposal that the government cut losses and close down PKFZ as “a premature statement by politicians who think they can make well-informed financial decisions based on a few hours of looking through the PKFZ report”. He said he will let “the financial consultants and management experts work out a more viable solution based on further in-depth studies before a more structured approach and solution is implemented”.
So, another round of studies and fees. But you can’t conjure money from nothing. The fact is based on Port Klang Authority’s own forecasts, a cashflow deficit to 2051 is projected, and that is based on assumptions deemed ‘optimistic’ by reporting accountants PricewaterhouseCoopers.
The core problem is PKFZ was built too fast and at inflated costs. So you have underutilized facilities and punitive interest payments, including on the instalments due to turnkey developer Kuala Dimensi Sdn Bhd (KDSB). The cost base could be addressed if turnkey developer KDSB is taken to task. I would expect the legal team to comb through the various agreements and find a way to reduce the payments due to KDSB.
Doing so, though, would likely result in KDSB not being able to meet its own debt obligations. Bondholders will scream because these bonds were rated investment-grade “AAA” based on the government “guarantees”. But they can seek redress from the bankers and rating agency. We have established that the “guarantees” were really “letters of support” signed by the Minister of Transport. No doubt, they could be “construed as guarantees” but the Ministry of Transport has no authority to issue government guarantees. Only the Ministry of Finance can do that. Surely the bankers and rating agency were aware of this fact? Without the “guarantee”, the bonds would have warranted a much lower rating.
For newcomers, click here for earlier posts on the PKFZ scandal.
Wednesday, June 17, 2009
PKFZ scandal – Printer-friendly report available
The PricewaterhouseCoopers (PwC) report on the PKFZ debacle is now available at Kit Siang’s blog (in the right-hand side panel). This version is more user-friendly and in accordance with the principles of accountability and transparency than the one that was available at the Port Klang Authority (PKA) for 2 weeks only. The PKA version did not allow for hard-copies to be printed.
Reminder: PLUS can be privatized at ZERO incremental cost to the taxpayer
Someone is circulating a story, staying PLUS cannot be privatized because it will “anger East Malaysian Barisan Nasional component parties which control 40% of the coalition.” (Edge Daily June 10)
May I remind you of the DAP proposal to privatize PLUS, at zero cost to the tax-payer, and which we have offered completely free for the benefit of the public. No fees a’la PKFZ.
By the way, the RM8.5bn it will take to keep PKFZ running over the next 42 years is sufficient to privatize PLUS, and Litrak! Based on Port Klang Authority’s own assumptions, which reporting accountants PricewaterhouseCoopers has termed ‘optimistic’, PKFZ will be cumulative cashflow positive only in 2051. I don’t know about you, but I will most likely be dead by then. I would take a toll-free North-South Expressway and LDP which I can enjoy immediately over PKFZ, which may or may not actually make money in 2051.
May I remind you of the DAP proposal to privatize PLUS, at zero cost to the tax-payer, and which we have offered completely free for the benefit of the public. No fees a’la PKFZ.
By the way, the RM8.5bn it will take to keep PKFZ running over the next 42 years is sufficient to privatize PLUS, and Litrak! Based on Port Klang Authority’s own assumptions, which reporting accountants PricewaterhouseCoopers has termed ‘optimistic’, PKFZ will be cumulative cashflow positive only in 2051. I don’t know about you, but I will most likely be dead by then. I would take a toll-free North-South Expressway and LDP which I can enjoy immediately over PKFZ, which may or may not actually make money in 2051.
Sunday, June 14, 2009
Irony: Former chairman of scandal-hit PKFZ launches standards boards!
Deputy Finance Minister Datuk Chor Chee Heung launched Malaysian Institute of Accountant’s new standards boards on June 9.
Datuk Chor had once been chairman of scandal-hit Port Klang Authority (PKA). But, he said, “Other than visiting the PKFZ and receiving reports pertaining to the development of the PKFZ … at every board meeting … I was never involved in any other activities on the PKFZ.” (Edge June 10).
A strangely hands-off approach given that the Auditor-General himself had raised warning points as early as May 2004 and as the cost ballooned 6-fold from under RM2bn to RM13bn and counting … And this man is now Deputy Finance Minister.
Directors are supposed to exercise diligence and oversight, even more so in the case of government bodies like PKA which ultimately belong to the taxpayers. Yet, Datuk Chor seems to think merely receiving reports is sufficient fulfilment of his director duties.
Somewhat ironic then that he officiated at the launch of the Audit and Assurance Standards Board and Ethics Standards Board of the Malaysian Institute of Accountants at no less than the headquarters of the Securities Commission.
“Honesty, integrity, transparency and accountability are the key words in good corporate governance,” said Chor according to the Sun on June 10.
Those words ring hollow in the wake of PKFZ.
Besides fulfillment, or the lack of, of his director duties, Datuk Chor was also in a conflict of interest situation. Reporting accountants PricewaterhouseCoopers noted Datuk Chor was also deputy chairman of Wijaya Global Sdn Bhd, which was linked to a key beneficiary of contracts signed with PKA when he was PKA chairman.
Datuk Chor had once been chairman of scandal-hit Port Klang Authority (PKA). But, he said, “Other than visiting the PKFZ and receiving reports pertaining to the development of the PKFZ … at every board meeting … I was never involved in any other activities on the PKFZ.” (Edge June 10).
A strangely hands-off approach given that the Auditor-General himself had raised warning points as early as May 2004 and as the cost ballooned 6-fold from under RM2bn to RM13bn and counting … And this man is now Deputy Finance Minister.
Directors are supposed to exercise diligence and oversight, even more so in the case of government bodies like PKA which ultimately belong to the taxpayers. Yet, Datuk Chor seems to think merely receiving reports is sufficient fulfilment of his director duties.
Somewhat ironic then that he officiated at the launch of the Audit and Assurance Standards Board and Ethics Standards Board of the Malaysian Institute of Accountants at no less than the headquarters of the Securities Commission.
“Honesty, integrity, transparency and accountability are the key words in good corporate governance,” said Chor according to the Sun on June 10.
Those words ring hollow in the wake of PKFZ.
Besides fulfillment, or the lack of, of his director duties, Datuk Chor was also in a conflict of interest situation. Reporting accountants PricewaterhouseCoopers noted Datuk Chor was also deputy chairman of Wijaya Global Sdn Bhd, which was linked to a key beneficiary of contracts signed with PKA when he was PKA chairman.
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