The two most powerful positions in corporate management are of chief executive officer (CEO) and chief financial officer (CFO). The CEO is the boss and sets overall direction. The CFO controls the purse-strings.
Quite often good CEOs and CFOs will disagree. CEOs by nature and expectation have to seek new growth opportunities to expand corporate profits. They would tend to emphasise the rewards over the risks. CFOs are entrusted with financial stewardship. And when it comes to stewardship, being conservative and risk-averse are the preferred traits.
So, that’s how it works in the corporate world. No reasonable board of directors would countenance the CEO also holding the CFO position. There is just too much at stake to have one person holding the two most senior positions.
That’s also how it’s supposed to work in government. The prime minister leads and the finance minister tells him what the government can afford. Perhaps the most celebrated such pair in recent history was telegenic British prime minister Tony Blair and dour Chancellor Gordon Brown.
Over here in Malaysia though, no eyebrows are raised that the prime minister is also the finance minister. This practice began during prime minister Mahathir’s tenure, was continued by Abdullah Badawi and now Najib has continued the practice.
This might explain the deteriorating state of government finances. By 2009, we would have run 12 consecutive years of budget deficits. Our federal government debt alone is expected to reach RM414bn in 2009. This is more than double the RM206bn level nine years ago in 2000.
Put in other ways:
1. Federal government debt today is more than half the size of our entire RM741bn economy.
2. This is a burden that our youth will have to repay. The debt is equivalent to RM20,700 per person, based on about 20m youths (defined as Malaysians aged 39 and below.
Note that the actual debt burden is higher. The RM414bn number excludes debt incurred by other government-linked corporations (GLCs) such as PLUS Expressways and Tenaga Nasional. Other countries which have not embarked on extensive privatisation programmes incur road construction and electrification costs as part of their national budgets. PLUS and Tenaga alone among the GLCs have RM33.3bn of borrowings – equivalent to 8% to the federal government debt. On top of that, there is borrowing by other government-linked entities such as Syarikat Perumahan Nasional Berhad (SPNB), Putrajaya Holdings Sdn Bhd …..
Even more concerning is that we incurred the increasing debt even while we reaped the windfall gains from high oil prices. More in my up-coming book ….
Wednesday, September 2, 2009
Wednesday, August 26, 2009
Independence
Merdeka Day is just around the corner. Here is food for thought from Xanana Gusmao, fighter for independence and the first president of East Timor:
“Independence for East Timor has never been an end in itself but rather is a means. True independence is the recognition of the freedom of others, is the respect for the supreme interests of populations, is the respect for the most basic human rights, is the fundamental right of peoples to determine their own destiny.
When independence is only a trampoline for rulers to enrich the families of a parasitical elite, with the confiscation of peasant lands, and with total disregard and indifference for the miserable living conditions of workers, when independence blinds rulers, greedy for their own well-being and the profits of their grandchildren’s grandchildren and who set the country’s doors wide open for the invasion of international monopolies that ruthlessly destroy the environment, when independence denies the citizens the freedoms to express, to assemble, to organize and to question; when all this happens in a country with its own flag and president, the independence is but a luxurious reality for only a few, and a nightmare for millions of others ….”
Letter from the Commandant, an excerpt of a speech written by Xanana Gusmao while imprisoned in Cipinang, July 1995.
The above is taken from “The Truth and What to Do With It”, Off the Edge, Apr 09.
“Independence for East Timor has never been an end in itself but rather is a means. True independence is the recognition of the freedom of others, is the respect for the supreme interests of populations, is the respect for the most basic human rights, is the fundamental right of peoples to determine their own destiny.
When independence is only a trampoline for rulers to enrich the families of a parasitical elite, with the confiscation of peasant lands, and with total disregard and indifference for the miserable living conditions of workers, when independence blinds rulers, greedy for their own well-being and the profits of their grandchildren’s grandchildren and who set the country’s doors wide open for the invasion of international monopolies that ruthlessly destroy the environment, when independence denies the citizens the freedoms to express, to assemble, to organize and to question; when all this happens in a country with its own flag and president, the independence is but a luxurious reality for only a few, and a nightmare for millions of others ….”
Letter from the Commandant, an excerpt of a speech written by Xanana Gusmao while imprisoned in Cipinang, July 1995.
The above is taken from “The Truth and What to Do With It”, Off the Edge, Apr 09.
Sunday, August 23, 2009
Danajamin – multi-billion losses in the making?
The Star on 19 August reported Danajamin Nasional Bhd, the national financial guarantee insurer, has received 2 applications for credit enhancements to raise RM8.4bn of bonds.
Danajamin was set up in May 2009, as part of the “RM60bn” stimulus package announced by the government in March, to ensure that businesses continued to have access to bond market financing.
Here’s what an interested reader says:
“This Danajamin is a disaster waiting to happen.
Bank Negara governor Tan Sri Dr Zeti says "it provides credit enhancements for viable corporations to raise financing from the bond market". But in that, there is a contradiction. If it is viable, then why need enhancements?
This sort of credit enhancement features are typically for bad companies, which cannot access the loan or the bond markets by themselves. The REASON they cannot access these 2 markets is because they are NOT credit worthy.
Banks are experts in credit analysis. In fact, that is the bread-and-butter of lending-based banking. If the banks themselves, who are experts, deem the companies not suitable for loans, then what extra expertise or knowledge does Danajamin have to decide to bear that risk?
There are 9 local banks in Malaysia, 3 Arab banks, 2 Spore banks and 4-5 foreign banks (HSBC, ABN, StanChart etc etc). Collectively, 20 banks can’t be wrong, and Danajamin correct. Secondly, since these companies are not credit worthy, they are prone to default if there is any downturn in the economy.
As such, Danajamin will be laden with non-performing loans (NPLs). Banks have the means to monitor and modify NPLs. How will Danajamin do so?
As I said above, unless Danajamin can claim that they have a better form of credit enhancement than all the 20 banks in the system and that their risk management of potential and actual NPLs is also superior, this is a disaster waiting to happen. Assuming a 20% NPL rate of MYR 18.4 billion is a massive number. Let us cross our fingers that there is no double dip recession in the US.”
To which I would add, Dr Zeti herself was quoted as saying, ““The recent narrowing of spreads between benchmark issuances and triple A rated papers indicates that risk aversion has now eased,” and demand for higher-yielding securities was also beginning to rise, ahead of the recovery in the global economy.
Danajamin might have been justified when markets were frozen. But if markets are recovering and functioning again, it has no raison d’etre.
Note that the RM8.4bn was just for two deals – so we’re talking a massive RM4.2bn size per issue. From my experience, any issue of this size would would be inundated with bankers vying for a slice of the action – for the sizeable fees and the bragging rights.
Danajamin was set up in May 2009, as part of the “RM60bn” stimulus package announced by the government in March, to ensure that businesses continued to have access to bond market financing.
Here’s what an interested reader says:
“This Danajamin is a disaster waiting to happen.
Bank Negara governor Tan Sri Dr Zeti says "it provides credit enhancements for viable corporations to raise financing from the bond market". But in that, there is a contradiction. If it is viable, then why need enhancements?
This sort of credit enhancement features are typically for bad companies, which cannot access the loan or the bond markets by themselves. The REASON they cannot access these 2 markets is because they are NOT credit worthy.
Banks are experts in credit analysis. In fact, that is the bread-and-butter of lending-based banking. If the banks themselves, who are experts, deem the companies not suitable for loans, then what extra expertise or knowledge does Danajamin have to decide to bear that risk?
There are 9 local banks in Malaysia, 3 Arab banks, 2 Spore banks and 4-5 foreign banks (HSBC, ABN, StanChart etc etc). Collectively, 20 banks can’t be wrong, and Danajamin correct. Secondly, since these companies are not credit worthy, they are prone to default if there is any downturn in the economy.
As such, Danajamin will be laden with non-performing loans (NPLs). Banks have the means to monitor and modify NPLs. How will Danajamin do so?
As I said above, unless Danajamin can claim that they have a better form of credit enhancement than all the 20 banks in the system and that their risk management of potential and actual NPLs is also superior, this is a disaster waiting to happen. Assuming a 20% NPL rate of MYR 18.4 billion is a massive number. Let us cross our fingers that there is no double dip recession in the US.”
To which I would add, Dr Zeti herself was quoted as saying, ““The recent narrowing of spreads between benchmark issuances and triple A rated papers indicates that risk aversion has now eased,” and demand for higher-yielding securities was also beginning to rise, ahead of the recovery in the global economy.
Danajamin might have been justified when markets were frozen. But if markets are recovering and functioning again, it has no raison d’etre.
Note that the RM8.4bn was just for two deals – so we’re talking a massive RM4.2bn size per issue. From my experience, any issue of this size would would be inundated with bankers vying for a slice of the action – for the sizeable fees and the bragging rights.
Wednesday, August 19, 2009
It’s expensive keeping up with the Joneses in the Barisan Nasional
The passionate enter politics to make their ideals of a better nation reality. They enter to serve. Some suffer imprisonment, personal injury or even death in pursuit of their beliefs. They pay the highest price of all.
Things are better in the BN. High prices also have to be paid, but these are merely in ringgit terms. Chow Kum Hor, aide to Transport Minister Datuk Seri Ong Tee Keat, wrote in the New Sunday Times on 16 August that he “… spent a fortune changing my wardrobe and even stopped going to the neighbourhood barber” as he does not want to “… make the boss look bad.”
I guess we shouldn’t be surprised at Chow’s sartorial upgrading. When your boss flies private jets (business class is not good enough?), and your coalition counterparts swan around in handsomely-tailored Italian suits and luxurious Swiss watches one could be forgiven for feeling a little bit insecure.
That’s the BN for you. A preoccupation with style over substance. It doesn’t matter that 400,000 households – about 2 million Malaysians - still live in poverty. Our government must look good!
It also betrays a lack of true self-confidence. What’s important is your ideas and character. Gandhi lead India to independence in a dhoti. Fine, Gandhi is perhaps too ideal an example for our politicians to aspire to. President Barack Obama, leader of the most powerful nation in the world, wears US$1,500 suits which can be bought in department stores. And here at home, DAP leaders look just fine in their regular outfits.
I agree, clothes make the man and first impressions are important. I wouldn’t want our leaders presenting themselves in rags and tatters. But there is no need to spend a small fortune to look good. Consider the picture below, from Malaysiakini.
The DAP elected representatives look smart enough to me. By the way, Tony Pua (far right) didn’t change his wardrobe when he was elected as MP for PJ Utara. In fact, he downgraded. Following a price hike at the Lake Club barber, he now patronises the neighbourhood barber just downstairs of his service centre. And as far as I can remember, Kit Siang and the rest have dressed the same.
Great leaders are often described as having great vision, passion and character. A snappy wardrobe is rarely mentioned.
I’m not saying the DAP leaders carry all the positive qualities. But at least they live and dress like most Malaysians.
The BN in contrast, considers the neighbourhood barber low-class. It’s good enough for millions of Malaysians but not enough for them. If they’re so divorced from the average Malaysian, can they really lead us to a better future?
Things are better in the BN. High prices also have to be paid, but these are merely in ringgit terms. Chow Kum Hor, aide to Transport Minister Datuk Seri Ong Tee Keat, wrote in the New Sunday Times on 16 August that he “… spent a fortune changing my wardrobe and even stopped going to the neighbourhood barber” as he does not want to “… make the boss look bad.”
I guess we shouldn’t be surprised at Chow’s sartorial upgrading. When your boss flies private jets (business class is not good enough?), and your coalition counterparts swan around in handsomely-tailored Italian suits and luxurious Swiss watches one could be forgiven for feeling a little bit insecure.
That’s the BN for you. A preoccupation with style over substance. It doesn’t matter that 400,000 households – about 2 million Malaysians - still live in poverty. Our government must look good!
It also betrays a lack of true self-confidence. What’s important is your ideas and character. Gandhi lead India to independence in a dhoti. Fine, Gandhi is perhaps too ideal an example for our politicians to aspire to. President Barack Obama, leader of the most powerful nation in the world, wears US$1,500 suits which can be bought in department stores. And here at home, DAP leaders look just fine in their regular outfits.
I agree, clothes make the man and first impressions are important. I wouldn’t want our leaders presenting themselves in rags and tatters. But there is no need to spend a small fortune to look good. Consider the picture below, from Malaysiakini.
The DAP elected representatives look smart enough to me. By the way, Tony Pua (far right) didn’t change his wardrobe when he was elected as MP for PJ Utara. In fact, he downgraded. Following a price hike at the Lake Club barber, he now patronises the neighbourhood barber just downstairs of his service centre. And as far as I can remember, Kit Siang and the rest have dressed the same.
Great leaders are often described as having great vision, passion and character. A snappy wardrobe is rarely mentioned.
I’m not saying the DAP leaders carry all the positive qualities. But at least they live and dress like most Malaysians.
The BN in contrast, considers the neighbourhood barber low-class. It’s good enough for millions of Malaysians but not enough for them. If they’re so divorced from the average Malaysian, can they really lead us to a better future?
Wednesday, August 12, 2009
Legoland Iskandar – another bailout on the way?
Legoland Malaysia is coming up in the Iskandar Development Region in Johor. Some 30 million Lego bricks will reportedly be used in the RM750 million theme park, which will boast more than 30 rides, shows and attractions, from roller coasters and boat rides to adventure walks.
Developer Iskandar Investment Berhad (IIB), says the entrance fee will be “affordable for a family of six”. It is so is convinced that Malaysia's first theme park will do well that it has revised projected visitors numbers upwards — from 1 million a year to 1.4 million. Malaysians are expected to make up half of these, with foreigners — mostly Indonesians and Singaporeans — making up the other half.
There is also some good news for adults: The theme park is reportedly expected to create some 5,000 jobs. Production director Tim Burnell of Merlin Entertainments, which will manage the park, was in Johor in July to recruit for some of the jobs. The company was looking to hire model makers, who can earn anywhere between RM1,400 and RM5,000 each.
Sounds well and good. But the financials don’t quite add up:
1. MYR 750 million project cost. Say it is funded 50-50 with equity and debt, ie RM375m each.
2. If they reach the targeted 1.4m visitors a year, and assuming RM100 per person, that is RM114m revenue per year.
3. Interest and salary costs alone will be RM119m! This is based on: Interest RM19m (assuming 5% interest on RM375m borrowings); salaries RM120m (5,000 employees * RM2000 per month * 12 months).
4. That leaves nothing to pay back the borrowings, and we have not even incorporated depreciation, maintenance, utilities ….and what about profits for the shareholders who have put up RM375m?
5. Note that RM100 per person = RM600 for a family of 6. Which is probably too high too be “affordable”. So revenues will be even lower than RM114m.
Developer Iskandar Investment Berhad (IIB), says the entrance fee will be “affordable for a family of six”. It is so is convinced that Malaysia's first theme park will do well that it has revised projected visitors numbers upwards — from 1 million a year to 1.4 million. Malaysians are expected to make up half of these, with foreigners — mostly Indonesians and Singaporeans — making up the other half.
There is also some good news for adults: The theme park is reportedly expected to create some 5,000 jobs. Production director Tim Burnell of Merlin Entertainments, which will manage the park, was in Johor in July to recruit for some of the jobs. The company was looking to hire model makers, who can earn anywhere between RM1,400 and RM5,000 each.
Sounds well and good. But the financials don’t quite add up:
1. MYR 750 million project cost. Say it is funded 50-50 with equity and debt, ie RM375m each.
2. If they reach the targeted 1.4m visitors a year, and assuming RM100 per person, that is RM114m revenue per year.
3. Interest and salary costs alone will be RM119m! This is based on: Interest RM19m (assuming 5% interest on RM375m borrowings); salaries RM120m (5,000 employees * RM2000 per month * 12 months).
4. That leaves nothing to pay back the borrowings, and we have not even incorporated depreciation, maintenance, utilities ….and what about profits for the shareholders who have put up RM375m?
5. Note that RM100 per person = RM600 for a family of 6. Which is probably too high too be “affordable”. So revenues will be even lower than RM114m.
Wednesday, August 5, 2009
Malaysia’s lead is evaporating
I spent most of the last two weeks in Hanoi and north Vietnam, with a short stop in Singapore. Singapore is as efficient as usual, Hanoi was an eye-opener. Malaysia is not as advanced as we think it is. Or put another way, the rest of Asia is far catching up.
The experience starts with the taxis. Getting one is a breeze, even at the airport. No need to brave touts, nor buy coupons and endure long waits for “official airport taxis”. Just walk straight out and into a regular cab. The cab, by the way, is a nice, spacious newish 1.6-litre Japanese car. Not a cramped, rattling Proton which should have been long-retired.
To help keep cabbies honest, the taxi meters don’t just click off the increasing Dong fare, they also show the distance traveled and time taken, so you know if you’re being taken for a ride. Such a simple solution to meter-rigging. I wonder why we don’t implement this in Malaysia.
The hotel was a pleasant surprise. We’d booked the 3-star Classic Hotel for US$35 (RM130) per night. It looked pretty good on the website, but we were prepared to be disappointed. We weren’t. We got a nice, clean spacious room complete with minibar and flat-screen tv. But what took the cake was a computer, together with free internet access!
I couldn’t help but think of my last local 3-star experience, at an exotically-named hotel in Langkawi. It was so exotic, there was no washbasin in the bathroom! We had to spit straight onto the bathroom floor. One wonders how a ‘hotel’ like that got final operating approvals. Malaysia boleh.
Moving on to the food, any hesitancies we had about street food vanished when we saw the hawkers. The stalls and surroundings were generally cleaner than in Malaysia. Little litter, no obvious rats or cockroaches. And that goes for their markets too.
There are issues of course, including rogue taxi drivers. We were advised to use only a few specific taxi companies. We did, and encountered no problems. Service in the shops and cafes was, in our experience, generally surly or at best, not friendly. But there were gems, including one nice hole-in-the-wall café-owner who took a dish back and waived the charge when we said it wasn’t to our liking.
I can’t help but think it won’t be long before the tables are turned, and travel guide-books to Malaysia become fraught with the warnings we’d become accustomed to when visiting our our less-developed neighbours. Beware of the taxi drivers; street crime is a problem – don’t carry handbags; be very careful with the local food and water – eat only well-cooked food and drink bottled water ….
And one final observation - while some Malaysians are still uncomfortable with the English language, many Vietnamese are eager to pick it up. One cannot accuse them of being unnationalistic. This is a nation that defeated invaders ranging from the Chinese to the French and the Americans. Yet it is enthusiastically embracing the language of its most recent enemy. There is no emotional baggage associated with English. It is the language of commerce and science, and if you want to pursue the path of material success mastery of English is the way to go.
The experience starts with the taxis. Getting one is a breeze, even at the airport. No need to brave touts, nor buy coupons and endure long waits for “official airport taxis”. Just walk straight out and into a regular cab. The cab, by the way, is a nice, spacious newish 1.6-litre Japanese car. Not a cramped, rattling Proton which should have been long-retired.
To help keep cabbies honest, the taxi meters don’t just click off the increasing Dong fare, they also show the distance traveled and time taken, so you know if you’re being taken for a ride. Such a simple solution to meter-rigging. I wonder why we don’t implement this in Malaysia.
The hotel was a pleasant surprise. We’d booked the 3-star Classic Hotel for US$35 (RM130) per night. It looked pretty good on the website, but we were prepared to be disappointed. We weren’t. We got a nice, clean spacious room complete with minibar and flat-screen tv. But what took the cake was a computer, together with free internet access!
I couldn’t help but think of my last local 3-star experience, at an exotically-named hotel in Langkawi. It was so exotic, there was no washbasin in the bathroom! We had to spit straight onto the bathroom floor. One wonders how a ‘hotel’ like that got final operating approvals. Malaysia boleh.
Moving on to the food, any hesitancies we had about street food vanished when we saw the hawkers. The stalls and surroundings were generally cleaner than in Malaysia. Little litter, no obvious rats or cockroaches. And that goes for their markets too.
There are issues of course, including rogue taxi drivers. We were advised to use only a few specific taxi companies. We did, and encountered no problems. Service in the shops and cafes was, in our experience, generally surly or at best, not friendly. But there were gems, including one nice hole-in-the-wall café-owner who took a dish back and waived the charge when we said it wasn’t to our liking.
I can’t help but think it won’t be long before the tables are turned, and travel guide-books to Malaysia become fraught with the warnings we’d become accustomed to when visiting our our less-developed neighbours. Beware of the taxi drivers; street crime is a problem – don’t carry handbags; be very careful with the local food and water – eat only well-cooked food and drink bottled water ….
And one final observation - while some Malaysians are still uncomfortable with the English language, many Vietnamese are eager to pick it up. One cannot accuse them of being unnationalistic. This is a nation that defeated invaders ranging from the Chinese to the French and the Americans. Yet it is enthusiastically embracing the language of its most recent enemy. There is no emotional baggage associated with English. It is the language of commerce and science, and if you want to pursue the path of material success mastery of English is the way to go.
Wednesday, July 15, 2009
Barisan Nasional is the marriage-of-convenience
Some Malaysians are falling for the mainstream media’s portrayal of the Pakatan Rakyat coalition as a marriage-of-convenience, as it relentlessly highlights the disagreements between the coalition partners. Recent differences that come to mind are the Kedah PAS-DAP quarrel and the disunity over PAS’ proposed unity talks with UMNO.
No marriage is perfect. Partners will have disagreements. They may settle it discreetly, argue quietly or fight publicly, but it is a fact, normal adults in normal relationships will have different opinions. And that is what Pakatan Rakyat is going through as the partners work through their relationships to make it even stronger in coming years.
In a marriage-of-convenience on the other hand, one partner has the upper-hand. There is no striving for a greater good. One partner may want a green card or financial security so he or she just grins and bears it, no matter what nonsense the other partner gets up to.
Which quite aptly describes the situation at the Barisan Nasional (BN). There is the façade of unity because the component parties don’t quarrel too much. The reality is that happens because UMNO calls the shots and the others just fall into line.
Take the Port Klang Free Zone scandal. Two weeks ago, Transport Minister Datuk Seri Ong Tee Keat made a principled move by directing Port Klang Authority to withhold payment until studies were completed. A few days later, the Ministry of Finance “instructed” PKA to pay up. This was a clear case of over-stepping boundaries. PKA is part of the Ministry of Transport. The Ministry of Finance did not even have the courtesy of working through the Transport Minister - it sent the “instructions” directly to the PKA board!
And what did the Transport Minister do? Not a peep. His authority has been completely undercut and yet he continues working with UMNO and the BN. Quite unlike the coalition of real partners in Pakatan, where the parties will stand up for their principles and express their real opinions.
So, which is the marriage-of-convenience?
PS. I’m taking a break. Off on a holiday to rest and recharge. Next posting will be on Wed, 5 Aug.
No marriage is perfect. Partners will have disagreements. They may settle it discreetly, argue quietly or fight publicly, but it is a fact, normal adults in normal relationships will have different opinions. And that is what Pakatan Rakyat is going through as the partners work through their relationships to make it even stronger in coming years.
In a marriage-of-convenience on the other hand, one partner has the upper-hand. There is no striving for a greater good. One partner may want a green card or financial security so he or she just grins and bears it, no matter what nonsense the other partner gets up to.
Which quite aptly describes the situation at the Barisan Nasional (BN). There is the façade of unity because the component parties don’t quarrel too much. The reality is that happens because UMNO calls the shots and the others just fall into line.
Take the Port Klang Free Zone scandal. Two weeks ago, Transport Minister Datuk Seri Ong Tee Keat made a principled move by directing Port Klang Authority to withhold payment until studies were completed. A few days later, the Ministry of Finance “instructed” PKA to pay up. This was a clear case of over-stepping boundaries. PKA is part of the Ministry of Transport. The Ministry of Finance did not even have the courtesy of working through the Transport Minister - it sent the “instructions” directly to the PKA board!
And what did the Transport Minister do? Not a peep. His authority has been completely undercut and yet he continues working with UMNO and the BN. Quite unlike the coalition of real partners in Pakatan, where the parties will stand up for their principles and express their real opinions.
So, which is the marriage-of-convenience?
PS. I’m taking a break. Off on a holiday to rest and recharge. Next posting will be on Wed, 5 Aug.
Subscribe to:
Posts (Atom)
Posts
