This article first appeared in The Edge Financial Daily on October 31, 2019
KUALA LUMPUR: The involvement of the government in companies has again come into question, considering the underperformance of government-linked companies (GLCs) and the lack of political will to allow corporate changes expected by the broader market.
At a forum yesterday, Credit Suisse Malaysia managing director and head of equities Stephen Hagger pointed out how Malaysian GLCs have on average underperformed their private sector counterparts over the last ten years.
“The data is very clear; total returns — share price and dividends — of non-GLCs are about five times greater than GLCs over a 10-year period,” he said.
Hagger raised three ‘case studies’ in Corporate Malaysia, which raised the question about the relevance of government involvement in companies.
“[There’s] Malaysia Airlines Bhd that Shahril (Khazanah Nasional Bhd managing director Datuk Shahril Ridza Ridzuan) said will cost Malaysian taxpayers RM1 billion a year to stay afloat.
“That is versus AirAsia — of course there is argument [on the comparison] — which has not taken any taxpayers’ money,” he said.
Hagger also questioned why the proposed merger of Axiata Group Bhd and Norway’s Telenor SA did not happen.
“I don’t know the answer to that, but I suspect there is no political willpower for Axiata to be run on Telenor’s terms,” he said, referring to how Axiata would have held 43.5% in the merger, against Telenor’s 56.5% majority stake.
“And the third example would be Sime Darby Property Bhd (SimeProp), seemingly, with no political willpower to hire the best possible person for the job,” Hagger added.
SimeProp is currently led by Datuk Wan Hashimi Albakri, who has been serving the company as acting chief executive officer for six months since May 3 this year, following the departure of Datuk Seri Amrin Awaluddin as group managing director .
“The prime minister [Tun Dr Mahathir Mohamad] has asked the hard question, really, why should the government be in business?” he added.
Hagger was speaking at a panel session at the Permodalan Nasional Bhd Corporate Summit 2019, where he was asked what could have contributed to the outflow of foreign funds during the year.
Hagger went on to reiterate that the government should stay out of business. “If you want to control and ensure that people have access to [infrastructure and utility], do so by regulation, don’t do so by ownership.”
‘Having to deal with conflicting demands’
At the same panel session, Khazanah research and investment strategy head Datuk Hisham Hamdan conceded that it is difficult for GLC leaders to balance the interests of the different parties that they have to answer to.
However, he also pointed out that there are “various reasons” for the ownership structure of GLCs, owing to the socio-political landscape in the context of Malaysia.
“We should really appreciate the people in the arena, where there are conflicting demands from every other stakeholder.
“In the context of Malaysia, you have to appreciate the political environment, the various ethnicities, therefore there are various reasons for some of these ownership [structure],” he added.
And while government could reduce ownership in businesses, one way or another it will need “to go up there [at the top of the value chain] in order to disrupt companies”, he said.
“Government plays a huge role in terms of policies, in terms of investing in areas where the private sector cannot go,” he added.
‘GLCs not crowding out the market’
Employees Provident Fund chief executive officer Tunku Alizakri Raja Muhammad Alias shared his view that GLCs have to review their mandates, which essentially should be to bring returns in both financial and social perspectives.
He said both the private sector and GLCs have their respective roles to play.
“I don’t see GLCs as crowding out the market against the private sector. It really boils down to the real intention the GLCs are set up,” he said.
“The government should go beyond making money, and should be looking at long term and the roles of the organisations that it is involved in, and to put the right infrastructure in place,” he added.