KUALA LUMPUR (March 4): Khazanah Nasional Bhd reported today its 2020 profit from operations fell 61% to RM2.9 billion from RM7.4 billion a year earlier against the backdrop of a challenging economy and unprecedented impact on the operating environment caused by the Covid-19 pandemic. Despite the profit drop, Khazanah, which is the sovereign wealth fund of Malaysia, declared a dividend of RM2 billion for 2020 to the government of Malaysia.
In a statement today in conjunction with the Khazanah Annual Review 2021 event, Khazanah said the impact of the Covid-19 pandemic led to higher impairments of RM6 billion, particularly in aviation and hospitality assets, compared with RM4.9 billion in the previous year.
"Dividend income from investee companies rose to RM5.2 billion from RM3.8 billion but was offset by lower divestment gains of RM2.7 billion compared to RM9.9 billion in 2019.
"Khazanah's financial position remained strong with debt reduced by 6% to RM43.1 billion from RM45.8 billion in 2019, while realisable asset value cover fell slightly to 2.9 times from 3.0 times," Khazanah said.
The realisable asset value cover is derived from dividing Khazanah's realisable asset value over its total debt, according to Khazanah.
Khazanah said today it reported a steady overall performance for 2020 despite the volatility in global financial markets and an unfavourable economic environment impacted by the Covid-19 pandemic.
The portfolio rebalancing that is ongoing presented opportunities for both divestment gains and dividend flows from its investments, according to Khazanah, which owns Malaysia Airlines Bhd via Malaysia Aviation Group Bhd.
Khazanah said it continues to deploy investments in a prudent manner in line with its refreshed mandate while taking advantage of volatility to seek opportunities in global markets.
Khazanah managing director Datuk Shahril Ridza Ridzuan said in the statement that its performance in 2020 was accomplished against the backdrop of a challenging economy and unprecedented impact on the operating environment caused by the Covid-19 pandemic.
"Despite these challenges, we were able to build on our efforts in recent years, allowing us to navigate the economic uncertainty. We identified good investment opportunities during the pandemic and ensuing market volatility. Khazanah continues to diversify our global portfolio as we build sustainable value for Malaysia as part of our long-term mandate," Shahril said.
Khazanah's global portfolio comprises its commercial fund and strategic fund.
The commercial fund's realisable asset value stood at RM95.3 billion as at the end of 2020 while the strategic fund's realisable asset value decreased 15% to RM27.9 billion as at Dec 31, 2020, from RM32.9 billion a year ago, according to Khazanah.
The strategic fund's portfolio value was heavily impacted by the fall in market value of key listed assets and provisions made on impairments to aviation and hospitality assets, it said.
"For the strategic fund, Khazanah navigated the difficult period in 2020 by focusing on engaging regulators to manage the challenging operating landscape for investee companies, restructuring the balance sheet of selected assets to preserve value, strengthening the leadership bench of operating companies, and continuous monitoring and assessment of the Covid-19 pandemic's impact on investee companies.
"The commercial fund, which focuses on investing to preserve and grow the long-term value of assets, had made significant inroads into diversifying its asset mix two years into the portfolio rebalancing exercise," Khazanah said.
Besides Malaysia Airlines, Khazanah's investees include Malaysia Airports Holdings Bhd (MAHB) and Themed Attractions Resorts & Hotels (TAR&H), which were not spared when various measures to curb the spread of the Covid-19 pandemic resulted in the tourism, hospitality and aviation sectors taking a considerable hit, according to Khazanah.
Khazanah said it had to impair several assets, namely RM3.1 billion for Malaysia Airlines parent MAGB and RM1.8 billion for TAR&H to account for these effects.
"As the sole shareholder of MAGB, Khazanah continues to provide full support and close cooperation in the comprehensive efforts to ensure the national carrier's sustainability post-pandemic. On Feb 22, 2021, the High Court of Justice of England and Wales sanctioned a Scheme of Agreement between MAGB's leasing entity, MAB Leasing Ltd, and the majority of MAGB's aircraft operating lessors, following unanimous support from the lessors.
"This represents an important component of the wider restructuring exercise which will achieve a reduction in MAGB's liabilities of over RM15 billion. Moving forward, MAGB will focus on working closely with the government and stakeholders on restarting air travel and promoting industry recovery, as well as continuing cash conservation while capturing demand recovery as part of its internal restructuring," Khazanah said.
Looking ahead, Shahril said in the statement that 2021 will continue to be a challenging year.
According to him, even as the National Covid-19 Immunisation Programme begins, the vaccine roll-out in Malaysia and across the world will take time.
"We will see more progress towards a return to recovery and normalisation as the world gets a better grip of the situation and the impact of the various public health and economic measures gains further traction.
"In key sectors such as aviation and tourism, it is unlikely that a full recovery will happen before 2023," he said.
Shahril said that in continuing to be prudent and vigilant in these testing times, Khazanah has identified five strategic priorities for the coming years.
These priorities include further enhancing Khaznanah's commercial returns, delivering impactful value through its strategic investments, becoming a responsible organisation through embedding environmental, social, and governance considerations across all investment activities, building a strong digital and technology foundation and investing in its people to achieve a culture of high performance and collaboration.
"As we gradually expand our global assets portfolio to move away from a reliance on domestic sources of income, we are hopeful that Malaysia as a whole will move towards increasing its economic complexity and do more to make it easier for businesses to open, including further deregulation.
"This will lead to a more resilient and diverse economy to mitigate future negative shocks. Being the sovereign wealth fund for Malaysia, Khazanah will continue to focus on investing to deliver sustainable value for all Malaysians," he said.