KUALA LUMPUR (Oct 16): The government should “go back to basics” and “set a standard” on how to approach government-linked companies (GLCs), either as strategic investments or investments to maximise returns, said former finance minister II Datuk Seri Johari Abdul Ghani.
The lack of consistency in how GLCs are approached would reduce investor confidence, said Johari (BN-Titiwangsa), aside from affecting the performance of government-linked investment companies (GLICs) who have exposure towards the GLCs.
This includes inconsistency in addressing Bumiputera ownership on companies and projects, which could hinder project progress; as well as the confusion as to how much exposure GLICs should have in companies, and how that exposure should be managed.
Johari commented that Permodalan Nasional Bhd-linked (PNB) S P Setia Bhd was unable to dispose of a land parcel to a company as part of its master plan to undertake a mixed development, as the land sale was not approved by the government because the buyer is not Bumiputera.
“But the land is not Bumiputera-owned,” said Johari, referring to S P Setia’s origin as a non-Bumiputera owned company prior to PNB’s stake raise in 2011.
“This is a system that damages the position of the company which is controlled by the fund. But, when Boustead [Holdings Bhd] disposes of its hotel in Bukit Bintang, boleh pula (can),” Johari said on Boustead’s sale of Royale Chulan Bukit Bintang to Singapore-listed Hotel Royal Ltd for RM197 million in 2019.
“This is not consistent, so investors are confused. It is not because I do not agree with [the intention to] take care of the land. But if it is for development, and there is a buyer that provides a strategic collaboration in the process, why not? At the end, the project was abandoned. It cannot be done,” Johari said.
Let GLICs operate based on their mandate
Johari also touched on the role of Malaysia’s largest government-linked investment funds and how some have diverted their operations to levels that no longer align with their original mandate.
He referred to social security funds like Employees Provident fund, Retirement Fund Inc (KWAP) and Lembaga Tabung Angkatan Tentera (LTAT), which “should be able to maximise returns, and be able to cut losses when needed”.
He also touched on sovereign wealth funds like Khazanah Nasional Bhd which hold equity positions due to strategic reasons, and specific funds such as PNB and Lembaga Tabung Haji, tasked to collect and manage Bumiputera capital, and to serve as pilgrims' savings fund respectively.
“In other countries, social security funds do not invest more than 5-10% [in one company]. And they do not participate in management. If they lose, they cut, dispose,” he said.
However, some of these funds instead went to acquire higher stakes to the point they own more than 50% in some companies.
“Many of these companies, when they face issues, they go back to the government through these funds [which resulted in them] providing an even bigger capital. Because we do not understand the concept of investment funds.”
“Those who manage these funds must be fully responsible from management to board of directors to ensure everything [they do] do not come back to the government, otherwise it means the government will also administrate business,” he added.
Don’t list 'if not ready'
Johari also responded to a comment by Syed Saddiq Syed Abdul Rahman [Muda-Muar] who questioned Boustead Plantations Bhd’s (BPlant) takeover offer by LTAT, which Syed Saddiq described as a bailout.
BPlant’s privatisation is the latest involving a GLC that entered the spotlight, following the termination of a proposal for Kuala Lumpur Kepong Bhd (KLK) to come in as a majority partner to LTAT to revive the plantation group and raise funds for Boustead.
Johari, in response, advised the administration not to bring GLCs public, if they are not ready to operate as a listed entity which faces public scrutiny and answerable to shareholders that seek maximized returns, rather than just serving strategic roles for the government.
The government should decide whether a company is a strategic company for the government, or a profit-driven entity.
“When a company is listed, it is invested by Malays, non-Malays and foreign funds. Certainly they expect the management to take care of the companies and make sure they do not make losses. If government-linked listed companies make losses, it cannot be sold.
“I want to propose to the government, whichever company that the government finds strategic, don’t bring it to the stock market,” said Johari.
“Like Felda, who listed FGV Holdings Bhd. The intention was good, but we did not have a management that could monitor FGV, and it made losses. Then when [Felda] wanted to privatise [FGV], it cannot take over [the entire] 100% stake. It is still listed, and the money has been paid. It’s neither here nor there,” he said.
“If we are consistent with our approach, we consider the listed companies as those where we would like to maximise returns. If we are not ready for that, then we keep in any government agency,” he added.
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