Wednesday 17 Apr 2024
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This article first appeared in The Edge Malaysia Weekly on January 29, 2024 - February 4, 2024

AS Tun Abdul Taib Mahmud’s term as Yang di-Pertua Negeri Sarawak has ended, the question is whether his family’s influence on numerous Malaysian public-listed companies will continue to hold sway or lose momentum.

Taib is replaced by Tun Dr Wan Junaidi Tuanku Jaafar, 77. His appointment, effective from Jan 26, 2024, to Jan 25, 2028, comes as no surprise given the widespread speculation that he is the favoured candidate among leaders of the state. 

Sarawak Premier Tan Sri Abang Johari Tun Openg had in the past praised Wan Junaidi, the former Dewan Negara president, for his significant achievement in amending the Federal Constitution to uphold Sarawak’s rights as per the Malaysia Agreement 1963 (MA63). According to Abang Johari, while serving as a Minister in the Prime Minister’s Department, Wan Junaidi was instrumental in securing parliament’s support for the amendment to Article 160 of the Federal Constitution. The amendment, which passed with more than two-thirds majority, included MA63, the Cobbold Commission and the Inter-Governmental Committee (IGC) Report, effectively safeguarding Sarawak’s constitutional rights.

Although Wan Junaidi is anticipated to make substantial contributions to the state, his arrival does not eclipse the narrative of Taib concluding his political career, a journey that extended more than six decades.

Taib, who was chief minister of Sarawak for 33 years, starting from 1981, and was officially appointed the seventh Yang di-Pertua Negeri of Sarawak — succeeding Tun Abang Muhammad Salahuddin Abang Barieng — in March 2014, was a powerhouse in his day, with his family wielding a lot of clout and amassing much wealth.

Hence, the question is whether Taib’s stepping down as Yang di-Pertua Negeri will adversely impact his family’s and associates’ interest in Malaysian public-listed companies, which collectively is valued at more than RM1.8 billion, according to corporate filings with Bursa Malaysia and the Companies Commission of Malaysia.

The listed companies linked to Taib’s family, with market capitalisations ranging from the RM1.14 billion flagship CMS to the RM99.7 million Sarawak Cable Bhd, span industries such as financial services, cement manufacturing, oil and gas, plantation, timber and engineering. Some firms that used to have ties include Quality Concrete Holdings Bhd, in which Taib’s sister Datuk Raziah @ Rodiah Mahmud was a director, and the delisted SIG Gases Bhd.

The Taib family network previously held stakes in public-listed companies that have since been taken private, including Glenealy Plantation (Malaya) Bhd, Putrajaya Perdana Bhd and Loh & Loh Bhd. A notable event was CMS’ sale of Utama Banking Group Bhd to RHB Bank Bhd for RM1.8 billion — RM937 million in cash and the remainder in loan stocks — in 2002.

Despite familial ties to various companies, Taib, owing to his role as governor mandated by the Constitution of the State of Sarawak, maintains a clear distance from these businesses. Meanwhile, his cousin Datuk Abdul Hamed Sepawi holds significant stakes in some public-listed companies and is associated with more than seven firms (listed and private).

With Taib officially ending his political career as state governor, will his extended family and network slow down or will they continue to have a huge presence in Sarawak?

Strained relationship with the state?

Even before Taib’s impending departure as the Yang di-Pertua Negeri of Sarawak and conclusion of his political career, signs of a tense relationship between the state and CMS were already evident.

“The relationship between the state and CMS is at its lowest ebb … Since the appointment of the premier [Abang Johari], I was told that MD Sulaiman [Datuk Seri Sulaiman Abdul Rahman Abdul Taib, son of Taib] has not made a courtesy call on the premier. And it doesn’t help that CMS is taking [state-owned] Sarawak Energy Bhd to arbitration,” says a source familiar with the goings-on in Sarawak.

The conflict between CMS and Sarawak Energy began when Syarikat Sesco Bhd — a subsidiary of Sarawak Energy — charged CMS’ 79.07%-owned Cahya Mata Phosphates Industries Sdn Bhd (CMPI) RM266 million for cumulative electricity and security payment shortfalls in 2022, despite CMS asserting that the plant had not officially commenced operations.

The disagreement was referred to the Asian International Arbitration Centre but took a bad turn with the Court of Appeal’s dismissal of CMPI’s preservation order, which resulted in a power cut at CMPI’s phosphate production plants in July last year.

In the latest development on this case, CMS earlier this month said CMPI was subject to a RM342.25 million counterclaim from state utility firm Sesco. The case is due for an evidential hearing from Aug 26 to 30.

Dominance gradually decreasing

Similarly, CMS’ monopoly and dominance in other areas seem to be eroding as well. Although the company still has a monopoly of cement production in Sarawak, the state government has been active in forming partnerships with YTL Corp Bhd and Siam Cement, among others, to import cement for government projects. There are also plans to construct large-scale cement plants, but this remains conjecture at this point.

“In addition, PPES Works [CMS’ subsidiary and an infrastructure, construction and road maintenance contractor] is no longer assigned or awarded new infrastructure projects,” says an observer.

It is understood that companies linked to the Taib family no longer have major concessions. “The road maintenance concession has been segregated into four parcels to four distinct contractors. CMS has a 50% stake in Sacofa [Sdn Bhd], yet the federal and state authorities have ceased issuing new telecoms infrastructure projects to Sacofa,” says a source. As at press time, CMS officials had yet to respond to inquiries about the concessions.

Family feud

The Taib family has found itself engulfed in a controversial legal battle lately over the ownership of a substantial stake in CMS. The conflict started when Sulaiman, the group managing director, challenged the alleged transfer of shares made by his father, Taib, to his stepmother Toh Puan Datuk Patinggi Raghad Kurdi Taib.

The shares in dispute constitute a 10.33% stake in CMS, which originally belonged to Sulaiman’s late mother Puan Sri Laila Taib. In September, he filed an injunction with the Kuching High Court to stop the share transfer, naming Raghad and RHB Bank as defendants, according to national news agency Bernama.

Sulaiman also questioned the authenticity of his father’s signature on transfer-related documents in court and attempted to submit fresh affidavits to challenge these. However, Raghad’s counsel, Shankar Ram, refuted the challenge, suggesting a lack of proper notice.

In a surprising escalation of the feud, in November last year, Sulaiman, together with his brother Mahmud Abu Bekir Taib, named their father as the third defendant, according to the defence who insisted that the shares were rightfully transferred to Raghad.

However, it is noteworthy that specific legal protections could potentially shield the governor from litigation, or in this case possibly shield him as long as he is in office.

The uncertainty over the family’s 23% stake and the group’s future weighs on CMS.

Norges pares down CMS stake to below 5%

The current legal dispute at CMS is notable because a change in ownership could substantially impact the conglomerate’s strategic decisions.

Eyebrows were raised when Norway’s Government Pension Fund Global, managed by Norges Bank, reduced its interest in CMS in early January, only four months after acquiring a 5.03% stake.

Norges Bank did not comment on whether the family feud influenced its investment decision, but clarified that its divestment from any company is due to risk factors or ethical issues outlined in its guidelines, and CMS is currently not in either of these categories.

“We have two ways of divesting from companies. The fund itself may take the decision to divest from companies that impose substantial costs on other companies and society as a whole, and so are not considered long-term sustainable. These might be companies with business models that do not align with prevailing technological, regulatory or environmental trends. We call this risk-based divestments,” Norges tells The Edge.

“The second way is ethical exclusions. The independent council on ethics evaluates whether the fund’s investments are consistent with its ethical guidelines, and makes recommendations to us on observation or exclusion of companies.”

A global fund manager with knowledge of the stock states that the “family feud does not necessarily represent an ethical issue or a matter of corporate governance”.

As for the rest of the Taib-linked stocks, the fund manager tells The Edge that there could be buying opportunities given that most, if not all, of the stocks are trading at discount.

“There are a few ways of looking at it. Taib-linked stocks are currently trading at a discount. There is a Taib discount instead of a Taib premium. When he steps down, coupled with the family feud, it creates a situation where there will emerge opportunities for third parties … It would be different if the stocks were trading at a premium,” he adds.

“Fundamentally, the companies’ prospects are there and, not to mention, the developments coming up in Sarawak. CMS, for instance, still holds the monopoly of cement production in Sarawak and has benefited from the cement price hike since 2022.”

According to a head of research at a global investment bank, the sectors in which Taib-linked stocks operate rely extensively on resources and thus are not sustainable, in contrast with Sarawak’s recent shift to a new, technology-driven and renewable energy-focused economy. “Ultimately, it comes back to the structure of the state economy,” he says. 

A closer look at seven Taib-linked stocks

Cahya Mata Sarawak Bhd

Cahya Mata Sarawak (CMS) started out as a cement manufacturer 47 years ago. Over the years, it has transformed itself into a conglomerate with various interests spanning infrastructure development in Sarawak to financial services.

Analysts see resilience in its primary cement and road maintenance operations, driven by infrastructure projects in Sarawak, despite anticipated losses from a legal battle with state utility firm Syarikat Sesco Bhd. Its cement division contributed about 60% to the group’s pre-tax profit (PBT) for the first nine months of FY2023 ended Sept 30.

Analysts’ target prices for CMS range from RM1.11 to RM1.43, with three “buy” recommendations and two “neutral”. According to MIDF Research, the company may benefit from growing demand for cement from upcoming infrastructure projects in Sarawak. The research house maintains its “buy” call with a target price of RM1.32. The stock closed at RM1.06 last Friday, giving the company a market capitalisation of RM1.14 billion.

Ta Ann Holdings Bhd

Ta Ann began as a timber player in the 1980s but ventured into oil palm cultivation in 2000. It also has plywood operations in Tasmania, Australia. Despite the late start, the plantation segment’s profit of RM437.9 million dwarfs the RM59.6 million from the timber segment.

At end-2022, the company had 13 oil palm estates with a total planted area of more than 50,000ha and three palm oil mills with an annual combined processing capacity of 1.5 million tonnes of fresh fruit bunches.

Ta Ann has three active forest management units (FMUs) in the Rejang region of Sarawak, namely Kapit, Raplex and Pasin, covering a total area of 346,021ha, which represent 92% of the group’s total timber concession. The licences for the three active FMUs have been renewed for 30 years to 2053.

According to Bloomberg, of the eight analysts covering the stock, seven have a “buy” call and one a “hold” on Ta Ann. Their consensus target price of RM4.11 offers an upside of 11.4% to its closing price of RM3.69 last Friday, giving the company a market capitalisation of RM1.6 billion.

Sarawak Plantation Bhd

Ta Ann’s associate Sarawak Plantation owns 13 oil palm estates in northern and central Sarawak with a total land bank of 42,185ha. As at 2023, the total plantable acreage stood at 35,656ha. It has another 405ha oil palm estate in a joint venture with Sarawak state agencies. The group also owns and operates two palm oil mills.

All five analysts covering Sarawak Plantation have a “hold” call on the stock and a consensus target price of RM2.15. With the counter closing at RM2.19 last Friday, the group is valued at RM611.1 million.

Naim Holdings Bhd

Naim, through its subsidiaries, has interests in property development, construction and other services as well as oil and gas through its 24.22% associate Dayang Enterprise Holdings Bhd. Its stake in Dayang is worth more than RM500 million — higher than its own market capitalisation of RM400.6 million as at last Friday. There is no analyst coverage on Naim.

Dayang Enterprise Holdings Bhd

Dayang started operations in 1980 with the trading of hardware materials and supply of manpower for the offshore oil and gas industry. It then expanded into maintenance services, fabrication operations, hook-up and commissioning and the charter of marine vessels.

Analysts are bullish on Dayang, with seven of the eight analysts covering the stock having a “buy” recommendation on it. They see the group having resilient maintenance work orders in 2024 and likely winning new contracts with Petroliam Nasional Bhd (Petronas). CGS-CIMB says Dayang is well placed to capitalise on the projected growth in offshore maintenance and construction, although risks include potential delays and non-renewal of contracts.

With the stock closing at RM1.83 last Friday, Dayang has a market capitalisation of RM2.12 billion.

KKB Engineering Bhd

Set up in 1962, KKB ventured out from its engineering base in steel fabrication into manufacturing activities such as making steel pipes and LPG cylinders. It is one of the analysts’ picks for exposure to the Sarawak integrated infrastructure play.

According to RHB Research, KKB’s outstanding order book at end-September 2023 was close to RM600 million, and it is participating in bids estimated to exceed RM1.5 billion. The two research houses covering KKB have a “buy” call on the stock, with a consensus target price of RM1.89, which offers an upside of 11.8% to its closing price of RM1.69 last Friday.

Kenanga Investment Bank Bhd

Kenanga IB operates across five primary segments of the financial services industry: investment banking, stockbroking, listed derivatives, money-lending and financing, and investment and wealth management. According to LSEG Data & Analytics’ Jan 25 report, Kenanga IB has a low net margin of 8.5% compared with the industry average of 18.2%. It also has the highest debt-to-capital ratio at 18.4% but the stock offers a dividend yield of 5.6%.

Meteoric rise to power

Often referred to as the Godfather of Sarawak, Tun Abdul Taib Mahmud is one of the longest-serving politicians in Malaysia, with more than three decades as the chief minister of Sarawak and another 10 years as its Yang di-Pertua Negeri.

Born on May 21, 1936, in Kampung Sungei Merbau in oil town Miri, in the northern part of Sarawak, Taib came from humble beginnings. Being a bright student, he won a Colombo Plan scholarship to read law at the University of Adelaide in Australia, after which he returned to Sarawak and joined the state government as a legal officer in 1962.

Taib’s political career kicked off in 1963 when he joined the Sarawak Legislative Council as communication and works minister. In 1970, he went from state to federal politics, becoming deputy minister of trade and industry after winning the Samarahan parliamentary seat. He took charge of a slew of portfolios before resigning from his position as federal territories minister to contest in the Sebandi state by-election. After winning the seat on March 9, 1981, he commenced his 33-year tenure as chief minister of Sarawak.

Interestingly, it was Taib’s uncle, the late Tun Abdul Rahman Ya’kub, the former chief minister of Sarawak, who got Taib started in politics and served as his mentor, guiding him to become a political behemoth.

Taib went on to oust his uncle Abdul Rahman after the two had a falling out in 1981. In 1987, his uncle’s supporters attempted a coup in what became known as the Ming Court Affair but Taib managed to thwart their plans. Other than that, his 33 years in power has been largely without any resistance.

However, while Taib was chief minister, there were numerous allegations of cronyism and abuse of power. It was reported on at least two occasions that he was being investigated by the authorities, including the Malaysian Anti-Corruption Commission, but none of the allegations against him stuck.

Nevertheless, despite the many allegations that suggest he and his family had amassed immense wealth, Taib is revered for having managed to keep out the toxic brand of politics practised in the peninsula, hinged on racial and religious sentiments.

In the early 1980s, there were attempts made during Taib’s administration to have certain religious symbols in schools removed. But he scuppered the plans, having studied at a mission school himself. Even today, Sarawak is a shining example of religious tolerance between the various indigenous groups and races, in contrast to the green wave sweeping across the peninsula.

In 2014, Taib stepped down as chief minister and assumed the role of Yang di-Pertua Negeri Sarawak, a role he relinquished recently.

While opinions on Taib may vary, ranging from a strong dislike to the other extreme, that of hero status, his impact on the state in his 50-plus years in politics cannot be dismissed and his rise to power is nothing short of astonishing.

 

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