Malaysia’s sovereign wealth fund Khazanah Nasional Bhd has been making headlines ever since the nation voted former prime minister Najib Razak-led government out of office on May 9, 2018.
The industry buzz is that the $39-billion SWF will be used by Malaysia Prime Minister Mahathir Mohamad to trim down the government’s RM1 trillion ($250 billion) debt through divestment of its assets. As of May 2018, Khazanah has a realisable asset value (RAV) of RM157.2 billion ($38.6 million) with a net worth of RM115.6 billion ($28.4 billion).
The fund’s core investments are sprawled across various sectors and its listed portfolio includes IHH Healthcare Bhd, Telekom Malaysia Bhd, Malaysia Airport Holdings Bhd, Axiata Group Bhd, CIMB Group Holdings Bhd and Tenaga Nasional Bhd.
A possible target for divestment by Khazanah could be highway operator PLUS Malaysia Bhd, which is 51 per cent owned by the fund via its wholly-owned subsidiary UEM Group with the remaining 49 per cent held by the $189-billion Employees Provident Fund (EPF). It is the largest highway concessionaire in Malaysia, operating eight expressways under five concessions. PLUS was taken over by EPF and UEM Group in 2011 at a price tag of RM23 billion ($5.63 billion).
An analyst who preferred not to be identified told this portal that the government will look to divest its assets but due to their large scale, it might prove to be a challenging path for Khazanah. PLUS Highway, he added, is one of the “easier” assets to divest, where EPF could offer to “help”.
“The size of Khazanah’s assets are large. The government is looking to divest some of its assets [through Khazanah] but the are other ways that the government could raise money.
“They can have a unit trust structure like PNB (Permodalan Nasional Bhd) by progressively investing its assets into the unit trust and the earnings could be distributed back to the government. I think Mahathir is looking to divest some assets of Khazanah or selling them to Bumiputra companies,” he said.
The fund has declared RM1 billion ($250 million) for 2017, with RM10.11 billion ($2.5 billion) worth of cumulative dividends declared since 2004. Selling off Khazanah’s assets might deprive the government of such dividend.
The source added that if Mahathir is serious about using Khazanah for the bumiputra agenda, Malaysian tycoon Syed Mokhtar Al-Bukhary, a close ally of the PM during his 22-year reign from 1981 to 2003, will likely be the one to help take over some of Khazanah’s assets.
“But it will bring back an old discussion where the wealth will only be concentrated in several Bumiputra businessmen. It doesn’t help the spread of wealth,” he added. Bumiputra refers to “sons of the soil”, which is a term used to describe Malays and other indigenous people in Malaysia.
The departure of Khazanah’s MD
The $39-billion fund saw the en masse resignation of its board of directors a week ago, a move that was welcomed by the PM to “facilitate restructuring” of Khazanah.
Mahathir was then named as the chairman of Khazanah, flanked by four new directors.
On August 3, Khazanah appointed EPF chief exec Shahril Ridza Ridzuan as its new managing director. He is scheduled to start his new role from August 20. Over the weekend, EPF named Alizakri Alias, its current deputy CEO of strategy, as Shahril’s successor at the pension fund.
Earlier, Khazanah’s former chairman Azman Mokhtar penned a farewell letter to the industry after heading Khazanah for 14 years and two months. He also took the opportunity to clarify the investment losses in UBS and Indian lingerie business Zivame, admitting while the losses incurred were large, they were part and parcel of investment operations subjected to risks.
It recently came to light that Khazanah had made an RM80 million ($19 million) loss in a failed lingerie business, as revealed by Minister of Economic Affairs Azmin Ali during a parliamentary session, adding that the losses are indications that Khazanah “has strayed from its original focus”.
According to a report by Straits Times, the SWF had also lost RM3 billion in an investment in Swiss Bank UBS that went bankrupt in 2008. Khazanah however, managed to recoup half of its investment four years later.
On the RM80 million ($19 million) loss in Zivame, Azman said Khazanah had picked up a 22 per cent stake in the Indian company in return.
“Zivame remains a going concern and in fact has just had its best ever quarter and we remain quietly confident that we will be able over the medium term to recover all or almost all of what we have provided for.
“In any case, again, as with all our overall investment assessment, we need to look at things in perspective in that the same risk taking in India for the consumer sector in companies ranging from the sale of paints for houses to jewellery, under what we call Project Billion have generated more than RM1 billion realised and unrealised gains to date,” he said.
In addition, Khazanah gained more than RM6 billion in its investment in Chinese internet giant Alibaba when it went public in 2014. During his tenure, Azman had driven major reforms at the GLIC, especially boosting Khazanah’s overseas investments which now account for 44.5 per cent of the fund’s RAV.
Changing role of Khazanah?
Established in 1993, government-funded Khazanah was set up by Mahathir when he was the fourth PM and is placed under the Ministry of Finance Inc. – the corporate body of the Ministry of Finance — to manage commercial assets owned by the government as well as to make strategic investments that would contribute to nation building.
MoF Inc is, in fact, the owner of all GLICs in Malaysia.
Khazanah has been embroiled in the 1Malaysia Development Bhd (1MDB) financial scandal, where Najib was said to have cashed out RM1.2 billion ($301.05 million) last year through redeemable shares in the wealth fund held by the finance ministry to pay off debts.
Khazanah confirmed the cash payout by the Ministry of Finance, noting that the fund had “no control over the utilisation of the funds” once the shares have been redeemed.
In the past, the SWF also spearheaded the government’s intention to transform government-linked corporations (GLCs) to enhance corporate governance in order to put Malaysian corporates on the global map.
Overseas offices had also been established in Turkey, China, India, and the US after 2004 and collaborations between Khazanah and the private sector were increased. Notable deals include the 60:40 joint venture between Khazanah and Singapore’s Temasek Holdings to develop Marina One and DUO in Singapore with a combined gross development value of S$11 billion ($8 billion).
However, Mahathir’s recent statement that Khazanah has “deviated from its core purpose of assisting bumiputras” has left the industry confused because the SWF was never set up to assist the affirmative policies that have been in place since 1971.
The GLIC tasked to do so is PNB, controlled by Yayasan Pelaburan Bumiputra and now chaired by Mahathir, which was designed to run an investment trust business where dividends were to be channelled back to Amanah Saham Nasional unit trust holders.
It is unsure what Mahathir has in mind for the SWF that was initially set up to boost the nation’s domestic and international interests but what Khazanah could use is more transparency in reporting losses to avoid further controversies.