“Execute or be executed” reads the mantra from Khazanah on its plans for the reform of the government-linked companies (GLCs) under its control. Amid talk of performance contracts for top teams, there is evidence that the implied threat indeed has an explicit outcome.
Since the appointment of Dato’ Azman HJ Mokhtar as managing director at Khazanah, the axe has fallen on incumbent boards and management at Tenaga Nasional Berhad, Telekom Malaysia, Proton and Malaysia Airlines System (MAS) among others.
That is not surprising given the performance of key Khazanah-controlled GLCs to date, which has been pedestrian at best. Azman will have his work cut out turning what are perceived as sleepy monoliths into cutting-edge businesses that can compete internationally, yet he is confident that the worst is behind him. “In June, we had a one-year review explaining what we’ve achieved, he says. “I’m quietly satisfied that we’ve stabilized the situation. As we’re heading out of the wartime restructuring, we’ve started to identify key things that needed to be done, operational and strategic changes.”
Not everyone is convinced that the war is over. Some question whether the recent appointments are the right ones. “Personally the jury’s out,” says a local banker, “I’m not convinced that these new young Turks have the loyalty of the employees. We’ve yet to see any concrete sign that all this is working.”
There is evidence to support suspicions that the GLC problems are not yet behind them. Flagship car maker Proton Holdings continues to struggle with rapidly falling revenues and profits as market share is eroded. Electricity power monopoly Tenaga Nasional is fighting to reduce high gearing levels and to negotiate a much-needed tariff increase [see Tackling Tenaga, this issue]. Telekom Malaysia’s market share is under threat at home while it continues to expand overseas, for example with the purchase of Indonesian cell phone company Excelvomindo, much to the concern of the market. “Why did Telekom Malaysia buy Excelcomindo?” asks one research analyst, “I question who’s making these decisions on acquisitions and whether they have the people to run them. TM’s market share is being eaten away by [local competitors] Digi and Maxis.”
Meanwhile rumours continue to circulate that management changes are not finished at MAS, despite three years of consecutive profitability, and the underperforming UEM Group must be a prime candidate for a break-up and restructuring. Even Khazanah admits that it is working on a restructuring proposal for UEM Group’s technology subsidiary Timedotcom.
There are some bright spots in the Khazanah GLC portfolio. In particular, Plus Expressway continues to perform well, as does banking conglomerate Commerce Asset Holdings.
The future performance of Khazanah’s GLCs will be the acid test of the success of Azman’s restructuring efforts and, for now, the market is giving him the benefit of the doubt. But the transformation of Khazanah’s GLCs is far from finished and a lot rests on the success of his programme, as the country head of an international bank explains. “All the low-hanging fruit is gone,” he says, “and we have to be globally competitive. We have to take these companies to new markets. I totally agree with that. But get your management sorted out and sort out the problems at home first.” If he is right the axe might fall on more necks at the GLCs before Azman’s term is up.
