Surachet aims high with Aseambankers
IT IS NOW well over two years since Malaysian prime minister Abdullah Ahmad Badawi announced a revamp of Khazanah, the state’s investment arm, with the proclamation that the proposals represented “nothing less than a remaking of Malaysia Inc”. One of its goals included reviving the country’s government-linked companies, whose performance up to that point was nothing short of underwhelming.
Khazanah set about modernizing the GLCs through a series of initiatives and performance targets. Guidelines were issued to help transform the GLCs and specific directives have been released on enhancing board effectiveness, procurement and performance management. More will follow in due course.
In addition, western-educated, younger and supposedly sharper leaders were brought in to replace old managers. These new executives were put on fixed-term contracts whose renewal depended on meeting set targets. Corporate discipline was the new mantra.
But is Khazanah’s approach working?
As far as management prowess is concerned, there has definitely been an improvement. “The quality of the management, the level of integrity of management and their general handling of finance is far better today,” says Nazir Razak, chief executive of CIMB, one of the leading GLCs.
Another banker says that the introduction of key performance indicators (KPIs) has led to a more performance driven culture. Yet he puts his finger on the problem still facing many of the GLCs when he adds: “Whether these KPIs are aggressive enough and whether they keep [senior managers at the GLCs] awake at night, I doubt it.”
The overall financial performance of Khazanah’s portfolio is disappointing. In its half-year report released in June, the investment vehicle revealed that while its portfolio was up 13.1% in the two years since its revamp, it had barely moved in the 12 months since May 2005, up only 0.4%. In other words, its investments performed well in the first year after the prime minister’s bullish words but now the shine is beginning to wear off. Some companies are faring particulalrly poorly. The share price of Proton Holdings, for example, is down 27% year-to-date, according to AmBank.
Khazanah maintains that the GLC transformation programme remains on track and undoubtedly the financial fortunes of some of these companies have turned around for the better. The share price of Time Engineering is up an eye-catching 118% year-to-date. Meanwhile another engineering conglomerate, UEM World, recorded a consolidated net profit of M$198.5 million (US$54.1 million) for the first half of this year compared with a loss of M$45.8 million over the same period in 2005. The company’s revenues almost doubled to M$2.2 billion.
The firm is blessed to be involved in the south Johor development plan, one of the main initiatives outlined in the Ninth Malaysia Plan.
Overseas expansion
Other GLCs, however, are facing much harsher domestic environments. Telekom Malaysia (TM), for example, is struggling to grow its local fixed-line business in the face of tough competition and a price war. This is particularly worrying for the company as the fixed-line business is the biggest contributor to its overall revenues.
One way TM and other GLCs are mitigating their domestic risks is by expanding overseas. In May, the telecoms provider bought a 49% stake in India’s Spice Communications, bringing the number of international markets in which it has a presence to nine. Fitch Ratings reckons that its regional investments will drive the company’s earnings growth in the long term.
To see in more detail how well the GLCs are faring, in the following pages Euromoney profiles three contrasting GLCs: Aseambankers, Telekom Malaysia and UEM. The last two are part of Khazanah’s portfolio; Aseambankers is the investment-banking arm of Maybank, the country’s biggest GLC. Maybank is not a Khazanah investment; rather a number of other government-controlled bodies hold a combined stake of 57.75%. All three have taken positive steps but, to varying degrees, all have much more to do.
