WHY DID KHAZANAH INVEST IN UBS?
THE alleged purchase of a non-strategic stake in a Swiss Bank in 2008 resulted in a RM3 billion loss, a Singaporean newspaper claims. Economists say the deal is questionable and reflects a lack of transparency.
KHAZANAH Nasional Bhd’s alleged investment in a non-strategic stake in Swiss Bank UBS has raised eyebrows, with economists and analysts questioning whether the sovereign wealth fund has deviated from its core mandate.
The RM3 billion investment in UBS was wiped out following the collapse of Lehman Brothers in September 2008, as the shareholding in UBS was held in accounts managed by the failed Wall Street bank.
However, Khazanah managed to recover about half of its investment several years later.
Veteran economist Tan Sri Ramon Navaratnam said yesterday if the investments were true, Khazanah had lived up to allegations of being twisted and should be responsible for putting the government’s coffers in the red.
“If what we are reading today is indeed true, Khazanah, which is made up of the nation’s best brains, has let us down.
“There is no such thing as upholding the mandate if they are willingly taking that much of a risk. They should be careful with taxpayers’ money.”
Singapore’s Straits Times reported that Khazanah had in mid-2008 embarked on a highly confidential investment strategy code-named “Operation Twist”.
It involved the diversification of its investment portfolio into Europe by placing some money with banker Luqman Arnold (See story below).
When contacted, Khazanah said it would not issue a statement on the matter.
Ramon said the Khazanah investment was the result of the previous government’s lack of transparency and would cause a major blow to Khazanah’s image as the nation’s highly respected sovereign wealth fund.
“There should be a thorough investigation on the deal, if necessary. We must learn from this mistake,” he said.
Putra Business School analyst and senior lecturer Dr Ahmed Razman Abdul Latiff said the UBS deal was questionable as the 2.6 per cent stake was not a controlling stake and Khazanah might not have any representative on the board.
“This will be a problem if they need to make strategic decision. When we think about Khazanah owning less than five per cent stake in UBS, it does not reflect that the investment would be done strategically.”
He questioned if the RM3 billion investment for a non-controlling stake was worthy, considering Khazanah’s asset size in 2008. Khazanah had about RM91 billion in realisable asset value in 2009.
Razman said the deal was not declared to the public as Khazanah only started publishing its annual report in 2013.
Sunway University Business School economics professor Dr Yeah Kim Leng said the deal was not unusual, citing a similar deal done by Singapore’s sovereign wealth fund, Government Investment Company (GIC).
According to a Singapore Straits Times report, GIC lost an estimated US$4 billion (RM16.2 billion) on the purchase of UBS stakes at the time of the global financial crisis in 2008.
“Since then, the worldwide trend was geared towards greater transparency and scrutiny of sovereign wealth fund activities to ensure good governance and prudent investment.”
Recently, Prime Minister Tun Dr Mahathir Mohamad had said Khazanah should to return to its original purpose.
He accused Khazanah of doing “funny things”, including buying houses and taking over companies, when it was initially formed to buy up shares allocated to Bumiputeras.
In defending Khazanah, former prime minister Datuk Seri Najib Razak said it was not created to look after the interests of individuals or select groups, but to generate wealth for the country.
He said Khazanah was different from institutions such as the Bumiputera Agenda Steering Unit and Perbadanan Usahawan Nasional Bhd, which were set up to spur Bumiputera involvement in business.