Ups and downs of ‘Corporate Malaysia’
Winds of change sweep across the business stratosphere in 2018
IT is indeed an era of new beginnings for Malaysia with the historic change of government, which later spills over into ‘Corporate Malaysia’.
After the political shift of May 9, another major shake-up occurred among the top brass of major Malaysian corporations, particularly in government-linked companies (GLCs), of which the heads are being targeted as their appointments were made at the gains of the past government, led under Barisan Nasional (BN). It is said that many of these GLC bosses were ‘gifted’ board positions in recognition of their services to the former administration.
These changes are part of the reform programme of the new Pakatan Harapan (PH)led government, helmed by Prime Minister Tun Dr Mahathir Mohamad.
It all started when Shahrir Abdul Samad stepped down from his position as chairman of the Federal Land Development Authority (Felda). Felda, which continues to be embroiled with scandal over the past two years – the latest involving a hotel in Kuching – registered a net loss of RM849 million in its third quarter ending September 2018.
On the same day, Tan Sri Irwan Serigar Abdullah’s contract as Treasury secretary-general was cut short, and he was transferred to the Public Service Department (JPA). Irwan has since quietly stepped down from board positions of companies under the Finance Ministry.
A week later, Datuk Seri Abdul Azeez Rahim relinquished his position as the chairman of the pilgrims fund, Lembaga Tabung Haji. In September 2018, Abdul Azeez was under investigation by the Malaysian Anti-Corruption Commission (MACC) over allegations of corruption and money laundering, which allegedly runs into seven-digit figures.
This was followed by the resignation of Bank Negara governor Tan Sri Muhammad Ibrahim after having served less than two years. His resignation came weeks after questions were raised over the Malaysian central bank’s RM2-billion purchase of government land, the proceeds of which were allegedly used to bail out the troubled state fund 1Malaysia Development Board (1MDB).
Other key resignations related to GLCs included that of Telekom Malaysia Bhd (TM)’s group chief executive officer (CEO) Mohammed Shazalli Ramly and Malaysia Airlines Bhd’ board member Habibul Rahman – both believed to be close associates of former premier Datuk Seri Najib Tun Razak.
Independent non-executive director of national oil company Petroliam Nasional (Petronas), Datuk Mohd Omar Mustapha also tendered his resignation on June 1. Moreover, Petronas chairman Mohd Sidek Hassan is also expected to relinquish his position in the national oil company.
Syed Hamadah Othman replaced Datuk Wan Kamaruzaman Wan Ahmad at Kumpulan Wang Persaraan Diperbadankan (KWAP) early this month – the latter had led the country’s largest public services pension fund for five years.
Astro Malaysia Holdings CEO Rohana Rozhan had also quit her position.
TM announced the sudden resignation of its acting group CEO, Datuk Bazlan Osman effective Nov 16, 2018. He would also resign as executive director, to take effect on Feb 28, 2019.
In September, Nik Amlizan Mohamed was appointed the new CEO of the Armed Forces Fund Board (LTAT), replacing Tan Sri Lodin Wok Kamaruddin who had led LTAT for 36 years.
Group managing director of construction firm Malaysian Resources Corp Bhd (MRCB) Tan Sri Mohamad Salim Fateh Din announced his retirement, with Salim’s son Mohd Imran Mohamad Salim taking over the former’s role. MRCB had also restructured its board by redesignating Tan Sri Azlan Zainol as its independent chairman. Malaysian equities increasingly ‘off the radar’ All these political changes have taken its toll on Malaysia’s equity market. Industry observers see that domestic equities are increasingly ‘going off the radar’ of international investors as the heavy involvement of government-linked institutions in publicly-listed companies has limited trading liquidity and led to distorted valuations.
This occurred as the government was ‘too active, too involved, and too big’ in activities that would best be left to a free market to operate, said Value Partners Group Ltd chairman and co-chief investment officer Datuk Seri Cheah Cheng Hye.
Speaking at a press conference after the opening of its Malaysian branch in October, Cheah said from an international investor’s point of view, the structural problem of the Malaysian equity market lied within practices of the ‘almostmandatory buyers’ who ended up distorting free market prices and valuations.
He said this in reference to GLCs such as Khazanah Nasional Bhd, Employees Provident Fund (EPF), LTAT, KWAP and Permodalan Nasional Bhd, which had been consistently accumulating shares in publiclylisted companies, and freezing their portfolios thereafter.
“One unforeseen effect is that it shrinks the size of the free market available for investors. The free float level of the Malaysian stock market today is the lowest in the region, at less than 35 per cent, when ideally it should hover between 40 and 60 per cent,” Cheah said.
However, Cheah said it was ‘not all doom and gloom’ as the ideal 40-60 per cent free float level should be achievable if the GLCs were to pare down their shareholdings.
Accordiing to him, the Malaysian market remains attractive as it is relatively stable, boasts strong connectivity to Asean and the Middle East, and is one of the most advanced economies in the region. Ray of light On a more encouraging outlook, Malaysia managed to ascend nine places to the 15th spot in the World Bank’s ‘Doing Business 2019 Report’, which based its rankings on business regulations and ease of doing business among 190 economies worldwide.
World Bank senior economist and statistician (development economics– global indicators group) Arvind Jain said an acceleration in reforms had helped propel the country to be among the top 20 ranked economies globally.
“Malaysia carried out six business reforms in the past year, and it resulted in the dramatic increase in the overall business score, which led to the jump from 24th position to 15th this year,” he told a media briefing on Nov 1.
The reforms were in terms of starting a business, dealing with the construction permits, securing electricity, registering property, trading across borders and resolving insolvency.
Noting that reforms were tough tasks, Arvind commended Malaysia’s track record for the past cycle in the reform agenda and expressed his hope that Malaysia’s ranking would be sustained in the top 20.
“A reform in the past year to improve the construction permit process helped advanced the country to a global rank of three in the area of dealing with construction permits, whereby it now takes 54 days to obtain the permit in Malaysia, compared with 158 days globally and 133 days on average in the East Asian and Pacific regions.”
At the moment, Malaysia ranks second among Asean members with a score of 80.60, behind Singapore but ahead of Thailand which is at 27th place, Brunei (55th), Vietnam (69th), Indonesia (73rd) and Myanmar (171th).
Malaysia is also among the world’s top five performers in several areas measured for doing business, notably in the area of protecting minority investors for which it ranks second only to New Zealand.
Malaysia’s excellence in this area was underpinned by its perfect score of 10 in the extent of disclosure index, said the report.
In the area of getting electricity, Malaysia ranked fourth globally, with the cost for business to obtain electricity connection in the country being only 26 per cent of income per capita – versus an average of 625 per cent in East Asia and Pacific, the report said. Positive ratings International rating agencies S&P Global Ratings (S&P) and Moody’s Investors Service (Moody’s) gave their stamp of approval for Malaysia’s new government by maintaining the country’s ratings on separate occasions.
S&P, in October, maintained Malaysia’s credit ratings at A- with stable outlook, based on the country’s steady economic growth and the new government’s emphasis on strengthening its fiscal position.
S&P sovereign and international public finance ratings senior director Tan Kim Eng said Malaysia’s growth would be well-supported and investments should pick up after a period of slowdown following the 14th general election (GE14).
“We believe that given the government’s focus on maintaining its budgetary prudence, even though there is a lot of spending to come as a result of electoral promises, I do not believe that the fiscal position would deteriorate,” he said during a media briefing on S&P’s ‘Asean Credit Spotlight Series’ on Oct 1.
Indeed, the GE14 introduced a significant shift in the political make-up of the government, said Tan, but he also added that investors had come to believe that the government would stay and be relatively stable.
“For the first time since independence, we have a government where Umno does not play the leading role — or any role. Naturally, that creates a significant amount of political uncertainty, because people do not know what the new government will come up with, whether it will be stable, or it will continue the kind of policies that investors generally have been used to over the years. “As a rating agency, we are heartened to see that the government is placing quite an attention on trying to bring the fiscal balance sheet back
into a healthy position, and we also see the government is quite welcoming of investments by foreign investors.”
Similarly, Moody’s on Dec 7 affirmed the Malaysian government’s local and foreign currency issuer and senior unsecured debt ratings at A3 – adding that the country’s outlook ‘remains stable’.
“Government debt will stay high for (a) longer (time) and the government’s fiscal policy choices will narrow the revenue base and reduce fiscal flexibility further,” it detailed in a note.
“At the same time, robust growth potential, notwithstanding a slowdown in the next few years, and deep domestic capital markets continue to support the rating at A3.
“A solid institutional framework, including strong monetary policy effectiveness, also supports the credit profile, although in Moody’s view, the government will face hurdles to significantly rein in pervasive corruption.”
Moody’s noted that the new Malaysian government had signalled a significant shift in policy priorities, towards supporting lower incomes and enhancing the transparency of public finances.
“The government’s fiscal choices, most notably the abolition of the Goods and Service Tax (GST), will have long-lasting negative effects on revenue collection.”
The measures implemented and announced, said Moody’s, would lead to a concentration of the revenue base on oil-related revenues and a dependence on nontax revenues, such as dividends from stateowned enterprises, that would limit fiscal flexibility in future
years.