Consider only those with integrity for Khazanah’s top post

WITH more than a year to go before Tan Sri Azman Mokhtar’s term as head of Khazanah Nasional Bhd comes up for review, the lobbying is already building up for his position.

This comes despite Khazanah saying that a process has already been put in motion to map out the succession plan of the sovereign wealth fund, which had net assets – after adjusting for liabilities and transfers to the government – of RM102.1bil as of end2016.

In 2004, the figure was only RM33.3bil and Khazanah was a pale shadow of what it is today.

Khazanah under Azman has performed well over the past 13 years than other sovereign wealth funds in the region.

Khazanah is the entity that drives the federal government’s commercial objectives in the corporate world.

It is a fundamental institution in the local capital markets after 2004 when the government decided that corporate Malaysia needed a makeover.

Khazanah headed the initiative called the Transformation of Government-Linked Companies (GLCs) in 2005.

The man who came up with the idea was Tan Sri Nor Mohamed Yakcop, the central banker and adviser to the Prime Minister as Malaysia recovered from the 1998 economic crisis.

The initial years were tough for Azman and his team. They had to deal with the old guards of corporate Malaysia. Over the past 13 years, Khazanah has cleaned up the GLCs into decent outfits.

Prior to 2000, well-connected entrepreneurs who were given the best of government contracts led these companies.

When the storm came during the 1998 financial crisis, almost all the companies driven by connections to the government were caught with debts running into the billions.

This prompted the government to start taking back these companies, with the taxpayers absorbing the losses.

The exercise came under criticism because the entrepreneurs walked away with millions, with the government left holding the losses.

The effect then was known as “profits going to the private sector and losses being absorbed by the government”.

Malaysia Airlines, which is still a burden to Khazanah, and Silterra Malaysia, the manufacturer of wafer thin chips that never saw the light of day despite millions being pumped into the company, are some examples.

On top of that, companies such as Tenaga Nasional Bhd (TNB) and Telekom Malaysia Bhd (TM) had to give out sweetheart deals to well-connected corporate figures who made billions.

Some reaped the benefits, invested their profits outside the country and now claim that they never gained from all the lucrative contracts.

Ask any chief executive of TNB or TM and they will tell you horror stories of how they have to deal with 200 division heads and 800 assemblymen every year.

These practices bogged down the corporate sector and there was a crisis of confidence, especially in the aftermath of the 1998 crisis.

Incidences such as UEM Bhd buying a block of shares of its parent company Renong Bhd when the latter came under heavy selling pressure brought to light the poor corporate governance of the well-connected companies.

Since then, Azman and his team have put in place a governance structure that has earned it the respect of the international investment community.

Khazanah’s realisable asset value, after marking the investments to market value, was RM145.3bil as of the end of last year. Shareholders’ funds have grown from RM13.2bil to RM35.58bil.

It has paid out to the government some RM8.46bil in dividends since 2004. The amount to be paid out as dividend is something that lies entirely in the hands of the government, just like Petroliam Nasional Bhd (Petronas).

If more is paid out, then the likes of Khazanah and Petronas have less to spend on reinvestments and to grow their business.

In Khazanah’s case, it has shareholders’ funds of RM35.58bil, which technically belongs to the government. If the government wants more money, it can as a shareholder, get it.

Critics argue that Khazanah could do more in sweating its assets to build up value. That is true because some of its companies seriously lack entrepreneurial drive.

However, what it lacks in entrepreneurial drive, Khazanah replaces with checks and balances and integrity.

What Azman has instilled in Khazanah is integrity in governing public assets and managing public funds.

This is not a simple task, especially when he has to deal with politicians and well-connected corporate figures.

Khazanah is a well-respected sovereign fund in the international capital markets. It has earned a name among investors and bankers for its professional management that conforms to internationally acceptable standards.

Banks form a long queue to give loans to Khazanah, unlike other funds.

In the last 13 years, we have not seen any blow-out of misappropriation of funds or scrutiny from authorities in other countries on Khazanah’s financial transactions.

We don’t hear of individuals outside the realm of public service having overwhelming influence on Khazanah’s investment directions.

For a fund such as Khazanah, integrity in leadership is the key criterion. It handles public money and makes investment decisions on behalf of the government.

Anybody who comes into that position must have a track record that is not stained. Anybody with the slightest whiff that runs smack against the highest level of integrity should not be considered for any position in Khazanah.

Being articulate and displaying ample capabilities are qualities that are insufficient to lead Khazanah.

Only a leader with integrity can stand up to the politicians and the well-connected businessmen.

Azman and his team have built Khazanah into a respectable sovereign wealth fund. It would be a sheer letdown to corporate Malaysia if anyone with a questionable track record is considered for a position in Khazanah, let alone the top post, as the sovereign wealth fund prepares its succession plan.