Khazanah – of half-truths and the whole truth

A DAY after Tan Sri Azman Mokhtar bade farewell to his colleagues of 14 years and two months in Khazanah Nasional Bhd last Tuesday, Minister of Economic Affairs Datuk Seri Azmin Ali disclosed in Parliament that the fund had lost RM80mil in an online lingerie business in India.

It’s true that Khazanah had invested US$19 mil (RM80mil) in an online lingerie company in return for a 22% stake in December last year. The company, Zivame, is still a going concern, unlike what the minister had said. It is operating in an industry that is growing because lingerie shopping is considered somewhat taboo in many parts of the country.

It is not spoken about widely and there is a growing demand for customers who want variety in the products.

Khazanah is not the only one putting money in the US$3bil (RM12bil) industry that according to franchise India has grown at a compounded rate of 42% since 2014. There are many other prominent angel investors putting money in no less than six other companies vying for a share of the online lingerie business.

In fact, Khazanah has made RM1bil from investing in e-commerce companies tapping into India’s growing consumer goods segment. It is also sitting on some RM6bil in gains from Alibaba, another online e-commerce company where Khazanah had put in money several years ago.

As a fund, Khazanah has made gains and losses. It operates just like any other sovereign wealth fund (SWF) where there are gains and losses. It achieved gains of about RM100 bil in the last 10 years and losses of about 20% of that amount, leaving net gains of some RM82 bil.

It saw red in Malaysia Airlines Bhd where it lost RM8.4bil, followed by RM5.5bil losses in SilTerra Malaysia Sdn Bhd, a company that manufactures wafer fab.

In the last one week, much has been written about Khazanah’s failed investment in UBS and how it supposedly went into secretive operations to recover the money or keep the whole deal under wraps. It’s true that Khazanah had forked out some RM3.6bil for the venture and managed to recover more than 50% of the amount.

The irony is, when Khazanah put money in Alibaba, it was a deal that was not disclosed publicly. When reports stated that Khazanah was sitting on some US$400mil from the Alibaba deal, the fund remained silent.

Only now do we know that the gain is about four times more than what many had thought.

The point is the fund does not make public its unlisted investments – whether it is making money or not. There is nothing secretive or sinister about it. Most of the time, the investments in private companies are governed by non-disclosure rules.

Some contend that Khazanah’s annual compounded return of 9.6% during the tenure of Azman may not be good enough. For instance, Singapore’s Temasek Holdings Private Ltd that is 44 years old, boasts of a compounded return of close to 15% over the period.

But there is also a view that Khazanah under Azman has done better than Temasek during the same period.

Moreover, Singapore’s Temasek operates in an environment that practises meritocracy. If the CEO of any of its companies is not good enough, there are no qualms of replacing him or her with somebody else, even though the person is a foreigner.

There are no restrictions if it decides to sell any of its operating subsidiaries, whether it is local or overseas.

Khazanah, in contrast, operates like an SWF but also has to fulfil the social obligations laid out by the government. All companies under Khazanah give contracts to only companies that are majority owned by bumiputras. Khazanah’s operating subsidiaries can only be sold to entities that are majority owned by bumiputras.

Lastly, there is criticism that Khazanah’s operating subsidiaries also took on huge debts over the years. The figure is said to be some RM50 bil. It could be true as PLUS Malaysia Bhd alone has debts of RM30bil.

But the question is, are the debts so large to the extent that they are a danger to the company or the shareholders? The answer is no, which explains the improved state of the companies compared to some 15 years ago.

Also, any investor would know that any balance sheet without any debt is not efficient. It is deemed a “lazy” balance sheet because the managers are not optimising the returns for shareholders.

The new government has decided it wants a new Khazanah. It is rightly the prerogative of the Prime Minister.

Hopefully the new beginning does not ostracise the past achievements of Khazanah.