Wednesday, December 16, 2009

Why Is Khazanah Disposing GLC Shares?

Khazah has in the past 3 months been aggressively selling down its stakes in many of its majority owned government linked companies (GLCs). The latest disposal was the sale of 86.75 million shares of Tenaga Nasional Berhad (TNB) at RM8.10 each raising in exchange RM703 million for Khazanah.

In October and November 2009, Khazanah also sold approximately 114.9 million shares of PLUS Expressways Berhad, raising more than RM360 million. Prior to that, Khazanah had also sold 5% of Malaysia Airports Berhad in September.

(Note: the 114.9 million shares (RM360m) is higher than the 95.6 million (RM310m) shares published in other news portals because I had provided the wrong info, hence it's not their fault. Apologies)

On the surface, Khazanah has sold these shares on the pretext that they are intended to increase the free float and liquidity of the Malaysian stock market. It has been suggested that this would enhance the participation of foreign institutional investors.

However, it is uncertain if these sales are made with the sole intention of increasing the free float of these companies. For example, while Khazanah has disposed of 86.75 million shares in TNB, 50 million of these shares were placed to the Employee Provident Fund (EPF) which have little impact on TNB's free float.

(The Star had an article today which I missed earlier when issuing my statement. It notes that foreign funds were unhappy with the 50 million placement to EPF, for the same reason which I had raised)

In reality what has actually taken place is the TNB shares which were previously held with Khazanah, are now held by another government related institution, the EPF. The only difference is that the EPF which is funded by Malaysian workers have paid RM405 million for these shares to the Government of Malaysia. The EPF has also been a net buyer of PLUS shares.

As a result, it is critical for Khazanah to be transparent with the public as to the full rationale for these sales and what wil Khazanah do with the billions which will be raised from these sales.
(I)Will Khazanah be channelling these funds back to the Federal Government, which at this point of time is desperate for additional funds to top up its declining oil revenues and plug the budget deficit? It may possibly appear that the Government is so short of funds, that it is not only raising various new taxes, but also selling its stakes in GLCs to raise funding.

(II)Or will Khazanah be utilising its additional funds to top up investments in its biggest project – Iskandar Malaysia, which is facing shortfalls in investments due to its over-dependence on Middle-Eastern funds such Dubai World and Damac Properties? In addition, is Khazanah selling the GLC stocks because it needs the money to complete the required infrastructure for the land which has been sold to foreign investors as rumoured in the financial circles?
The above questions are particularly pertinent since Khazanah is also planning a US Dollar Exchangeable Sukuk next year to raise additional funds, secured with its shares in the Malaysian GLCs. This shows that the intent of Khazanah is not entirely to reduce stakes to “improve liquidity” of the local stock market, but actually to raise funds, as issuing sukuks will not improve market liquidity.

Khazanah must therefore explain fully the above questions to ensure that public funds are not abused, and more importantly, good money will not be used to chase after bad. Otherwise, not only will Khazanah be reduced to managing RM20 million heritage sites, it will also lose the trust of the Malaysian population.
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