The Economic Transformation Plan (ETP) launched by Pemandu of the Prime Minister's Department had projected a total investment of US$444 billion or RM1.4 trillion is required for the 131 “transformative” projects to make Malaysia a “high-income” nation by 2020.
Out of the US$444 billion required, 60% is expected to come from the private-private sector, while 32% is expected from the government-private sector or the Government-linked companies (GLCs) and the balance of 8% from the government itself. Based on the above assumptions, the expected investment over the next 8-9 years for our GLCs will be a total of US$142 billion or RM454 billion.
To determine if the ETP has any remote chance of success would require the above investment targets to be realistic and digestable by our GLCs. The pertinent question then is whether our GLCs are able to deliver the expected amount of new investment which averages more than RM50 billion per annum til 2020?
And to determine if the expected spending of RM454 billion or RM50 billion per annum is realistic, we will first have to review the size and potential appetite of these GLCs. Under the Government's Putrajaya Committee which measures, monitors and tracks the performance of our top 20 GLCs (G20) which are the largest Malaysian GLCs expected to take up the total, if not all of the investing burden under the ETP.
I've identified the G20 companies which are listed on Bursa Malaysia and added the Petronas-related companies which are not part of the G20. At the same time I've excluded form the list GLC banks – Maybank, CIMB, BIMB, RHB, Bursa Malaysia, Affin Bank and MBSB which are not expected to invest directly or significantly in the ETP projects but to facilitate or finance them as and when required.
They are all listed on Bursa Malaysia, and their details are as per Table below.
Table 1: Top GLCs Listed on Bursa Malaysia (excl Banks)
The figures are extremely telling. These companies are in no position to be investing RM454 billion over the next 8-9 years. The combined market capitalisation of these GLCs is only RM266 billion, but we are actually expecting them to invest in an amount that is nearly double their current size over the next few years. It is akin to a person attempting to digest food double his weight within a short period of time!
What's more, by reviewing the balance sheets of these 17 largest GLCs, the consolidated debt of all these companies amount to an already sizeable RM38.6 billion. At the same time, the total shareholder funds invested in these companies to date is only RM140 billion.
Any equity or financial analyst will tell you that it will be crazy to expect GLCs to raise additional hundreds of billions of ringgit in debt to fund the RM454 billion worth of ETP projects. Or it will be similarly mad for the GLCs to be seeking to quadruple their shareholder funds by raising more money from shareholders during this period, especially since the Government itself will have to bear the brunt of the fund raising exercise.
The above also doesn't take into account the fact that many of these companies are facing their own set of financial problems such as Sime Darby with its follies in the energy sector, Tenaga which always faces tricky cashflow issues or MAS and Proton which are still struggling with their turnaround plans.
Hence it appears that while the ETP has identified plenty of projects which looks extremely pretty on paper, they are but pies in the sky. The Prime Minister and Pemandu has failed to explain how our GLCs are expected to invest a whopping RM454 billion over the period of time.
Malaysians are excited by what the ETP projects hope to achieve and we all want the country to achieve a high-income nation status. We will however, not achieve these goals if these figures are just plucked from the sky. To ensure and protect the credibility of the Government's plans, the Prime Minister must explain during his speech for the Budget 2011 this coming Friday, on how exactly are we going to find the RM454 billion for our GLCs to invest in the ETP projects, as well as the balance of RM850 billion anticipated from the “private-private” sector.