Mega IPOs puts focus on Putrajaya-dominated economy

Datuk Seri Najib Razak delivers his keynote address during the launch of the initial public offering of IHH prospectus in Kuala Lumpur, July 3, 2012.—Reuters pic

KUALA LUMPUR, July 25 ― Today’s US$2 billion (RM6 billion) listing of IHH, the third-largest initial public offering (IPO) in the world this year after Facebook and Felda Global Ventures Holdings (FGVH), will help earn Malaysia bragging rights but also draws attention to the dominating presence of the government in the economy and the comparatively lacklustre state of private enterprise in the country.

Unlike Facebook, which was hatched by students in a college dorm before becoming global phenomenon and one of the top 30 largest companies in the US, IHH and FGVH rose from carefully-orchestrated government involvement in business, possibly reflecting fundamental differences between the world’s largest and most advanced economy and Malaysia.

A comparison between the list of largest listed entities in the US and Malaysia is telling.

The top 10 largest companies in the US by market capitalisation are all private enterprises. These include Apple, Exxon, Microsoft, IBM and Google ― companies that are technological leaders and world beaters in their field.

In contrast six of the top 10 in Malaysia as at May this year are government-linked companies (GLCs) ― Malayan Banking, Sime Darby, CIMB Group, Petronas Chemicals, Tenaga Nasional and the Axiata Group.

With its market capitalisation of about RM21 billion, the Khazanah-controlled IHH could also sneak into the top 10, possibly replacing IOI or DiGi at some point.

According to the website of the Putrajaya Committee on GLCs (PCG), GLCs make up 36 per cent of Bursa’s total market capitalisation and a significant 54 per cent of the benchmark FBM KLCI index.

The dominance of government in business can be traced back to the Barisan Nasional’s approach of a more state-directed economy as opposed to a private enterprise driven economy like the US.

The government’s involvement in business is widely seen to be due to its mission to elevate Bumiputera wealth as GLCs could be directed to provide employment and access to contracts for Bumiputera vendors as well as groom Bumiputera managers.

The global financial crisis has made a case for stronger government supervision, but in Malaysia’s case, the preponderance of government intervention in the economy could have also encouraged an over-reliance on the state and dampened the country’s entrepreneurial drive, unlike in the US where business is a largely private affair and the government is not expected to play a major role.

Many businessmen are also frustrated by what they perceive to be preferential treatment from the government for GLCs that give an unfair advantage.

While the Najib administration has stated its intention to change things by divesting some of the government’s stakes in GLCs and promote private investment via the Economic Transformation Programme (ETP), matters may have already progressed to a point where it is difficult for the country to shake off its reliance on government.

This can be seen from how the ETP is supposed to be driven by business, but the government had to once again take the lead by using “catalytic” mega projects such as the MRT and Petronas’s RAPID petrochemical complex to boost confidence and spur private sector investment.

And while government linked IPOs such as IHH and FGVH take centre stage, private sector IPOs are outshone and left in the shadows.