Here’s how Khazanah can spread its wealth

QUESTION TIME | Can members of the public, instead of just the connected bigwigs, get a slice of the corporate cake, if all or part of Khazanah Nasional Bhd’s realisable value of about RM160 billion at the end of last year is disposed of?

This is about 57 percent of total assets under national unit trust management company Permodalan Nasional Bhd or PNB with RM280 billion of assets managed as at end 2017.

The unequivocal answer is “yes”, a unit trust scheme can be easily devised for Khazanah’s assets and you and I and millions of other Malaysians could become beneficiaries - provided the new Pakatan Harapan government under Dr Mahathir Mohamad shunts Malaysia Inc aside in favour of a partnership with the public. It really can be done and it will earn plenty of credit for Harapan. Let’s explain.

When Prime Minister Mahathir accused Khazanah Nasional of deviating from its original objective of helping the bumiputera, what did he mean? Was he confusing this with Permodalan Nasional Bhd which was set up specifically to increase and retain bumiputera participation in the corporate sector?

"But along the way, Khazanah decided it should take all the shares for itself and if they are good shares well why not acquire the shares at the time of listing when the price of shares was very low and so they forget entirely about holding the shares for the bumiputera. They decided that they should be holding the shares forever as a part of the government companies owned by the government," he said.

But an examination of its corporate profile shows no such objective for Khazanah. Here is its mandate: “Khazanah strives to create sustainable value and cultivate a high-performance culture that helps contribute to Malaysia's economic competitiveness. Utilising a proactive investment approach, we aim to build true value through management of our core investments, leveraging on our global footprint for new growth, as well as undertaking catalytic investments that strategically boost the country's economy. We also actively develop human, social and knowledge capital for the country.”

Yes, under the previous government it was to divest some of its stakes in investments gradually, but not necessarily to bumiputera. Increasing the bumiputera stake in the corporate sector fell squarely upon the shoulders of PNB which was set up for that purpose.

Its first chairperson, former Bank Negara Malaysia governor the late and straight Ismail Ali, Mahathir’s brother-in-law, set up PNB in 1978 and came up with the structure of PNB and its unit trusts to increase and retain bumiputera corporate interests.

Surely Mahathir knows that as he was prime minister and chairperson of PNB’s holding company from 1981 up to 2003 during his previous term.

What is Mahathir’s game? And is the seeming pressure that appears to be put on Khazanah and its staff, alleging high salaries etc, an attempt to justify the selling of Khazanah’s investments to others/cronies?

Is this fair on Khazanah executives who have done a pretty good job of transforming Khazanah after Abdullah Ahmad Badawi took over as prime minister in 2003 from Mahathir and instituted wide-ranging reforms to make it a professional organisation run according to strict rules of governance and accountability?

Few who have followed Khazanah closely over the years will deny the tremendous improvement Khazanah has undergone since 2003 compared to the first 10 years of its existence after its establishment in 1993 during Mahathir’s previous tenure when it had been associated with some questionable investment decisions to bail out crony companies.

In fact, Khazanah led the transformation of GLCs (government-linked companies) through various initiatives which included systematic strengthening of board and management, a system of key performance indicators and a series of rules for good corporate governance. If 1MDB had followed the measures instituted, it would not be where it is because its mismanagement and theft would have been discovered and exposed a long time ago.

A revolutionary scheme

Khazanah’s investments include some of the largest companies on the stock market which have a respectable amount of management expertise with them. These are listed companies and salaries must be competitive with others to retain and build a good staff.

Among key companies, four of whom are among the top 10 in terms of market value, are Axiata Group Berhad, CIMB Group Holdings Berhad, Tenaga Nasional Berhad, Telekom Malaysia Berhad, Malaysia Airports Holdings Berhad, IHH Healthcare Berhad and UEM Sunrise Berhad.

If Mahathir wants to sell major stakes in these companies, perhaps to raise funds or perhaps to increase bumiputera participation, or perhaps to sell to favoured people, he must remember two things - there may not be enough bumiputera with the means to acquire these companies and as in the past, unscrupulous investors may sell down their stakes for profits or cut costs so much that businesses become unviable.

There is another way to do it - spread the wealth around. PNB and Ismail showed the way a long time ago - unit trusts. Put good investments into a unit trust and sell the units to the general public. Give them a better deal than current unit trusts which have exorbitant entry and exit fees and a high management fee to boot.

With some RM160 billion under its management, just a 0.25 percent management fee and with no other charges, Khazanah can get RM400 million a year which should be more than enough to cover staff operating costs. The government gets RM160 billion or thereabouts if all investments are put into the unit trust, and the public gets to invest its excess funds in quality assets at zero entry and exit costs and a low management fee.

But it has to be prepared to pay market costs for subsequent sale and purchases as with any other unit trust, which is fair. You could even allow EPF withdrawals for purchases.

To keep it within reach for as many people as possible, cap the maximum amount of investments by anyone Malaysian at RM50,000, same as for PNB units. This could mean an investor base of probably at least 3.2 million people (160 billion divided by 50,000) and perhaps much more than that as many people can’t afford to invest RM50,000 in one go.

You can set bumiputera allocation at 30 percent at least and allocate other parts of it to other disadvantaged communities. You can issue the units in stages.

Khazanah’s track record has been pretty good and mimics quite closely the main index tracking of the Kuala Lumpur stock market. Its value, adjusted to accurately reflect performance, increased annually by 9.3 percent on a compounded basis between 2004 and 2016 which is very much in line with the FBM KLCI index growth of 9.4 percent over the same period.

This also means that despite divesting the shares, the government will still have control over the companies through the unit trusts, and ensure that both their social as well as profitability roles are fulfilled. It actually is the road to greater corporate social responsibility.

There you have it, a simple but revolutionary scheme, easily implemented, and shall we say, the most inclusive deal that anyone can come up with.

Over to you Harapan, and if you want a catchy name for this, here are two:

Government-People Partnership (GPP) or Public People Partnership (PPP).

Take your pick.

P GUNASEGARAM would like to charge a fee of 0.01 percent of net realisable value for this valuable piece of advice, much lower than any investment bank. Goldman Sachs took a hefty US$600 million for raising US$6.5 billion for 1MDB or 9.2% of funds raised or 920 times or 92,000% of my charge. E-mail: t.p.guna@gmail.com -Mkini