Stop the needless witch-hunt of Khazanah

QUESTION TIME | The timely or untimely disclosure of Khazanah Nasional Bhd’s RM3 billion losses in 2008 raises questions as to why this is being revealed now, a decade later; the manner in which it was disclosed in Singapore’s Straits Times; and the purpose of the revelation.

To determine whether Khazanah was reckless or not when it made that investment – more than half of which was subsequently recovered, according to the report yesterday – it is necessary to look at how the investment was made at the time.

That will help shed some light on the political motives for revealing the information, kept well-hidden for 10 years, and whether those facts are being used to discredit the Khazanah management and board in furtherance of the government’s own aims.

The board, including its CEO Azman Mokhtar, spectacularly offered to step down via nine undated letters of resignation, leaving Prime Minister Dr Mahathir Mohamad with a free hand to choose the new board and CEO.

For reasons which have not been publicly disclosed, Mahathir inexplicably accused Khazanah 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? Khazanah has no such explicitly stated mission or objective.

Mahathir went on to say that he would revive the concept of Malaysia Inc - a plan touted in the 1990s to align government and business interests, which unfortunately came to be synonymous with privatisation of plum projects and the sale of government stakes to cronies when Mahathir was first at the helm.

Does he want to do the same now, and is he eyeing Khazanah’s investments for this purpose?

The ‘reckless’ investment

But first, was Khazanah actually reckless in 2008? According to the Straits Times report, Khazanah had in 2008 "embarked on a highly confidential investment strategy," whereby the fund placed some of its money with banker Luqman Arnold, who through his investment group Olivant, managed some of Europe's financial powerhouses.

It said this was dubbed as ‘Operation Twist’, which then morphed into ‘Operation Red’ when Khazanah, together with Olivant and Spain's Santander Bank, acquired a 2.6 percent interest in Swiss Bank UBS.

The entire shareholding in UBS was held in accounts under Lehman Brothers, which in 2008 filed for bankruptcy.

"That deal, however, collapsed spectacularly when Lehman Brothers went bankrupt in late September 2008. The entire shareholding in UBS was held in accounts managed by the failed Wall Street bank, resulting in the complete wipeout of Khazanah's RM3 billion investment," said the report.

The Straits Times also stated that Khazanah had aggressively attempted to recoup its losses from the failed investment and recovered about half of its investments four years later by lodging a claim with Lehman's global administrator, PricewaterhouseCoopers.

That makes the final loss some RM1.5 billion. Was Khazanah reckless? Perhaps not, because it could not have anticipated the bankruptcy of Lehman. If anything, and in the interest of transparency, it should have disclosed the loss then. But not all sovereign funds are transparent.

Others too lost money on UBS. Singapore’s secretive GIC reportedly booked a loss of US$4 billion when it sold its stake in UBS last year.

According to a 2008 report in The Independent, many hedge funds faced possible losses because Lehman held billions in its accounts, and that it would take many years to sort out.

Earlier on May 24, 2018, barely two weeks after GE14, Reuters reported in an exclusivethat the Malaysian government used RM1.2 billion raised from Khazanah to pay 1MDB dues. This was taken to mean by some, including finance minister Lim Guan Eng, that Khazanah bailed out 1MDB.

Khazanah, however, disputed this. In a statement, it said that on March 14, 2014, the Finance Ministry redeemed RM1.8 billion of the RM3 billion redeemable preference shares that the ministry owned, and a further RM1.2 billion on Aug 11, 2017.

“It is important to note that as the sole holder of the RCCPS (the preference shares), MOF possesses the right to redeem the RCCPS at any point of time,” the statement read.

Khazanah is, of course, right on this. It gave the money to the government and the government was entitled to it. What the government did with the money is not Khazanah’s fault.

PM's prerogative?

Is it a witch-hunt that the government is embarking on? Remember former Bank Negara Malaysia Governor Muhammad Ibrahim who resigned after what was said to be a tumultuous meeting with the Council of Eminent Persons (CEP).

Muhammad had maintained in an email to staff - his parting message - that he had done nothing wrong and was not responsible for what the government did with the money, again correct.

Two top judges reportedly resigned as well after meeting with the chair of the CEP, Daim Zainuddin. It looks like the council is rather powerful, usurping even the power of cabinet.

And then there was Abdul Wahid Omar, a former CEO of Telekom Malaysia and Malayan Banking Bhd, who had to go as executive chair of PNB while in the middle of a remake of the unit trust manager which has some RM280 billion under management.

And why did Mahathir snub Khazanah and not give Azman a meeting and a chance to explain matters? What does he want to do with Khazanah? What does he want?

He welcomed the resignation of the board but offered no reasons as to why they had to go. And strangely, he is now starting to echo his supporters’ assertions that it is the premier's prerogative to appoint the fund's new board members, re-designate some to other entities and to retain others to allow for continuity.

When you force people to resign by making them ineffective and unable to make decisions because the board is incomplete, is that following due process and rule of law, as Mahathir likes to emphasise?

Or is it thinly-veiled intimidation to get your way and to get your own people into key positions, even if it means sacrificing the organisations involved and setting the country back?

And will these people have the guts to go against you if necessary, given the history of how professionals were treated? Indeed, will true professionals serve under you under such circumstances?

Let’s remember that Najib had prime ministerial prerogative too, and he used that to do a lot of “funny things” – the term Mahathir used for Khazanah’s actions. But prerogative has to be exercised and must be seen to be exercised reasonably and not abused. Where is the promised consultation and consensus within Harapan and the cabinet to make decisions?

Minority PM

Mahathir is a minority prime minister – his party, Bersatu, has only 13 parliamentary seats in the Harapan coalition. PKR has 50, DAP 42 and Amanah 11. Warisan, although officially not part of the coalition, has eight.

Out of the total 116 parliamentary seats (minus Warisan), Bersatu has only 11 percent, but Mahathir acts as if he has two-thirds! That’s because he has slyly neutralised DAP by offering its leader, Lim Guan Eng, the coveted finance position – without so much as indicating that to PKR, as well as Amanah and Warisan, the latter two given more cabinet positions than their numbers would indicate.

If PKR and DAP, the big boys here – not Bersatu – exercise their rights and prerogatives and serve honestly the constituency that voted them in, they can remove Mahathir as head of the coalition and hence remove him from his position as prime minister.

Both seem strangely silent as Mahathir rides roughshod over the reform hopes that Malaysia has voted for, DAP more so because of that plum finance ministry post.

It seems now when there is a change of government, there has to be a change of the key people in key government agencies, even if they had been doing a professional job all this while.

The only reason capable, professional people who have a proven track record are replaced is because of cronyism – putting people in place who would do your bidding – much like what Najib did before with his arbitrary appointments and dismissals.

That’s not what we voted for. PKR and DAP must have the guts to put Harapan back on the right path.

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P GUNASEGARAM says promises are easy to make but difficult to keep. Email: t.p.guna@gmail.com. - Mkini