Khazanah to hit or be hit by the M&A trail?

The frontpage of last Thursday's The Star Business Section placed Azman Mokhtar's quote at the top page. Thinking of the failure and questionable deals by Khazanah companies abroad, the prospect of Khazanah's plan to go on the Merger & Acquisition trail is shuddering.

Khazanah was originally formed in late 90s/early 2000s as a holding company to place all of Governmnet's strategic investments into one. When it was formed, the idea was to consolidate the Government's strategic assets and increase ability to invest for the nation's economic future in building capacity and capability in new technologies and economic sectors.

To-date, that objective have not been for all intended purposes met. In fact, that's a common recurring problem in this country. Institutions are established for a specific long term purpose. Change in national leadership and some smart alec will propose an idea to change the objective and the original purpose is ignored. Problems remain unsolved to eternity.

During Tun Abdullah's administration and Tan Sri Nor Mohamad Yakcop leadership of GLC, Khazanah was turned into a portfolio manager of Government's asset. Instead of acting as true managers able to turnaround companies and enhance companies, they were merely financial man taking shortcuts through corporate restructuring after corporate restructuring and financial asset shuffling.

That made billions for the Merchant and Investment Bankers but it did not translate into enhancing the brick and mortar of businesses. All these had minimal direct impact towards the creation of real goods and services that could help increase economic activities domestically, create export income, and create jobs and oppurtunities for Malaysian entrepreneurs, if not Bumis.

It's too far fetch to expect them to carry the Malay Agenda. These accountant trained CEOs understanding of Malay Agenda is only limited to scholarships and jobs for Malays. The term Malays is very much interchangable with Bumiputeras.

Talking about jobs and unemployment, Khazanah companies were the biggest contributor of unemployment. Their idea of corporate turnaround is merely finanical. By retrenching staff of GLCs in the hundreds of thousands, they show cost and overhead is down. As far as revenue building, don't ask. ACCA, ICMA and MACPA taught them that only via low cost could more profit be achieved. There is no such thing as production and marketing in business (sarcasm).

With the current economic situation, is another round expected from this lazy buggers?

Such thinking comes along with the introduction of the magic KPI culture. Quarterly results in the US pleases market players but puts companies into myopic short-term outlook driven by short-term profits. Long term investment slacks and innovation put aside. Institutions became gamblers and players in financial markets and esoteric investment products.

The heavy emphasis on KPI as part of its restructuring plan introduced into GLCs by Ethos Consulting basically retune workers, officers and managers, not only short term outlook but, into turf mindset.

Other than the introduction of KPI, the first phase of GLC transformation was about assessing performance, reforming the Board, restructuring and leadership change. That is suppose to last between 2004 to 2007. The second phase (middle 2005-2006) was manualisation and tehre are some 10 manuals in all types of colurs. The third phase (2007-2010) was about achieving significant results.

Only at the fourth phase will it be about benefiting the nation. It must be too grandiose and alien for a Government corporation to put the people and nation ahead of everything else.

There were four claiemd mandates placed upon them. The fourth mandate, after restructuring, GLC transformation, and corridor development, is new investment. Khazanah announced it will be selling off assets not related to it's businesses. This substantiate the earlier claim that Khazanah is a mere portfolio manager and not subscribing to the idea and spirit of it's formation.

Question is to whom will these assets sold off to? Now that Najib had made his liberalisation announcement, the concern is will it mean strategic assets falling to foreigners' hands? The former Tingkat 4 are experts and will always lend their experise and network in this area. Tingkat 4's Ganen Savaranan is still working with Khazanah and have an important position and role.

The fact that M&A is announced as the way forward shows the myopic, generic and predictable thinking of Khazanah management. M&A should not be the only way for new investments or creation of new businesses. But it is the easy and lazy way for corporate and finance man to expand or create new businesses and/or investments.

The predictable and comfortable choices for these corporate and financial men are usually limited to financial assets - property, development, land sales, banks, share equity, bonds, and stuff like that.

M&A serve their purpose to short circuit time and achieve perception of results fast but comes with its own set of problems. Ask ourselves the extent of socio-economic benefit to the people and nation in M&A excercises? Compare that to organic generation and growth. Organic approach supported by R&D help to build capability and capacity in knowledge, experiance and expertise.

Where is the balance and right approach? It depends on the objective and strategy. Does Khazanah have a clear objective and strategy? To date, it is not clear and operationable. It sounds like consultants talking nothing.

Returning again to Khazanah's original purpose of inception, will these investments they intend to be on the M&A trail bring about that much needed expertise for capability and capacity expansion for the future? Will Khazanah invest into the much needed innovation and R&D? Does transforming SME into giants too leceh for Khazanah? Are they merely talking rhetorics about building global brand? What happen to UEM The Nation Builder?

But off course, buy buy buy and we have things instantly. But is it enhancing value or tambah nilai as Tun Lah used to talk about? Or an expensive and lazy way to fulfill KPI?

What if the M&A target is abroad? This is where more shuddering.

Khazanah have failed miserably in it's overseas foray. Ganen is now very quiet waiting out for public to forget his failures and newspaper and blogs stopped talking about him.

Under his responsibility, Ganen was buying overpriced assets and at wrong timings. Bank Indonesia Internasional buyout by Maybank is a glaring example. Then, the cases of Telekom investment in Singtel subsidiary and in return a major block of Telekom shares are given to Temasik. There are than the increasing list of losing concern contracts abroad like in the case of UEM in Qatar, and India. With some research, the list of investment failures could be really long.

The thing is Khazanah have been very generic in it's transformation and there is no substantial value enhancement except the corporate game under the disguise of "enhancing shareholders value".

Imagine the hundreds of millions spend for endless new names, imaging and corporate branding such as Axiata for this purpose. Why must a Malaysian company not have something Malaysian as brand like Singtel, Indotel, etc.?

Have they been turning around companies as they claim. UEM is deep in a shit of mess but hiden from the public eyes. Till today, they don't know how to turnaround MAS other than cut routes to give to Airasia, retrench staff, replace with young Ernst & Young Chinese staff without inkling of Airline business, and sell assets to pass off as operational profit.

On the Malay Agenda, Khazanah's role have been mere tokenism and copycating efforts already done by Government but with a little different branding.

Former MARA Directors like Abdul Wahab Alwi, Mohamad Gani etc can come out with better programs than Khazanah's Oxbridge and Ivy Leaguers. There is nothing extraordinary and no profound significant effort. Purely polemics.

They are now creating a PTD exclusivity culture in Khazanah to turn a set of people as CEOs to be circulated at the top management of all Khazanah and GLCs. A dismissed CEO will be the coach. Imagine staff and management morale in the Companies?

Having read all these, can you blame me for shuddering?

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Khazanah hits the M&A trail

By DANNY YAP
The Star Online, July 2, 2009

KUALA LUMPUR: Khazanah Nasional Bhd is in the offensive mood for potential mergers and acquisitions (M&As) now that the global economy is on a better footing, says managing director Tan Sri Azman Mokhtar.

For the first-half year, Azman said Khazanah had to be defensive, which reflected its crisis-management stance then, to ensure that government-linked companies (GLCs) could weather the economic crisis.

“It appears that the worst is over for the global economy. Khazanah is now more on the offence for business opportunities that may entail M&A activities,” he said yesterday.

He was speaking at a media briefing after delivering his speech on Graduating To A Higher Class – Catalyzing A New Domestic Economy at Invest Malaysia 2009.

Asked if any M&As were pending, Azman declined to comment, except to say that the company was more open to M&A activities under the current economic climate.

“We are always in talks with various parties,” he said, adding that in any M&A activity, it would like to have the majority stake and management control of local companies, although that could be different with foreign companies.

Azman also said Khazanah would accelerate the trend of divesting through trade sales and reduce its stakes in large listed GLCs, subject to value, over the next two to three years.

“In the last five years, Khazanah has made divestments totalling RM12.6bil, locking in gains of RM3.6bil over 20 transactions,” he noted.

The Government’s investment arm had been gradually selling down stakes, especially through the issuance of exchangeable bonds and sukuk over the years, and might use the same instruments for future divestments, he said.

“We like exchangeable bonds and sukuk mostly because these instruments allow us to build value and get premium. However, one caveat is that it depends on the stage of the market and the value in the company.

Azman cited some of the successful sales – Bintulu Port, Port of Tanjung Pelepas, RHB Bank, Tradewinds Hotel and Time DotCom – which had resulted in a more efficient ownership structures that allowed new owners to gain more scale or enter into new and better alliances.

However, he said, Khazanah would retain investments in strategic assets in specific sectors such as power.

Meanwhile, Bernama quoted Azman as saying that investments totalling a staggering RM11.4bil had been executed in Iskandar Malaysia. The amount is 26.7% of the RM42.7bil investment committed since the inception of Iskandar Malaysia in November 2007.

It said Khazanah was also investing about RM90 mil in Small Bone Innovations, Inc, a leading US-based specialised orthopedics company.

* Edited and Updated 6:25 PM