October 4, 2022

Successful GLCs are a public boon

3 min read

I AM encouraged that most of the comments in the media regarding the takeover bids by private sector groups indicate that Malaysians are not in favour of PLUS being sold off. Instead, they prefer it to remain under the ownership of Khazanah and EPF as these government-linked investment corporations (GLICs) represent public interests.

There is no reason to sell PLUS as it is not a financial problem to the government. With its strong cash flow from toll revenue, it can pay its debt and still have the retained earnings to declare dividends to both its shareholders, Khazanah and EPF.

Khazanah’s dividend payment to Ministry of Finance Inc is recorded as government investment income in the Federal Treasury Revenue Estimates statement, which is a public document released together with the Finance Minister’s annual budget speech.

Dividend income from government investments, especially from government-linked corporations (GLCs), is an important revenue item, amounting to RM31.88bil in 2018 out of total federal revenue of RM232.88bil, or more than 10%. The biggest amount is from Petronas at RM26bil, followed by Khazanah with RM1.63bil, as shown on page 193 of the Fiscal Outlook And Federal Government Revenue Estimates 2020. Both these GLICs are the biggest in the country.

The dividends to EPF, which owns 49% of PLUS, also go back to the people, ie the 14 million subscribers who make compulsory payments from their hard-earned monthly salaries to the national pension fund. The subscribers naturally have expectations of attractive returns as they are saving for their old age. EPF subscribers are happy they are getting good dividends, and they know that PLUS is a contributing factor.

The EPF decided to invest in PLUS in a big way after the company was delisted from the KLSE in 2011, as the pension fund was confident of its long-term continuity in paying good dividends.

Economists agree that GLCs which are strategic to the country and the economy, and which are professionally managed with high standards of corporate governance, should continue to remain within the public sector.

Khazanah-owned companies, in particular, should continue to remain within the group as they can contribute towards making it a strong national wealth fund. By creating new assets and investing in state-of-the-art technologies for the benefit of the country and the economy, the Khazanah companies are playing important strategic roles in the sectors they are involved in, like highways, electricity, telecommunications, airports, healthcare and banking.

Not all GLCs are an asset to the country. Many, in fact, are a liability, especially the politically-linked GLCs under statutory bodies, state governments and religious foundations. They depend on govern-

mental funding because they are not able to generate the revenue to be self-sustaining.

The boards of directors and management become beholden to politicians for appointing them to the well-paid positions in the companies. With poor financial performance and bad corporate governance, no bank wants to finance their operations.

When they do business in the commercial sector, they get an unfair advantage over privately owned enterprises in view of their easy access to government funding and preferential treatment in government contracts and purchases. This unfair competition in the marketplace gives Malaysia a bad reputation among local and foreign investors and is a black mark in our investment promotions overseas.

The government did the right thing with the old Bank Bumiputera. The government allowed it to be merged with a private bank to become CIMB, with Khazanah holding a substantial share in the new bank. This saved the government from bailing it out every few years. Similarly, by allowing Proton to acquire a strategic partner, Geely, from China, the government frees itself from providing financial subsidies to the car project.

The smaller non-performing GLCs should either be closed down or privatised to their managements under management buy-out schemes. These schemes can be arranged to suit the financial capability of the bumiputra management that is willing to buy over the company.

There are ways and means of doing it provided there is political will to allow transfer of ownership to genuine entrepreneurs, not cronies or “rent” seekers.

Some bumiputra entrepreneurs may prefer to enter into a joint venture with non-bumiputra partners, including foreigners, to buy over the problem GLCs. Such joint ventures with reliable partners have a better chance of success and therefore should be encouraged instead of being seen as politically sensitive.

Where no one is interested in buying over the ailing GLCs, they should just close down to save taxpayers’ money.



Kuala Lumpur