Chicken Shit Bid From Fortis

Fortis came up with the stupid counter bid of S$3.80 which is soooo much higher than Khazanah's $3.78 bid for Parkway Holdings.

You know how it is that you can tell the entire character and makeup of someone by just a small sum of money.

Fortis has revealed their strategy for all to see with its stupid bid:

- its a slightly higher bid as I am waiting for better offers, or I am buying time for some other parties to make me a better offer

- seriously, I don't want to be running or owning Parkway for the long run

- I am trying to frustrate Khazanah so that they will pay me S$3.90 to get me out

Actually, if I was Khazanah, I would call Fortis' bluff and say "yours". Let them own Parkway - remember the whole attraction of Parkway is in its expansion into Malaysia. Let's just see how attractive Parkway will be under Fortis. What do you think will happen with their relations with Pantai after that? Do you think Parkway will be able to expand so easily into Malaysia after ousting Khazanah (or rather, frustrating Khazanah).

Woooiii, Fortis, close your mouth and just accept the bid la. First time dealing in Southeast Asia, izzit!! If you are serious about getting Parkway, bid like a man, not chicken shit like that.

Well, Khazanah is dealing with Malvinder and Shivinder Singh, and they are not your normal conservative businessmen. Both were founders of Ranbaxy Pharamaceuticals, and they sold the company to Dai-ichi Sankyo. Ask Dai-ichi Sankyo about Ranbaxy now, they would be shaking their heads and taking out their small seppuku swords.

In 2008, Daiichi Sankyo bought a 63.9 percent stake, including the founders' entire stake, in Ranbaxy, aiming to take advantage of rising demand for generic drugs. But the stake lost more than two thirds of its value by the end of last financial year primarily hit by the weak rupee and the U.S. FDA ban. Ranbaxy forecast a loss of $150 million in 2009, on a 9 percent fall in sales to $1.4 billion.

Within a short amount of time the Japanese had to remove Malvinder, who was asked to stay as chairman and CEO of Ranbaxy. Within a short period of time following the sale, Ranbaxy has been hit by a U.S. ban on some products for alleged falsification of data, and by foreign exchange hedges being hit by a weaker rupee.

So, Khazanah, beware as you are dealing with the two brothers with a $3bn war chest, but be prepared to walk away. There is not just ONE route to your destination for healthcare industry. Do not be cowed into over paying for Parkway, knowing full well that the attraction of Parkway is in leveraging the company into Malaysia and then beyond. Without Khazanah "strategic policies" Parkway won't be as attractive. Let the brothers get it at $3.80 and then they will have to sell back to you at $3.20 within 2 years. They only came in the company less than 4 months back and is obviously looking for a quick trade - give it to them and see what they can do with it (I know, find another sucker Japanese company to buy Parkway).




By pitching a higher offer, Fortis aims to prevent Khazanah from taking over Asia's biggest hospital group which runs 16 hospitals.

SINGAPORE/NEW DELHI: India's Fortis Healthcare and its founding family launched a bid valuing Singapore hospital operator Parkway Holdings at $3.1 billion (RM10 billion), topping a rival offer by Malaysian state fund Khazanah Nasional Bhd.

Fortis, which controls just over 25 per cent of Parkway, had intended to build a controlling stake in the firm before Khazanah made a surprise US$835 million (RM2.7 billion) partial offer in May to lift its stake to 51.5 per cent.

"Fortis is just testing the water with this offer. Had it been serious it could have made an offer Khazanah wouldn't have been able to match," said Ranjit Kapadia, an analyst with the Mumbai-based HDFC Securities, adding that he expects Khazanah to match this offer.

By pitching a higher offer, RHC Healthcare, 49 per cent owned by Fortis and the remainder by the hospital chain's controlling Singh brothers, aims to prevent Khazanah from taking over Asia's biggest hospital group which runs 16 hospitals.

Both Fortis and Khazanah want to use Parkway, which runs hospitals in Singapore, Malaysia, India and China, to spearhead their regional expansion in the booming healthcare market. A successful bid by Fortis may also put a question mark on Parkway's expansion into Malaysia as most of the Singapore firm's operations in the country are carried out through Pantai, in which it holds a 40 per cent stake and Khazanah, the balance.



Khazanah, which declined to comment on Fortis' offer, has holdings mostly concentrated in Southeast Asian financial firms, healthcare and telecommunications. The fund already owns stakes in healthcare firms across Asia, including Apollo Hospitals, a rival to Fortis in India. "On the part of Fortis, I think their intention is essentially to get a better exit price," Singapore-based UOB Kay Hian analyst Andrew Chow said.

Fortis and billionaire Indian brothers Malvinder and Shivinder Singh have already secured funds for the acquisition, said Sachindra Nath, CEO of Religare, which is also controlled by the Singh brothers and is the strategic adviser to Fortis. RHC Healthcare and the Singh brothers are offering to buy the shares they do not own in Parkway for S$3.80 (RM8.82) a share, or 2 Singapore cents more than the S$3.78 (RM8.77) offered by Khazanah. The offer price is at a slim to Parkway's last traded price of S$3.57 (RM8.28). Parkway shares are suspended from trading.

Increasing Free Float For Tenaga Nasional - Not Quite Sufficient

Khazanah sold 703 million ringgit ($207 million) of shares in Malaysian power utility Tenaga Nasional, part of a government push to trim stakes in state-linked companies to boost liquidity.

Malaysia’s state investment arm sold 86.75 million shares, or a 2 percent stake, at 8.10 ringgit each, Maybank Investment Bank Bhd., which managed the placement, said in a statement. That’s a 3.6 percent discount to the Dec. 10 closing price.

Khazanah, which owns stakes in some of the biggest Malaysian companies, has cut holdings in firms including PLUS Expressway and Malaysia Airports Holdings Bhd. as Prime Minister Najib Razak prodded state-linked investment agencies to partially divest to increase the number of shares available in the open market, and lure more investors.

A source with direct knowledge of the share placement said the shares were sold to local institutional funds and the Employees Provident Fund (EPF), the largest pension fund in the country, has taken up 50 million shares in the placement.

Question #1: If you want to increase free float, why place out to local funds only. Its not local funds that are complaining about the free float but rather the foreign funds.

Question #2: EPF gets 50m shares of the placement. That may count as free float but I doubt very much EPF is a short term holder of Tenaga shares. If the presumed improved liquidity is to be evident, wouldn't it be more relevant to break it up into smaller parcels and to more foreign funds?

Question #3: If EPF holds for 5-10 years, how is that improving the effective real free float?

Malaysia is studying a request by national power utility Tenaga to raise the price of electricity, a local newspaper reported on Thursday. New electricity tariffs may take effect from January if it is approved by the cabinet, Energy Minister Peter Chin was quoted by the Star newspaper as saying. Chin said his ministry will study the issue first before submitting to the cabinet for approval.

"The electricity tariff is reviewed every six months due to fuel price adjustments but whether there will be a new tariff or not will depend on the cabinet," he said.

The cabinet reviewed proposals for 4.9 percent electricity price hike in July this year and turned down the plan, fearing that it would an unpopular move.

Question #4: Khazanah and the government seem to be not entirely aware why foreign funds are shying away from Tenaga. Free float is but one MINOR issue. It is very difficult to justify buying Tenaga because there is no transparent tariff formula. To international fund managers, when considering a power utility, tariff hikes and the ability to pass on jumps in cost needs to be clear. It affects the net margins predictability. Just look at the past experience cited above by the government. Each time Tenaga will have to literally "beg" the government for the tariff hike, even when the price of oil/coal has surged significantly. Plus there is absolutely no guarantee. How do you expect international funds to properly assessed the prospects of holding Tenaga? There must be a transparent tariff formula, taking into account all related cost in producing, generating and distributing electricity. There must be a fixed interval for tariff reviews , e.g. twice a year or annually.

Question #5: I can fully appreciate that there are burdens on the consumers, and there are the political considerations as well. If you wish to take into account these two factors, then for goodness sake, do not list it, take it as fully government owned. When you decide to list Tenaga, a utility company, earnings are supposed to be relatively highly predictable, not a guessing game. That my friend, is the main obstacle why international funds are frowning on owning Tenaga. Increasing the free float does not address the problem here. Increasing the free float for most of the rest of GLCs is by large a very good development, but it falls flat here.



p/s photo: Yuriko Shiratori

The M'sian X-Files - Intricacies Of The New FBM KLCI

There is a lot of new information that one can get on the new index, which will help us to understand the index and the markets better. It will also help to get a better grasp as to the "integrity of the FBM KLCI" when it rises and falls.

a) Its just 30 counters instead of the old KLCI which had 100 counters.

b) The new index addresses issues such as liquidity and free float, and let's face it funds in general are really looking at just the top 30... heck throw in another 20 stocks and that's their universe.

c) There is a good chance that the 30 stocks will start to be traded at a premium to the rest as these are the must haves for all indexed funds, by all the big and small local funds, and by most of the foreign fund managers managing Asian portfolio so as to not be under performing the Asian benchmarks.

d) Having said that, part of the rise in the FBM KLCI over the last 2 weeks may be attributed to some of these sustained 'enforced buying' activity rather than by genuine equity players.

e) The new index is a skewed index. Banks and plantations alone have a total weighting of 55%. If you have banks, plantations and telco = 63%. If you add banks, plantations, power, gaming and telco = 85%. So, technically a fund manager need only look seriously at these FIVE SECTORS alone to do well, forget about the rest.

f) The new index will also affect how research houses form their analyst teams. They must cover the 5 sectors, there are 9 sector that are not covered by the new index. It is very likely that analysts in the following sectors better start covering a more important sector in order to stay relevant. The following are the 9 sectors that are deemed as "irrelevant", "need not exist", "unimportant to the Malaysian economy", "unnecessary to look at in order to gauge the overall health of the economy": technology, transportation, property, timber, insurance, construction, building materials, hotels and industrial products. Go figure!

g) The new index will make it that much "easier" for the index to be controlled - conspiracy theorists will agree with me whole-heartedly that this is to allow PNB-EPF-MOF-EPU to control the index better. So, the next time we see a major market correction, we may be able to withstand it better with the new index as all it takes is to mop up the 30 stocks ... even though those stocks outside of the top 30 may be seeing their share prices tumbling like a rock. Managed perception more important la... than real effects to the economy. Hey, like that, we may never ever see a major correction in the FMB KLCI... ever... especially if we keep launching new big funds to mop these buggers up. But I am only guessing here.

h) Now let's consider the sin stocks, gaming and tobacco, they account for 12% of the new index. This is an important consideration as most of the big local funds will not be touching these stocks. Can you "not be in control of the 12% of the index" and still manage funds that is compared to the FBM KLCI benchmark? If these 12% of the new index starts a bull run on its own, most of the local funds will be under performing the new index. Can you all see a danger here??? Staring at you in the face!!! The danger is ... if there ever occurs a situation where you get the gaming and tobacco stocks to be in a strong bull run outperforming the rest of the new indexed stocks ... could we safely say that the EPU-MOF will not be strong-armed or "influenced" by certain parties to "whack down the sin stocks" with excessive punitive measures ( additional gaming and duties above and beyond what is normally expected in a financial year)???

g) If you take Khazanah, Petronas and PNB as the investing triumvirate ... the 3 already control 12 out of the 30 stocks in FBM KLCI. If you are a nasty anti-government critic, you have enough loose thoughts to take this factor to the next level. I am not saying its a negative or a positive, but its a fact that is worth remembering. Be careful, as the greater the influence one has, the greater the responsibility to be prudent, transparent and professional.

h) Though most fund managers will want to stick to the FBM 100 as the benchmark for their performance, it will not be so easy. The drivel, the propaganda and focus have all been set to make FBM KLCI the index to watch, and because it was kinda close to the level where the old KLCI was, most will tend to take to this new index. Its much harder if you switch from a 1,100 index level to a 9,500 one ... kudos to the planners.

i) Of course detractors will point to the fact that the venerated Dow Jones Industrial Index is only made up of 30 stocks, and is an often quoted barometer, even though most professional funds benchmark their performance to the broader S&P 500. The big difference is that it will be a hundred times easier to try to "manipulate" the FBM KLCI than the Dow Jones Industrial Index. Actually, pick just any two stocks in the Dow Jones, I am VERY SURE the market cap of any two stocks will be bigger than total market cap of ALL stocks listed on Bursa - in fact just any ONE stock in the top 10 of DJIA will be enough to cover the entire market cap of Bursa. Not to belittle FBM KLCI but to put things in perspective.

Can I have my Datukship now??!! (yea, I don't really need one or want one... but I want to get on and off my plane faster la...).


p/s photos: Yukie Nakama

Trying To Make Sense Of UEM Land Holdings

UEM Land Holdings has been hogging the top turnover table in recent weeks. Who might be buying, or selling? When a counter features prominently in the volume charts, it will attract traders and speculative money, but what are they really buying into?To those who are in the mist, this used to be UEM World. It used to be a Nusajaya / Iskandar play but that focus has been harder to sell as it requires a lot of FDI, in particular from the Gulf countries and Singapore. Many MOUs were signed and there were plenty of tea parties celebrating these intentions. However, these potential investors went back to face their own niggling problems as they have to come to terms with the engulfing global credit crisis.

US-based fund Discovery Capital Management LLC has been actively selling down UEM Land Holdings Bhd based on recent available information. Discovery Capital has been cutting its shareholding in UEM Land after acquiring a 5.7% stake comprising 138.5 million on the day of UEM Land Holdings' listing on Nov 17, 2008. According to filings with Bursa, Discovery Capital has since disposed of some 9.07 million shares, reducing its shareholding in UEM Land to 5.33% or 129.43 million shares. It would not be surprising to find the fund continuing its selling down activity in recent weeks as it is significantly above the IPO price of 55 sen - is it a staged exit strategy? It could simply be a case of profit-taking as UEM Land's share price has risen sharply to around 75 sen since its opening-day closing price of 57.5 sen versus its IPO price of 55 sen. With net tangible assets pegged at 50 sen per share, the counter is currently trading at a premium.

Where is the justification for trading above its NTA? It does not even have a long enough track record. Furthermore, its growth prospects were dependent on the success of its flagship development at Nusajaya in Iskandar Malaysia, which has been fairly quiet of late. Their debt levels is questionableas well. As at the end of September 2008 it has total debts of RM772m and cash of just RM23m, or a net gearing of 62%. Taking into account the capital requirements at Cyberjaya, Puteri Harbour and Southern Industrial & Logistic Cluster - they will need to issue new shares.

The Iskandar development is still very much at its infancy, and its long gestation period meant that it would be a while before UEM Land begins to see returns from that development. UEM Land, however, appears to be continuing strongly with its venture in Iskandar, with management saying it would be completing a fund-raising exercise worth RM1.2 billion to invest in Iskandar Malaysia by next month. The loan would raise its debt-to-equity ratio to 60%, which is on par with other property companies, but property analysts said they were concerned about the cash holdings and the cash flow of the company.

To be fair, UEM Land has also tried to diversify its business by investing elsewhere, notably in Cyberjaya where it has agreed to purchase 98 acres (39.7ha) of land for RM102.49 million. It could be that the company is hedging its bets by boosting its Cyberjaya projects as Nusajaya could be delayed further. The land is being bought from Cyberview Sdn Bhd and Setia Haruman Sdn Bhd. UEM Land plans to undertake "a mixed and exclusive mid-upper and high-class secured and guarded residential development". The project should generate a gross development value of RM1.5 billion over nine years,UEM Land said.

UEM Land has about 4,500 acres in Iskandar Malaysia, with its flagship development being Nusajaya, identified as a catalytic project in the region.

The key is probably here, the company has applied to the Securities Commission (SC) for an extension of time to implement the issuance of up to 10 per cent of the issued and paid-up capital of the company. The SC's approval for the proposed issuance will expire on February 28. It is very likely that the activity is to push through the new issuance of capital. I doubt very much that it can issue the new shares very much above the NTA of 50 sen. Can you imagine if the bulk of the shares was issued at 55 sen, compared to where the current share price is 76 sen. As much as I think Nusajaya is a viable project, there may be better times to take on a position. Buyers beware.

p/s photo: Maki Nishiyama (my kind of handroll)

Love Or Hate Telekom Malaysia?

Hmmm, Telekom Malaysia giving back money to shareholders at a time when companies are posting lower results and reducing dividends. Hey, many companies are even having trouble raising fresh funds. Basically TM is saying that it does not need that much capital going forward, hence don't need so much capital.TM pushed through a demerger in its fixed and mobile services last April. It has proposed a capital repayment of RM3.5 billion or 98 sen per share to shareholders. In addition to the capital repayment plan, TM also announced a final gross dividend of 14.25 sen per share, less tax, totalling RM382 million. It brings TM's total dividend payout to RM700 million, in line with its policy of paying out RM700 million or up to 90% of net profit, whichever is higher. The capital repayment and dividend came even as TM's net profits fell 72% to RM164.81 million in its fourth quarter (4Q) ended Dec 31, 2008 from RM592.46 million a year earlier and by nearly 70% to RM791.86 million for the full 2008 fiscal year from RM2.55 billion in FY07, due to exceptional items.

Some papers announced the plans as "windfalls to shareholders", its not windfalls, its giving back money which you owned in the first place. Apa ini windfall?? TM said the proposed capital repayment was expected to be funded by the anticipated RM4.02 billion repayment from TM International Bhd (TMI). TM said TMI had on Feb 16 undertaken to pay the RM4.02 billion and any interest owing to it in accordance with the terms of the demerger agreement by April 24, 2009.

Khazanah owns TM, then creates TMI from TM so that the bulk of the growth and capital requirements would be funded by the TMI vehicle. That frees up TM as a cash churning vehicle. As TM's business is very solid but low growth in nature, its capital expenditure requirements will not be that high.

There is the ONE solid block of business under TM, that is High Speed BroadBand (HSBB). TM will need to fork out RM8.9bn of the total RM11.3bn for HSBB. The sum will be matched somewhat by the government's RM2.4bn. HSBB's objective is to raise the broadband penetration from the current 17% to 50% by 2010.

Take out the HSBB committments, TM needs about RM1.5bn in capex each year just under 20% of annual revenue of TM. If you add in the HSBB project, the actual capex from that will be around RM900-RM1bn a year.

Many will be griping that the capital repayment is not necessary, well maybe so, but it does not really hurt TM. Its gearing and debt levels are still OK. In fact now that it has hived off the more volatile overseas mobile businesses into TMI, its business model is rock solid. Even the HSBB project is likely to enlarge TM's footprint and domination of critical internet and telecommunication services for the years ahead. Its domination and diminishing fixed line business will be more than complemented by the HSBB project.

It is now getting to the stage whereby investors should regard TM more like BAT or Carlsberg. Its safe enough to lock away for years. Minimum of RM700m dividends a year works out to 19 sen gross. Just buy and lock away for those who do not want to think so much.

The mastermind behind all this is Khazanah. It has the same shareholding level in TM as before but now with the demerger, it basically gets almost RM2bn cash out of thin air and still holds the same stakes. At least I want shrewd and smart people running Khazanah, so no complaints here.

p/s photo: Nia Ramadhani

Pride & Proton

It was a couple of interesting days for Proton. First, Proton chairman Nadzmi Mohd Salleh told the New Straits Times that it had been approached by US and Japanese carmakers looking to expand overseas as their domestic markets shrink. The firm may sign collaborative agreements, or ask them to buy a controlling stake, he said. 'If they buy a stake in Proton, they can get the 29 per cent (shareholding) that Proton has. They know what they want. It is up to shareholders to decide if they want to sell Proton,' Mr Nadzmi reportedly said.

'If Proton is a problem child, we have to let it go. But if you want to enhance Proton's capability and also the viability over a period of difficult times, then the collaboration with the foreign carmakers has to take a different form.' Mr Nadzmi said Proton may also strike a partnership with an Indian car company.

The government has urged it to forge a partnership with a foreign automaker to give it the expertise and economies of scale that it needs to survive. However, talks with Volkswagen and General Motors have collapsed, with the stumbling block reputed to be demands for a stake in Proton.

The very next day, the company clarified that "oops, that's not the case", and that Proton Holdings Bhd has no intention of asking interested carmakers to buy a stake in the company. The retraction added that it is only open to "collaborative agreements" in relation to potential product developments between Proton and the collaboration partner. Referring to a Business Times report "US, Japan carmakers show interest: Proton" published the previous day, the company clarified that there are no plans to offer shares for sale for the time being, and any decision lies on its controlling shareholder, Khazanah Nasional Bhd.

Obviously Khazanah was miffed that Nadzmi said what he said without first going by Khazanah. Seriously folks, Nadzmi said the one thing I have been dying to hear for a long time. Proton is a venture that never should have started. Many years back, the powers to be wanted to emulate the dizzying success of South Korea by having mega-production industries, and auto was targeted. We should know where our strengths are and leverage on them, not go and start something where we lack certain critical success factors.

a) Scale& Critical Mass - Almost all successful car makers need to have a substantive critical mass in domestic demand especially when starting a new car company. as it is a government controlled entity, may tax breaks and measures could be added to jump start the industry. Malaysia does not have critical mass from day one. Thailand might have had a much better chance of succeeding. Even Vietnam would have. You need at least 60m-100m in population to bring down the average cost in distribution, design, , etc. From day one we were doomed. Thats why the still standing car makers came from the US (barely surviving), South Korea, Japan, India, Europe and China.

b) Inherent Advantages - You may still succeed without scale and critical mass, but you must provide something else - superior design, superior patented performance, superior handling. I don't know about you, but our engineering and design talents have never been terrbly well-known or outstanding. We do not have any patents that I know of. We don't even have the capacity to build our own engine. We basically adopted a plug and play software/hardware approache. We took the knockoff designs from some car maker, took some car maker's engine, tweaked the design that unfortunately re-emphasised its a cheap car (must say that the newer models of Proton are better designed though). We basically hit the ground running a lot further behind the success curve. You can be small and successful like Porsches, Maseratis, or even build specialty trucks or very compact cars that run on specialty fuels or something that can carve you out a niche... but no, we had to build a car that is mass market and can seriously compete with only the Skodas and Ladas.

c) Make The People Pay - To support Proton, Malaysians have been paying over the top for cars. We are easily the top two most expensive places on earth to buy cars, and that is to protect Proton. The billions that Proton made basically came from the public. Every single Proton that was sold outside of Malaysia is always cheaper than those being sold in Malaysia, where is the logic? I don't mind paying higher car prices, if in the long term the industry creates something of value which boosts our per capita income... but we are nowhere in the top 20 and yet we are in the top 2 places on earth to buy cars. How much spending power was lost to sustain the profits of Proton?

d) AFTA - It is only with the pressure to go for AFTA that we are slowly coming to our senses that the protective measures and high taxes for all cars have to come down. All things being equal, do you think Proton can still be viable? Pride is one thing, foolish pride is just plain stupidity.

e) Globalisation - Khazanah of all people should realise that we are in the middle of a very huge globalisation movement which has enveloped us for the past 10-15 years. Outsourcing is the biggest theme and the trend is not going to stop. If you wish to operate in manufacturing... be it steel, cars, etc... you need to be big. We need to all match the "China price of producing goods and services". You produce steel, well, you need to match Mittal's capacity and very very low average cost of production. Take your medicine and sell Proton.

Proton has a net cash position of RM1.14bn. On just a paid up of 549m shares, the net cash per share is already RM2.07. The fact that the cash per share is more than the market price of Proton tells you that the company is worth more being sol.d off or liquidated. Do not be stubborn and think we can turnaround the thing unless we can seriously get the few "critical success factors" I have just mentioned.

Lastly, the lesson on globalisation is that if you are not an efficient producer of a certain kind of product or services, and you can buy cheaper from another producer, then there is no need to produce it in your own country. Pride must be counter balanced with economic sensibility. If we can get cement of steel bars cheaper from Indonesia or Thailand or Cambodia, why produce locally. That is a mighty inefficient allocation of resources. These are not critical industries we must have. There are certain industries (such as power, telecommunications) that we cannot be held hostage to in the event of political disputes or wars or skirmishes with out countries which might affect the supply of certain goods and services - auto is definitely not one of them. Sell the bugger already.

If its the jobs you are worried about, then strike an agreement that layoffs will have to be gradual over a period of time, e.g. not more than 10% in the first 12 months and no more than an additional 10% over the following 12 months. Its better to redeploy and retrain than keeping digging a deeper grave.

p/s photo: Nabila Syakieb

National Service Part Deux

Saw Rocky Bru's latest postings on the speculations and movements involving the senior management of GLC top dogs:

Rocky Bru: Ismee Ismail, the group managing director and chief executive of Tabung Haji, is tipped to leave for TNB while Che Khalib, the current Tenaga boss, is said to be eying a Petronas job. Like I said, it's market talk. We've also heard that Amokh or Azman Mokhtar, the Khazanah boss himself, is keen on Hassan Merican's job. Never mind if Hassan's shoes may be many sizes too large, even for both of them combined! I won't rule out anything, especially after learning the other day that Kalimullah Masheerul Hassan had proposed to the NSTP Board to bring in Kamal Khalid, the PM's 4th Floor chief operative, as the new CEO! And when the Board turned this down, Kali, who is the outgoing NSTP deputy chairman and editorial advisor, had then proposed that a position of Deputy CEO be created for the PM's special officer! I'm not sure if Kamal even knew that his name had been dropped like that. Syed Faisal Albar, Kali's trusted friend, left NSTP to head Pos Malaysia. Syed Faisal's right hand man, Jezilee, is leaving his COO post at NSTP for the equivalent in Pos Malaysia. A couple of other top execs from NSTP are expected to leave and join Syed Faisal at Pos Malaysia, too, leaving Anthony Bujang, the new NSTP chief executive, a big hole to fill. Kamal Khalid may still find an executive's position in Media Prima (the international side, I heard). Another 4th Floor op, Zaki Zahid, is expected to head for MRCB. If this was a game of chess, someone's moving around his pieces in a desperate attempt to save the old King's reign. Perhaps Nor Mohamed Yakcop, the MoF ll, can shed some light on these moves, starting with his friend's attempt to put Pak Lah's chief press attache as the NSTP boss.

Comments:

a) Did we not learn anything from the past 12 months? Why are these senior management jobs only available to a select group of people? Why are these jobs only "given" or "appointed" when "kingmakers" make their chess moves?

b) I don't know about you, but there are very few Louis Gerstners in the world (Gerstner came from American Express, and then McKinsey, followed by his remarkable stint as CEO of RJR Nabisco, that food and ciggies giant, before ending up at IBM and then building up IBM a few levels higher in terms of strategy and sustainability of operations). But apparently, we have truckloads of Louis Gerstners running around in Malaysia. Apparently we have a huge number of them being able to run a newspaper one day, and then the national postal company, and then the national utility company, heck maybe even the national oil company.

c) These jobs ARE NEVER advertised. These positions need to be advertised and the selection process be transparent - come on, did we learn anything on transparency at all over the past 12 months? How do you think the young and upcoming smart, diligent bumiputra graduates are going to feel? They feel like crap because these jobs only circulate among those young upstarts who know the right Datuks and Tan Sris. Naturally you are creating a new multi level caste system among the bumiputras. (I am not even going into the bumi/non-bumi issue in GLC CEOs, just at least be fair and transparent to bumiputras from all ranks and "classes").

d) There has been a silly predisposition towards "giving" plum jobs to the people who have the right degrees. I think good degrees from high ranking universities are all good things to start with. Look at all the investment bankers from Stanford, Yale, London School of Business, Oxbridge, Harvard... yes, the degrees can only get you so far - a degree only tells me you know how to read and write in English, and maybe do a power point presentation - that's it. This kind of "preselection" in appointing top candidates in GLCs is OK, but do not let it be the determining criteria. That's because this preselection criteria naturally benefits the well to do and connected. I am not saying that you cannot go to Harvard on government scholarships, its rare.

e) The musical chairs have to stop. One must evaluate the requirements of CEOs carefully and appoint candidates that have proven themselves. I do not see how the NSTP top dogs for the past 5 years have proven themselves, but they still get posted to good jobs.

f) Khazanah and the powers to be seem to think that you can be the CEO of any industry as long as you manage by the metrics and ratios set up. As long as you have enough data on anything, you can manage them - that seems to be the new school of thought that is pervading the corridors of MBAs and the likes. Yes, I agree that a good CEO can probably shift to manage in another industry provided that he/she has a good handle on the new industry critical success factors and critical industry developments. We are operating AS IF ALL our top management have that ability... come on!!!

g) The corridors of power must not be arrogant. They must be open and be accountable to the people. I like some of the transparency measures and metrics management imposed by Khazanah over the last 5 years. I am also aware that Khazanah may be more than willing to push the envelope in transparency and accountability but is always "asked" to go a certain way by hundreds of "politically connected or politically important" people - by imposing strict transparency procedures, it moves the entire process beyond the reach of these so called "kingmakers". Do not ruin it all by leaving this stone unturned. It is the spinal cord of what is wrong with the system, it is the pink elephant in the room that pisses the broader nation, it is the 64,000 dollar question that everybody do not want to confront. Its just not cricket!

p/s photos: Shu Qi

My NS Strategy Advice For Valuecap

The Edge Daily wrote a good piece on Valuecap. Here are the main points:

a) Valuecap Sdn Bhd, the asset management company owned by Khazanah Nasional Bhd, Permodalan Nasional Bhd and the Pensions Trust Fund Council, will receive an injection of RM5 billion to invest in undervalued companies on the Kuala Lumpur Stock Exchange. The money, which doubles the size of Valuecap’s capital, is on loan from the Employees Provident Fund (EPF). Valuecap, which was set up in 2002 to add liquidity and volume to the market, has met these objectives.

b) Is Valuecap’s record of its return on investment matches the EPF’s benchmark. However, currently, Valuecap is believed to have about RM4.9 billion worth of investments in 70 companies. And it has been reported that since its inception to September 2007, Valuecap has paid out a total of RM135 million in dividends. Better public disclosure will help to ascertain whether this passes the standard tests for financial performance.

c) A check with the registrar of companies shows that it is in the black and has assets of RM7.5 billion. So Valuecap has some value. But what is the return that EPF will get on the RM5 billion?

d) Since it involves two government-related entities, disclosures must be made every year on the returns. Also, Valuecap should detail the stocks it has in its portfolio just like some of the listed small-cap funds. At the moment, nobody really knows the stocks in Valuecap’s portfolio.

e) The Valuecap story illustrates the importance of transparency in financial reporting to boost investor confidence and the need for clarity about the correct economic stimulus package to move the market sentiments in the right direction.

The blogging community has tried to capture more information on Valuecap's Holdings: copied from http://bursa-chat.blogspot.com/

UAC Bhd 3,222,700 4.33 %

Amway(M) Holdings Bhd 6,958,100 4.23 %

MBM Resources Bhd 10,010,200 4.14 %

Hume Industries Bhd 6,596,400 3.45 %

PPB Group Bhd 40,452,900 3.41 %

IOI Property Bhd 28,267,500 3.4%

KLCC Property Holdings Bhd 30,957,800 3.31 %

Petronas Dagangan Bhd 32,436,400 3.27 %

YTL Cement bhd 14,955,092 3.05 %

Uchi Technologies Bhd 11,318,200 3.03 %

Chintek Plantations Bhd 2,646,000 2.9 %

United Plantations Bhd 5,975,800 2.87 %

Star Publications (M) Bhd 21,148,500 2.86 %

JTI International Bhd 7,144,400 2.73 %

Boustead Properties Bhd 6,672,150 261 %

Bintulu Port Holdings Bhd 10,121,100 2.53 %

Shell Refining Company Bhd 7,589,300 2.53 %

British American Tobacco Bhd 6,505,200 2.28 %

Axis REIT 5,400,000 2.11 %

Quill Capital Trust 4,302,000 1.1%

OSK highlighted 11 potential targets on the Kuala Lumpur Composite Index (KLCI) that Valuecap may go for — MISC, Petronas Gas, DiGi, British American Tobacco, Petronas Dagangan, MAS, Sime Darby, Maybank, IOI, AMMB and MMC.

Comments: From available information, Valuecap performed well. From the list of portfolio companies, it appears that the financial decision making is above-board (i.e. free from being "forced" to invest in "linked or influential" companies). Hence all the more reason to be totally transparent in their undertakings, staffing and investing policies. Its EPF money, hence its the public's money, NOT the government's. If you lend money to someone, you have a right to know how it is going to be spent on.

We also need to know the terms of the agreement between Valuecap and EPF on the disbursement of loan. Are there minimum performance criteria? How are dividends treated or repatriated? What is the time frame for the loan? Can EPF recall the loan at its own discretion, just like EPF can redeem funds mandated to other fund managers. We must have clear arms-length terms. If the government has learnt anything from what the people want over the past 12 months, its more transparency, clarity, stewardship and purpose in policies and management of resources.

In my view, the establishment of Valuecap is OK and justifiable. It is very much in the same platform as HKMA's massive Tracker Fund (although it did not start off as a tracker fund or ETF). When there are massive volatility and imbalances in global capital flows, the establishment of such funds are justifiable and forward looking. You do not want the broader economy to be affected disastrously by such vagaries.

We have to acknowledge that for economies that are highly correlated to fortunes of their own stockmarkets, the establishment of such vehicles are justifiable and proper. Malaysia has one of the highest GDP that is listed among all capital markets. Hence the correlation and flow on effects of the stockmarket is extremely high for the local economy. If that figure is much lower, like many European developed countries, the need to intervene with such vehicles may not be deem as necessary.

My final point is what is the "exit strategy" or "long term strategy" for Valuecap. What happens when you dissolve the fund? You get the same amount of scrips being flooded back into the market. Yes, you can argue that 5 years down the road, when the KLCI is at 1,800 or higher and sentiment has improved, Valuecap may be able to selldown its positions gradually. But that strategy is defeatist in every sense. You will still have to restart another Valuecap the next time a similar situation were to occur in the future - its not a solid strategy.

My advice (and this is worth millions in fees, which I am waiving) is to list Valuecap as an ETF. The strategy should be to break it up into 3 equal tranches. Assuming the portfolio value reaches RM15 billion in a few years time, thats three very sizable ETF. I would recommend to list one in Nasdaq, where the bulk of global ETFs are traded. The other ETF should be listed in Tokyo, while the final one in Malaysia. Do not be blinkered in trying to list all on Bursa on the basis of misplaced pride alone.

The strategy would basically "take the free float" out of the stockmarket, thus ensuring long term sustainability and investing interest. By listing in Tokyo and Nasdaq, you are basically selling all the shares to foreign investors, but the shares do not get back to the market place at all. An ETF will hold the same amount of shares throughout its life, investors will buy and sell the ETF like a share but shares held inside the ETFs would not flow back to the market place.

The strategy basically makes it possible to "trade" Malaysian shares like an index almost 24 hours a day. From Bursa trading hours to US trading hours and then Tokyo trading hours.

Sigh, if I was a Binafikir partner, I would at least get a few million in advisory fees for this.

p/s photo: Christine Mendoza

Reassessing Indonesia (Part 2)

The largest local groups with annual revenues of more than US$1bil include:

Salim: consumer goods, agriculture / US$7.3bil

Sinar Mas: pulp and paper, agriculture / US$4.7bil

Djarum: cigarette, Bank Central Asia, Cipta Karya Bumi Indah / US$3.7bil

Gudang Garam: cigarette, plantations, paper packaging / US$3.5bil

Bakrie: coal, Bakrie Brothers / US$3.1bil

Lippo: regional property developer, healthcare, financial services / US$2.7bil

Raja Garuda Mas: pulp & paper, plantations, energy / US$2.4bil

Triputra: coal, agro-industry, manufacturing / US$2.3bil

ABC: consumer goods, battery / US$2.1bil

Saratoga Capital: coal, Adaro, CPO, infra / US$1.9bil

Para: consumer goods, property, mining, financial services / US$1.6bil

Sampoerna: agro-industry, telecommunications, forestry and property / US$1.4bil

Ometraco: animal feed / US$1.2bil

If we were to include state owned companies, they will include:

Pertamina: energy / US$43bil

PLN: infra / US$12.7bil

PT Telkom: telecommunications / US$6.6bil

Bank Mandiri: banking / US$2.7bil

Bank BRI: banking / US$2.6bil

Bank BNI: banking / US$2.1bil

If we were to compare the Malaysian companies with annual revenues of at least US$1.8bil (RM3.4bil), they include:

1) Tenaga Nasional US$6.8bil

2) Sime Darby US$6bil (pre-merger)

3) Petronas Dagangan US$5.7bil

4) Telekom Malaysia US$5.2bil

5) Maybank US$4.4bil

6) MAS US$4.3bil

7) MISC US$3.3bil

8) UMW US$2.9bil

9) Public Bank US$2.8bil

10) Bumiputra Commerce US$2.6bil

11) IOI Corp US$2.6bil

12) Genting US$2.4bil

13) UEM World US$2bil

14) RHB Capital US$1.8bil

15) PPB US$1.8bil

The big difference is that many of the biggest companies in Malaysia are GLCs but Indonesia’s list comprises mainly entities owned and run by entrepreneurs.

The Arab Connection

Petrodollars have been making a beeline to the shores of Indonesia in recent years. There is an underlying motive to help fellow Islamic countries. Indonesia has the most populous nation in Asia following China and India, and has enormous untapped potential. The biggest investment to date is by Saudi Arabia’s Bin Laden group which invested US$4.3bil into 500,000 ha of planned rice estates in Merauke, Papua.

The world class Emaar Property (Dubai) will be building an 1,200 ha integrated resort project in Lombok, West Nusa Tenggara. The projects is estimated to be US$2.6bil. Emaar is the builder of the Burj Dubai tower, the world’s tallest building. Emaar also plans to invest in other sectors such as rice plantations in east Indonesia, power plants in South Sumatra, and a satellite town in either Purwakarta or Jonggol.

Another Dubai investor is Ras Al Kheimah Investment Authority (RAKIA) which is planning to develop a US$400mil 130 km railroad connecting Palembang and Tanjung Api-Api port in South Sumatra.

Qatar Invetsment Authority has committed US$1bil in infrastructure related projects. Another investor from the same company, Qatar Bahrain Company, has committed US$400mil to a power plant project.

Dubai Drydock and Dubai World have planned to invest US$500mil in a ship building yard.

Sensitive Treatment of Investors

However, the Indonesian government seems to have a different set of rules for its neighbours, Malaysia and Singapore. Singapore has had to deal with request to lower or eliminate stakes in one of their telecommunications holdings.

In Malaysia, Maybank’s brush with the regulators over its BII purchase looks laughable. Perhaps, the Indonesians do not want to lose so many key strategic assets to Malaysia and Singapore. It’s a bit like how Australia hates to lose to New Zealand in rugby and cricket, and well, almost everything else. Misplaced nationalistic pride? Pettiness? Venting frustrations and displeasure over the treatment of Indonesian workers in Malaysia and Indonesia (maids, construction, palm oil)?

Maybe that’s why when Arab investors buy strategic assets, there is so much less negative press. For example, Qatar Telecom has acquired a 40.8% stake in PT Indosat for US$1.8bil. Saudi Telecoms has also bought a 51% stake in PT Natrindo, another telecommunications giant which operates the country’s newest cellular phone system.

Middle East investors have been big in Malaysia over the last five years. But is the tide turning in favour of Indonesia? I think not. Malaysia is still a preferred destination as the infrastructure and business logistics are comparatively simplified and easier. Till today, Indonesia is still working out the double taxation agreement between Indonesia and Middle East governments. But the gap is closing.

The Legacy Issues

Just like Malaysia, Indonesia practises a lot of subsidy. Subsidies account for 11.7% of the government spending in 2007, (US$13.6bil or 2.1% of GDP) and are expected to rise to over 13% in 2008. Government spending on infrastructure is expected to increase ahead of next year’s elections. Indonesia plans to sell US$12.8bil bonds in 2008 to fund infrastructure and fiscal deficit.

The good news is that the ratio of government debt towards GDP in 2009 is expected to drop to 30% from 54% in 2004. President Susilo Bambang Yudhoyono said Indonesia, which had fully repaid its foreign debt to IMF, continued to enjoy an increase in its foreign exchange reserves. In July this year the foreign exchange reserves have reached over US$60bil.

The Corruption Eradication Commission (KPK) has carried the people’s wishes as it aggressively pursues powerful political figures, and even plans to take on the House of Representatives. KPK chairman Antasari Azhar has in the past eight months overseen arrests on corruption charges of five members of parliament, a former national police chief and ambassador to Malaysia, a senior government prosecutor, and three central bank officials, including the governor.

The Main Factor

What prompted me to write about the need to reassess Indonesia was the entrepreneurship that resides in the many mega business entities, which were mentioned earlier. A country’s economic success can be charted by sound long-term financial, social and economic policies €“ e.g. Singapore and HK. Or it can rise up thanks to an open economy and strong entrepreneurship in its people €“ e.g. HK, China.

To be fair, while the Indonesian government is headed in the right direction, it still has some way to go. What is more significant is the level of entrepreneurship that resides in the very big companies in Indonesia.

There is a big difference to a professionally trained CEO helming a big company in Singapore and someone who is building a billion dollar empire from Indonesia. It used to be that to be very rich in Indonesia, you need very strong ties to the right people. While that is still important, there has been a significant change in the way Indonesian companies have been growing over the last five years.

Was it due to the end of the Suharto-era? Was it due to a more democratic process? Are there more opportunities now for more people instead of a select few? Maybe all of the above, and throw in a suggestion that many Indonesians are just simply superb businessmen.

Let’s just examine a few of the major business groups:

* Lippo: It is not only big in Indonesia but in Asia as well. Its property arm, Lippo Karawaci, currently has US$2bil in projects and assets under management. Its strategy is to grow that to US$10bil over the next five years. Its recent major succeses include the US$880mil Kemang Village and the outstanding US$1.2bil St Moritz development in west Jakarta. In healthcare it plans to add 15 new hospitals around the country. To ensure they have things covered up the value chain, it has tied up with international institutions in Singapore, Australia and Universitas Pelita Harapan.

The company owns the largest landbank in the country, and will be developing new townships modelled after the highly successful Kemang Village and Lippo Cekarang, in Tanjong Bunga water front project in Makassar. It has two REITs in Singapore with US$900mil total in assets under management, with a target to bring that to US$5bil in 5 years.

* Salim: Helmed by Anthony Salim. Has the world’s largest instant noodle maker in Indofood Sukses Makmur, and the HK-listed First Pacific Co. Over the last three years he has increased its palm oil plantations by 224,000 ha to 387,000 ha though not all is planted with palm oil yet. Compare that with arguably Indonesia’s largest CPO planter Astro Agro Lestari which has only 300,000 ha. By 2015, Salim aims to produce 1 million tonnes of CPO a year. Salim is also the industry leader in cooking oil, margarine and flour.

* Sampoerna: Sold the country’s second largest clove cigarette maker to Altria for US$5.2bil in 2005. However, the family has quickly bounced back, redeployed the cash to acquire stakes in agriculture, telecommunications, mining and property. Its Ceria telecommunications brand saw subscribers growing from 300,000 in 2007 to more than 700,000 this year with a target of 1 million by end of 2009. Sampoerna has expanded into forestry as well, owning controlling stakes in Sumber Graha Sejahter, Sumalindo Lestari Jaya and the Singapore listed Samko Timber. In property, the company owns Sampoerna Strategic Square, a 3.2 ha development with two towers of 32 floors each.

If you wish to do business in Indonesia, you cannot go wrong by talking to Benny Subianto. Probably, the closest the country has to a version of Warren Buffett. Not many would recognise his name, but he was the founder of two monster companies in Astro Agro Lestari and United Tractors, and he also played a big role in Astra International. In 2003, Benny started his own investment firm Persada Capital Investama. PCI has interests in Interra Indo Resources, and was an early substantial shareholder in the highly successful Adaro. His current portfolio include Adaro, Kirana Megantara, Sapta Indra Sejati and Truputra Agro Persada - all corporate giants or giants to be.

I can go on and on and list the achievements of Eka Widjaja (Sinar Mas), Budi Hartono (Djarum), Aburizal Bakrie (Bakrie Brothers), Teddy Rachmat (Triputra), Chairul Tanjung (Para), Handojo Santosa (Ometraco), Eddy Katuari (Wings), Paulus Tumewu (Ramayana Lestari Sentosa), Jakonb Oetama (Kompleks Gramedia), Kartini Muljadi (Tempo Scan Pacific) and Tomy Winata (Artha Graha). They are just a handful of the many highly adventurous and risk taking businessmen, and they are very good.

If we were to compare, we will find that these Indonesian business leaders tend to do a lot more corporate deals every year. They tend to make big investments more frequently. They are also not averse to selling assets for the right price.

Many have made money from their successes in Indonesia. Many will now have their eyes to parlay their expertise to conquer parts of Asia. That is the one major thing which large Malaysian companies have been able to do much better. Can they translate their success into other countries? It would take a brave person to think that they will not succeed.

SOEs Privatisation The Kicker

There are 37 state owned enterprises slated to be privatised. Though there had been some obstacles, we will see five going for IPO soon: Krakatau Steel, Bank Tabungan Negara, National Plantation Enterprises III, IV and VII. Just imagine Tenaga and Telekom Malaysia being listed in one year. That alone would charge up its corporate scene and equity markets. Just spreading the list of 37 over five years would propel global investors interest to no end in Indonesian equities. The choices would increase and these giants would allow for good liquidity as well.

Hence if the government continues to play their cards right, the outlook for Indonesia is bright indeed over the next few years.

p/s photos: Tavia Yeung-Yi (one of the better up and coming talent)

Petaling Street Hawkers Calling You Back With Deeper Discount!

Maybank had been due to complete its purchase on Friday of a 55.5% stake in BII, for US$1.5 billion. Maybank stood to lose more than 400 million ringgit if it should walk away from the deal. The regulator "changed" the rules for the deal when it come to approving the deal. The changes alter the deal strategy significantly.

I DID NOT HEAR OF SELLERS THEN OFFERING TO renegotiate the deal, or return the deposit if Maybank wanted to walk away, they held onto the terms of the deal. Since then the share price of BII has fallen enormously. NOW THE SELLERS OFFERED to reduce the deal by 480 million ringgit. The rebate is more than the 400 million ringgit deposit Maybank stands to lose by walking away from the acquisition yesterday.

Moral of the story, how many idiots are running around in this deal? Why do the idiots think there are stupider idiots running around as well in this deal?

Bank Negara had previously blocked the acquisition after Indonesian regulators said Maybank would have to sell part of its stake in the future to comply with new rules designed to raise the shareholdings of Indonesian investors. The central bank then gave the deal the green light on September 16 after Indonesia's capital markets regulator agreed to extend the deadline for Maybank to cut its stake. In the latest move, it told Maybank that the terms needed to be revised – that is, the price reduced – because of turbulence in the global financial markets.

The concern of investors and also Bank Negara Malaysia (BNM) is that Maybank would end up losing a pile if it were to pare down its stake by 20% within two years. This is because it is acquiring the shares at Rp510 while it is less than Rps330 now.

Maybank said in a statement dated Sept. 25 the Malaysian central bank ordered it to reduce the price or scrap the transaction, sparking a dispute with Indonesian authorities and a record slump in Bank Internasional's share price. Temasek said Maybank first asked for a one-month extension and a price reduction on Sept. 24, which it turned down a day later. It was informed of the objections by Bank Negara, or the central bank, on Sept. 25 at 11:32 p.m. local time, it said.

Khazanah Nasional Bhd., Malaysia's sovereign wealth fund, is paying 2.5 times the book value of PT Bank Niaga and three times book for PT Bank Lippo as it buys the remaining shares of the two Indonesian banks in a proposed merger. Khazanah and its unit, like Temasek, are either selling one of the two banks they own or merging them to meet an Indonesian central bank deadline limiting ownership to just one local bank by 2010. (Maybank's purchase price for BII was 4.7 times book value, which was a lot more than the 1.98 times book value of Indonesia’s leading bank, Bank Mandiri, and of Maybank's own price-to-book multiple of 2.3 times.). Bank Internasional's shares traded at 310 rupiah yesterday, compared to the deal price of 510 rupiah.

''You can't do this,'' Achmad Fuad Rahmany, chairman of Indonesia's market regulator, said in an interview in Jakarta yesterday. Renegotiating the price ``will cause losses to investors.'' OH YES WE CAN, just like the way you enforced a "selling down clause" in your approval for the Maybank deal. That clause basically altered the strategic value behind the deal. The deal terms may be agreed upon, but always upon the deal being approved by the relevant authorities. Now the authorities have "materially changed" the strategic value of the deal. Maybank can walk away and lose their deposit. What do you mean "you can't do this", Encik Achmad???

When Maybank was faced with the embarrasing situation of losing the deposit for having to walk away - the sellers DID NOT offer a way out for Maybank, knowing full well that Bank Negara was making life hell for Maybank with the additional clause inserted by the Indonesian authorities. Maybank was getting slammed (correctly) for not tightening the deal terms (e.g. deal off if approval is not gotten from the Indonesian authorities, or if there are conditional "changes" to the deal when being approved by the Indonesian authorities).

Make no mistake, i am not siding with Maybank here - in fact the people responsible for the deal should sent back to school.

So to the buggering sellers offering the 480 million ringgit discount - go fly my wau! Too little too late.

Maybank, take your medicine and walk away, lose 400 million ringgit OK what... but surely SOME BLOODY heads must roll - who were the advisors, who were the legal advisors, who were the managers in charge of negotiating the deal???

Temasek and Kookmin, go find your Alan Bond scalp somewhere else!

... and its a celebratory Raya at Bank Negara after all...

p/s photo: Jamie Yeo

Reassessing Indonesia (Part 1)

Malaysia and Singapore have a unique relationship. We are like squabbling in-laws, but we know we cannot and will never divorce each other.

You live with the tension and exchange of barbs. The ties between Malaysia and Indonesia are quite different. The animosity at times can boil over. Grudges are harboured and allowed to fester. There is a genuine fear of, and sometimes loathing for, each other.

Most of that is at the political and policy levels. Many Malaysians and Indonesians love to visit each other’s country. Indonesia to Malaysians in general, is a bit of an underachiever. Naturally, Malaysia to Singaporeans, is also a bit of an underachiever.

It’s time to reassess Indonesia. In many ways, the country is moving in the right direction business-wise.

Recently, Qatar and Indonesia set up a US$1bil fund to invest in energy and infrastructure. Qatar is the world’s largest exporter of liquefied natural gas (LNG), while Indonesia is third. Both countries are also members of the Organisation of the Petroleum Exporting Countries (OPEC), though Indonesia has just opted out.

Qatar will contribute 85% of the funds for the new fund and Indonesia the remainder. Qatar’s state investment fund, the Qatar Investment Authority (QIA), has teamed up with Abu Dhabi state enterprise International Petroleum Investment Co in March to launch a US$2bil fund.

The QIA has also set up joint funds with Oman and Dubai.

Indonesia is pro-Western, much like Malaysia, and could be a model for a modern Muslim nation, provided nationalist Islam (not radical Islam) doesn’t become too powerful a force in Indonesian society.

Following the aftermath of the Sept 11 attacks, many were outspoken on the various failings of Muslim nations. Indonesia is a dominantly Muslim nation, with the largest Muslim population in the world, but it also has small but strong Hindu, Christian and Buddhist communities.

Malaysia has generally enjoyed a better perception in the eyes of international travellers and global investors.

Indonesia has had to contend with thorny events such as the Bali bombings and the East Timor massacre. If investors are to be influenced just by these events, they would be doing Indonesia and themselves a disservice.

There is still pockets of “nationalistic fervour” among the political voices in Indonesia.

Health Minister Siti Fadilah Supari commented in April that regional governments in Indonesia should be on their guard whenever they dealt with international investment proposals.

She said the following should be considered by provincial governors and regents in respect of foreign investment plans:

· Would the international investors take control of Indonesian resources?

· Would the foreigners be prepared to be on an equal footing with Indonesian partners, or would they adopt a lordly, colonialist stance?

· Would a particular foreign investment benefit Indonesians or harm them?

· To what extent would Indonesians gain from the investment? Foreign investors often lie about this matter.

For example, South Kalimantan’s coal needs were less than 1 million tons per year and there was an electricity shortage crisis. Yet, at the same time, 70 million tons of coal was taken out of the province and sold internationally.

Indonesia has been beset by an autocratic regime for a long time. We need to reassess the country now as the country is certainly moving away from the authoritarian system to a more democratic one.

It is still taking baby steps but press freedom and the media’s brutal honesty and bravery has paved the way for a more civil society. This is an important aspect of a decentralised power system, which accords more voice to a wider spectrum of leaders and the disenfranchised.

Meanwhile, according to an AT Kearney study of the top 25 most attractive investment destinations in the world, Indonesia ranks 21st. The rankings for 2007 are based on a survey of 1,000 CEOs around the world. In 2006, Indonesia did not make the top 25. Thanks to a well-respected Finance Minister in Sri Mulyani Indrawati, there has been significant economic liberalisation.

Quasi-monopolies have not been protected and are expected to compete with new foreign companies.

The boom in commodities over the last five years has helped the country infuse more strength into its underlying economy. Indonesia is at or near the top in palm oil, rubber, base metals, coffee and cocoa.

Sustainability of global investments

Corporate investors across all regions are concerned about the sustainability of the global economic order. Is Indonesia the flavour of the month only because of the commodities boom? I think not, as most experts can see a sea of change enveloping the country.

The commodities boom only hastens the benefits of such changes.

The country is confident enough to implement several years of mandated increases in minimum wages. While some industries may have shifted or closed operations because of these new rules, these measures have also forced investors and businesses to move up the value-add curve.

There has also been a decentralisation of budgetary systems, which has allowed local leaders to better manage resources and spending to their localities.

Over the last three years, Indonesia has managed to enjoy more stability politically, in its currency and in economic viability. This lessens the discount on businesses in valuation models, thus resulting in better confidence among foreign investors going forward.

Corruption is still a problem but one can easily see a more transparent era for Indonesia. More bigwigs have been hauled up and tainted politicians have lost their seats with greater frequency.

Major business entities

Since beginning of 2007, there has been more than US$20bil in mergers and acquisitions and capital raising, which drove the corporate sector to new levels.

The corporate sector is no longer dominated by seasoned players from the Suharto era. If you put the top business groups next to Malaysia, the latter pales in comparison.

The Salim group tops the ladder with US$7.3bil (RM24.8bil) in revenues annually and is in agriculture, distribution, property management, financial services and telecommunications in Indonesia, Hong Kong, China and Singapore.

Next is the Sinar Mas group with revenues of US$4.77bil (RM16.2bil), which was forced to sell Bank Internasional Indonesia (BII) following the 1997 financial crisis but has since rebuilt itself in banking with the acquisition of Bank Shinta.

The Sinar Mas group can be said to have been most affected by the 1997 financial implosion as their Asia Pulp & Paper had a staggering debt load of US$14bil. Following years of negotiations and restructuring, the company has thrived. It is also the biggest national player in palm oil, with land bank of more than 1 million hectares.

I could go on and on, but a summary of local companies with annual revenue of at least US$1bil each would be better for now (major assets/annual revenues):

Salim: consumer goods, agriculture/US$7.3bil

Sinar Mas: pulp and paper, agriculture/US$4.7bil

Djarum: cigarette, Bank Central Asia, Cipta Karya Bumi Indah/US$3.7bil

Gudang Garam: cigarette, plantations, paper packaging/US$3.5bil

Bakrie: coal, Bakrie Brothers/US$3.1bil

Lippo: regional property developer, healthcare, financial services/US$2.7bil

Raja Garuda Mas: pulp & paper, plantations, energy/US$2.4bil

Triputra: coal, agro-industry, manufacturing/US$2.3bil

ABC: consumer goods, battery/US$2.1bil

Saratoga Capital: coal, Adaro, palm oil, infrastructure/US$1.9bil

Para: consumer goods, property, mining, financial services/US$1.6bil

Sampoerna: agro-industry, telecommunications, forestry and property/US$1.4bil

Ometraco: animal feed/US$1.2bil

Khazanah Nasional Bhd has a hefty profile in Indonesia. The businesses under Khazanah has an annual revenue of US$1.8bil. Its stakes include those in Bank Lippo, Bank Niaga, Excelmindo Pratama and infrastructure joint ventures (JVs).

Surprisingly, Temasek’s holdings in Indonesia has only a total annual revenue of US$1.5bil. It has stakes in Bank Danamon, BII, and various property and energy JVs.

Still, the key point here is the number of business entities that have substantial revenues. How many Malaysian businesses have combined revenue of more than RM3.4bil annually? Size matters, especially when they are headed in the right direction with the proper masterplan.

State-owned enterprises (SOEs)

The government has also planned to privatise a number of SOEs, which in itself is a grand plan to better manage resources, inject competition and promote efficiency in government. All in, 37 SOEs have been identified for privatisation and/or restructuring. There has been some delay in that certain factions of the government have been delaying the process.

Last year, 10 SOEs were scheduled for privatisation. However, only five are now ready to go to IPO this year: Krakatau Steel, Bank Tabungan Negara, and National Plantation Enterprises III, IV and VII. Needless to say, intense lobbying by the affected SOEs and maybe even “vested interests” must have been a large part of the delay.

Still, it’s hard to deny that the country is moving in the right direction.

p/s photo: Son Ye Jin