Cover Story: ‘We will forge strategic global partnerships to spur FDIs’

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Starting with just five people, Shahrol Halmi, the managing director of 1Malaysia Development Bhd, now has a team of 33. Of this, more than half — 18 — are tasked with looking at various investment proposals.

Said to be an expert in value creation, Shahrol, who was previously with Accenture Malaysia, has over 13 years’ experience in implementing large projects involving government-linked companies (GLCs) as well as financial institutions.

His achievements include a multi-year transformation programme at the Employees Provident Fund as well as planning and executing the merger of Sime Darby, Guthrie and Golden Hope to form Synergy Drive, the world’s biggest plantation company.

A graduate of Stanford University, Shahrol is now in the hot seat of 1MDB, which frequently comes under the public spotlight. In a written reply, Shahrol answers the sceptics of 1MDB, the issues and future plans.

The Edge: Has 1MDB made any major investments so far? If it has, how much of the RM5 billion has been utilised thus far?Shahrol: We have so far invested US$1 billion in a joint-venture company with PetroSaudi International Limited (PSI). The joint venture will spearhead the flow of foreign direct investments from the Middle East in high-impact projects in Malaysia.

Can you tell us a bit about the future projects/joint ventures that 1MDB is looking into?We have identified a number of projects within our focus areas of energy, real estate, tourism and agribusiness. These projects are now undergoing rigorous evaluation. As we go through the assessment process, we are also in discussions with our international partners who have expressed keen interest in these projects.

These projects will contribute towards catalysing long-term sustainable economic development in Malaysia and promote the inflow of FDI, in addition to having acceptable rates of return. At this point in time, it is inappropriate for me to say more.

When the fund was originally conceptualised, a large property development project in Terengganu was supposed to be one of its initial investments? Another area of investment was supposed to be in the oil and gas segment. What is the progress of investments in the two areas?The Terengganu project is one of several real estate projects we are assessing. Now that we are a federal entity with a new mandate to cover the whole of Malaysia, we have a healthy pipeline of projects. Our confidence in this sector in Malaysia is also shared by our international partners.

The joint-venture company with PSI will look for opportunities primarily in the energy sector in Malaysia. There is no specific time frame for this, but we will implement projects suitable to our needs at the most opportune time. We can expect the joint-venture company to make an announcement in due course.1MDB-PSI joint ventureA US$2.5 billion joint venture between 1MDB and Petro Saudi International Ltd (PSI) was established in October this year. What has come out of the joint venture so far? Have the funds come in?The joint-venture company was set up in October 2009 and within this short time, it has identified key business and economic opportunities in Malaysia. The joint-venture company has been capitalised to US$2.5 billion. The high-impact and strategic projects will be announced by the joint-venture company as and when they are concluded.

Does the PetroSaudi JV include the acquisition of some assets belonging to Petro Saudi? The joint-venture company was set up with a total capitalisation of US$2.5 billion without asset acquisition.

The fund is supposed to spearhead foreign direct investments into the country. It is also supposed to go into high-impact projects. Has there been any change to the investment philosophy?First, I would like to take this opportunity to clarify that we are not a fund. We are a strategic development company mandated to drive initiatives for the long-term sustainable economic development of Malaysia and promote inflow of foreign direct investment.

There is no change in our investment philosophy. We will continue to forge strategic global partnerships to bring home foreign direct investment for new high-impact growth. We have identified four core areas — energy, real estate, tourism and agribusiness — which can produce the high-multiplier effect we seek.There has been some concern following the debt blowup in Dubai that Middle East investments outside the region will slow down. What are your thoughts on this and how will this impact the JV with Petro Saudi?We have no exposure to what is happening in Dubai. The joint-venture company is already in place and the funding completed with no gearing.

On the bondsA sum of RM5 billion was targeted to be raised at a coupon rate of 5.75%. After issuing the papers, how much did 1MDB actually get from the proceeds? Was it RM5 billion or more?We set aggressive targets in the issuance of the Islamic medium-term notes, and have received all the proceeds in full as per the terms of our bond issuance.

There is a suggestion that 1MDB could have got a better pricing had it done it by itself or called a few banks to undertake the issue. Your comments, please. I would like to put this matter in the right perspective. The bonds were issued in a very challenging credit market at the time. It broke new ground in being the first 30-year bond ever issued in Malaysia. We acted on professional advice from world-class international investment banks that were also supported by local investment banks to secure the most competitive terms possible given the prevailing weak market conditions.

Who are the bond holders and how much did they pay for it? Does 1MDB have any idea?We are made to understand that the placement was market-driven and arranged by the lead investment bankers which have placed the bonds to reputable institutional holders of international standing and [which are] known for their prudency at competitive rates.

When is the first coupon payment due and how much?We have met our obligations on the first coupon payment.

The entire bond issue right from arranging to facilitating and even trustee services was left to AmBank. Why didn’t 1MDB undertake the entire issue by itself considering it is fully guaranteed by the federal government? The bonds were arranged by one of the largest and most reputable banks in Malaysia in accordance to normal practice and accepted market practices regulated by Bank Negara Malaysia.The managementThere have been some changes to the composition of the board. Is it true that Datuk Mohd Bakke Salleh has left the board and has been replaced by Tan Sri Che Lodin Wok Kamaruddin?During the formation of 1MDB, professionals in GLCs and funds at the CEO level were tapped to provide expertise. They agreed to assist with an understanding that they could return to their core focus areas — managing the companies they head — once their tasks are completed. As 1MDB forges ahead, the board will see new faces progressively.Any boardroom change will be reflected on our website, www.1mdb.com.my.

As a strategic development company professionally managed and governed by best global practices, we have put in place a triple-tier check-and-balance system. This comprises a board of advisers, a board of directors and a senior management team.Prime Minister Datuk Seri Najib Razak chairs the board of advisers. On the board are Minister in the Prime Minister’s Department Tan Sri Nor Mohamed Yakcop, and Treasury Secretary-General Tan Sri Dr Wan Abdul Aziz Wan Abdullah.

We are also tapping the rich experience of world-class corporate leaders and entrepreneurs whom we will invite to join the Board of Advisers. Presently, we have Khaldoon Khalifa Al Mubarak, chairman of Abu Dhabi Executive Affairs Authority and CEO and managing director of Mubadala Development Company, and Bernard Arnault, group chairman and CEO of LVMH Moët Hennessy Louis Vuitton.

How big is the team at 1MDB looking at the various investments? I notice that the team has grown. Apart from those working for 1MDB, is there a plan to employ third parties for some projects?We started off with a staff of five under the investment team. It is commendable that in just a few months, we have assembled a strong investment team. Under the investment division, we have appointed a chief investment officer, who is assisted by two senior investment directors and one risk management director to lead this effective team of 18 out of a total staff count of 33 people [and growing]. The team has grown in relation to the number of projects we are working on and our needs. We are always on the lookout for talent from within and outside Malaysia.

In fact, we have successfully created the opportunity for Malaysians working abroad to return home to join our team, and there have been examples of this in the case of 1MDB.

We employ vigorous and rigorous processes in hiring talents with varied background, expertise and international exposure, hiring solely based on merit which we are proud of.

We will always assemble the best team possible for each project and in some cases, will leverage on external, third-party experts for their specialised knowledge and independence.

This article appeared in Cover Story page of The Edge Malaysia, Issue 785, Dec 14 – 20, 2009.