Frankly Speaking

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THE value of a name

Over the earlier two weeks prior to July 15, some very brave investors have been buying into the speculation that Mohd Nazifuddin Najib may be taking up a stake in Eastland Equity Bhd, sending its shares up by over 100% and making it one of the most active stocks on Bursa Malaysia.

A denial by Nazifuddin on July 10 caused Eastland to tumble 19.4% from the day's highest to the lowest. It fell 10% from the previous day's close.

This is not the first time Nazifuddin's name has been linked to a public company. In March last year, he was offered an option to purchase an 18.66% stake in Supercomnet Technologies Bhd. The offer was preceded by a two-day gain of 250% in Supercomnet's share price. But the stock came tumbling down when Nazifuddin chose not to take up the option.

Similarly, when he was appointed to the board of timber company Harvest Court Industries Bhd in October 2011, the counter shot up. Nazifuddin resigned from the board the following month, but remained a shareholder. However, due to the speculative frenzy, Bursa Malaysia imposed trading curbs on Harvest on Nov 14, 2011.

Nazifuddin's strong denial during the week of July 8-14 that he was eyeing Eastland, shows that other parties used his name to make a quick buck. After all, he is Prime Minister Datuk Seri Najib Razak's second son.

This episode proves that investors believe connections matter in Corporate Malaysia. But how many times must the scenario be repeated before punters realise the perils of investing on mere speculation that this or that person is coming on board a company? What's next after Eastland or rather, who's next?

The devil is in the details

There are diverging views on 1Malaysia Development Bhd's acquisition of the 1,400mw Jimah coal-fired power plant for RM1.2 billion.

If one were to compare the RM2.38 billion that 1MDB paid for Genting Sanyen, which had only a few years left in its concession and a power plant with a smaller capacity of 720mw, the price it forked out for Jimah seems palatable.

But like they say, the devil is in the details, in this case those of the power purchase agreement (PPA) that is tied to the power plant and its operational efficiency.

What 1MDB is essentially acquiring is not hardware but cash flow from the power plants, which depends on the rates at which electricity is sold to Tenaga Nasional and the plant's efficiency in ensuring a reliable supply to the national grid.

An opposition MP in Parliament has already voiced his concern over 1MDB taking over power-generation assets that were given on a silver platter to well-connected parties previously. The Jimah power plant, which belonged to the Negri Sembilan royalty, was constructed with minimum capital outlay in 2005.

All that the shareholders needed was a good technical partner to complete the power plant and they were sitting pretty on assets worth a few hundred million ringgit.

In the case of Genting, the shareholders reaped hefty returns because of the favourable terms at which power was sold to Tenaga.

But where Jimah is concerned, is its cash flow and operational efficiency worth the price 1MDB is paying for it?

Or is 1MDB acquiring the assets at disputable prices, with the hope of getting the nod from the authorities to expand the facilities?

This paid off in the case of Genting Sanyen, with the existing power plant getting a 10-year extension of its concession. Be that as it may, the price is still being disputed.

Lax security at the border

Security at the Kelantan-Thailand entry/exit points is lax and even Home Minister Datuk Seri Ahmad Zahid Hamidi has acknowledged it. Such "slackness" has made it easy for firearms to be smuggled into the country.

Despite tight controls in Malaysia, there has been an alarming increase in armed robberies and assassinations involving gunmen.

The shooting of Royal Malaysian Customs deputy director-general II Datuk Saharuddin Ibrahim near a traffic light close to the Putrajaya police station, just before the May general election, stoked the outcry over the deterioration in public safety.

The victims have not only been individuals like Saharuddin who could have been the target of crime syndicates, but also ordinary people. On July 8, Hashim Mat Zin — a teacher in Bachok, Kelantan, was gunned down while driving out of the school he taught at.

Zahid told Parliament that control over movements at the Kelantan-Thai border was slack because many Kelantanese had family ties with the Thais.

He said an anti-smuggling unit will be posted at the border to monitor and thwart the smuggling of firearms into Malaysia. While the move is laudable, the government should also look at whether bribery among the border officials led to the problem.

The bottom line is, security at the Kelantan-Thai border checkpoints needs to be tightened.

This story first appeared in The Edge weekly edition of July 15-21, 2013.