Friday 29 Mar 2024
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This article first appeared in The Edge Financial Daily on November 30, 2018

KUALA LUMPUR: Khazanah Nasional Bhd’s early morning announcement yesterday that it struck a deal to sell a 16% stake in IHH Healthcare Bhd to Mitsui & Co Ltd at a premium price has prompted many to wonder whether the deal may start the ball rolling for the government to raise money to pare down whopping debts that were left behind by the previous administration.

As at yesterday’s market close, the market value of Khazanah’s major investments in public listed companies on Bursa Malaysia amounted to RM254.56 billion, including the yet-to-be-disposed stake in IHH. (see table)

While these companies’ share prices may have taken a turn for the worse year to date, this may not necessarily hinder Khazanah from selling its equity stakes at a premium to market value, as it did in the case of IHH. Khazanah is divesting a 16% stake in IHH to Mitsui & Co Ltd for RM8.42 billion, or RM6 per share cash, valuing IHH at the forecast price-earnings ratio of more than 60 times. The transaction represented a premium of 9.1% to the group’s closing price yesterday and an even higher premium of 14.29% to the group’s closing price the day before.

Another government-linked institution with significant assets on the local stock exchange is national oil corporation Petroliam Nasional Bhd (Petronas). Petronas also controls several large-capitalisation companies, including five out of 30 constituents of the FBM KLCI. (see table) Based on the size of its holdings and the market value, Petronas could raise multibillions of ringgit even with a divestments of as little as 5% without relinquishing control.

However, MIDF Research analyst Noor Athila Mohd Razak considers such a move “very unlikely” as these are strategic holdings for Petronas as a parent company. “Petronas would want to make sure they’re capitalising on the benefits, including the dividends [from these companies]. They’re trying to sweat out these assets so it doesn’t make sense to dispose of their stakes,” she told The Edge Financial Daily.

It is worth noting that Petronas, like Khazanah, pays its dividends directly to the government. This sets it apart from the other government-linked investment corporations which hold significant stakes in Malaysia’s public listed companies, including Permodalan Nasional Bhd (PNB) and various pension funds.

For instance, Tony Pua, political secretary to Finance Minister Lim Guan Eng, has said that PNB will not be asked to help pare down government debt by reducing its equity holdings. This is because its gains will benefit only PNB unitholders.

Likewise, pension funds such as the Employees Provident Fund and Kumpulan Wang Persaraan Diperbadankan (Retirement Fund Inc) will channel any returns from corporate exercises to its members, and not to the federal coffers. Apart from its stock exchange holdings, it should be noted that Khazanah also has a portfolio of private investments, including the loss-making Malaysia  Airlines Bhd and SilTerra Malaysia Sdn Bhd, which has also been in the red. Khazanah had achieved an all-time high value of RM115.6 billion for its investments in 2017. That year, Khazanah announced a RM1 billion dividend payout to the government.

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