Reputation at stake
The charging of former Port Klang Authority general manager Datin Paduka O C Phang and two others last Thursday with criminal breach of trust over the Port Klang Free Zone (PKFZ) fiasco places high expectations on the government to address the fundamental failure of governance that allowed the project’s proponents to disregard the most basic rules of public accountability.

While the framing of the criminal charges signals the intention of the authorities to punish those who have broken the law and serves as a deterrent against such future breaches of public trust, the deeper issue of ensuring the integrity of government institutions will need to be resolved outside the court process.

It cannot be emphasised strongly enough that the key task before the government today is to arrest the perception that political connections can give one immunity from accountability. This applies both to the duty of care that public officials owe to the people to govern with responsibility, as well as to the trust which a government owes to investors to ensure that the returns on their investment are secure, apart from ordinary business risks.

The PKFZ debacle, a core element of which involves the risk of default on the RM4.6 billion soft loan taken by the Port Klang Authority to fund its obligations to Kuala Dimensi Sdn Bhd, the turnkey contractor of the PKFZ project, demonstrates the breakdown in governance in the country’s administration, which allowed successive Cabinet members to virtually bond the government to financial guarantees that they were not empowered to enter into. Worryingly, these transgressions are only the tip of the proverbial iceberg that investigations into the fiasco have revealed.

The government does not have the luxury of engaging merely in damage control so late in the day. It must summon the will to restore the country’s reputation as a nation that upholds the rule of law and promotes a conducive and transparent business environment.

Where is Proton’s partner?
Last week, news of German carmaker Volkswagen AG (VW) acquiring a 20% stake in Suzuki Motor Japan hogged the limelight in the global auto industry. A week earlier, French carmaker PSA Peugeot Citroen was also reported to be looking at buying a major stake in Mitsubishi Motor Corp Japan.

In Malaysia, Proton Holdings Bhd’s long-drawn effort to secure a strategic partner remains in neutral, four years after VW was close to acquiring a stake in the national carmaker.

As always, Proton management declined to reveal a time frame for when a strategic partnership deal is to be signed or whether it involves equity participation from the foreign partner.

As usual, the national carmaker doesn’t, or doesn’t want to, project any sense of urgency when it comes to securing a foreign strategic partner. The perception is that Proton doesn’t want to lower its position when it comes to forming a strategic partnership. But Proton is not in the same league as Mitsubishi or Suzuki.

The worry is that time is not on Proton’s side. While the present management has managed to revamp Proton’s operations to make them profitable through improved efficiencies and better models, the danger is that it may become contented with its current success in the domestic market, which remains a comfort zone.

There hasn’t been much change in the structure of the local auto industry but abroad, major changes have swept through the sector, notably with technology-hungry Chinese carmakers on a global shopping spree. If Proton wants to have any chance of selling its cars overseas, it had better move fast and get itself a good partner.

Return the excess cash
While Genting Malaysia Bhd’s purchase of assets belonging to its parent company Genting Bhd last week in no way compromised on the valuation, it nevertheless failed to excite investors of Genting Malaysia.

The reason is obvious. With a cash pile of over RM5 billion and rising, shareholders have long been waiting for a hefty dividend.

Apart from purchasing Wisma Genting for RM212.7 million, Genting Malaysia is also acquiring a company that owns two parcels of land in Segambut for RM15.9 million. There was little to quibble about the acquisitions as valuations were at a discount. Moreover, Genting Malaysia is the major tenant of Wisma Genting. But that is not what shareholders are waiting for. Instead, they want to see the company utilise its huge cash pile in a more meaningful manner, or return it to shareholders.

This is considering the company has little capital expenditure for operating the casino, theme park and hotels on Genting Highland. It generates more than RM1 billion in operating cash flow per year, which is more than enough should it decide to finance a major corporate exercise.

So really, it is hard to blame investors for shying away from the stock. Numerous research houses are calling a “buy” on Genting Malaysia, but the stock continues to underperform.
Previously, it used to be a laggard due to its interest in Star Cruises, but  it reduced its stake in the loss-making cruise line a few years ago to 19%. It received a substantial sum and many were expecting a major capital repayment or bumper dividend.

However, that has yet to happen. Instead, what shareholders are seeing is the company nibbling at assets, with the latest owned by its parent company.

Last year, there was another related party transaction when Genting Malaysia acquired a 10% stake in Walker Digital Ltd for US$69 million. This is what shareholders normally frown upon, unless the valuation is right.

This article appeared in Corporate page of The Edge Malaysia, Issue 785, Dec 14-20, 2009