12Disember2018

Affirmative plan poser

ykadirxNEW As the legacy of affirmative plans is slowly but surely being replaced by market-driven merit-based policies in the country, the dismal showing of some government-linked companies is proof that we are, perhaps, not ready to go the free market way at full steam.

ON JULY 8, PRIME MINISTER DATUK SERI MOHD NAJIB Abdul Razak dedicated Bandar Pusat Jengka in Pahang to the memory of his late father, Tun Abdul Razak Hussein, the country’s second Prime Minister and the man best remembered as the Father of Development’.

The Federal Land Development Authority (Felda)’s plantation town is now known as Bandar Tun Abdul Razak — a fitting tribute to the man who originated the Rural Development Plan, of which Felda is a key element.

By launching rural development, Abdul Razak, then the deputy to the late Tunku Abdul Rahman Putra, gave a whole new meaning to the word development’.

Prior to the launching of the plan, development was associated with towns and cities, and with the alienation and marginalisation of the rural Malays.

The plan brought schools, health clinics and hospitals, water, electricity, telecommunications facilities, roads and irrigation to the rural areas.

In the aftermath of the May 13, 1969 racial riots and his elevation to the top job, Abdul Razak launched the New Economic Policy (NEP), whose aims were to eradicate poverty irrespective of race and restructure society so that the Malaysian races would no longer be identified with economic activities they were traditionally engaged in.

One of the key elements of the second objective was the setting up of trust agencies and state enterprises to build up businesses, hold shares on behalf of the Bumiputeras and train them in entrepreneurship and management.

Over the decades and with successive development policies, the two key objectives of the NEP were perpetuated with varying degrees of success. Despite incessant complaints by its detrac~ors, mainly the non-Bumiputeras, the economy grew the fastest during the NEP period and in the decades that followed until it was put paid by the 1997-98 regional financial crisis.

But in the last two years under Mohd Najib’s stewardship and upon the advice of the National Economic Advisory Council (NEAC), the NEP has been effectively dismantled and replaced by the New Economic Model (NEM).

Slowly, but surely, Abdul Razak’s legacy of affirmative plan is being replaced by market-driven merit-based policies.

Two days before Mohd Najib immortalised his father’s name in the Felda heartland, his all-powerful economic tzar, Datuk Sen Idris JaIa, planted yet another nail in the coffin of affirmative action.

Under Abdul Razak’s affirmative plan, trust agencies and state enterprises played a vital role in acquiring as well as creating corporate wealth on behalf of the Bumiputeras and redistributing them via Permodalan Nasional Bhd (PNB)’s unit trust schemes.

PNB’s unit trust schemes were so successful that, in recent years, some of them have been opened to non- Bumiputeras.

On July 6, it was reported that the government had identified 33 government-linked companies (GLCs) as beiri’g ready for divestment purportedly to rationalise the portfolio of GLCs.’

Under the rationalisation plan, the government would reduce its stakes in some of these companies, list a few others and sell the rest.

Idris, who is also Minister in the Prime Minister’s Department, was quoted as saying: This action plan would involve the paring down of the government’s stakes in five companies, the listing of seven companies and the outright sale of 21 companies.’

Tweaking state-owned enterprises is nothing new. During the administration of Tun Dr Mahathir Mohamad, several enterprises were privatised to Bumiputera individuals, but later renationalised in the aftermath of the 1997-98 Asian Financial Crisis. Since then, privatisation has become a bad word.

During the reign of Tun Abdullah Ahmad Badawi, the trust agencies and state enterprises were renamed GLCs, which some argued, effectively made them Malaysian instead of Bumiputera entities.

In the last two years, in particular, since the appointment of Sarawakian Idris as Mohd Najib’s economic transformation tzar, the Bumiputera elements have been largely ignored. The paring down of state ownership of the 33 GLCs could further erode whatever is left of Abdul Razak’s benevolent policies.

It is ironic that what appears to be the dismantling of Tun Abdul Razak’s policies and approaches is gaining momentum during the rule of his son, who, during the July 8 dedication ceremony, told his largely Malay audience that he had learned a lot from his father, including such values as patience and not being too power-crazy.

REDEFINING THE ROLE OF GOVERNMENT IN BUSINESS

Idris, who is effectively the supreme manager of the economy in his capacity as the Chief Executive Officer of the Performance Management and Delivery Unit, Pemandu, said the asset sales were part of a Strategic Reform Initiative to define the government’s role in business.

The reason, according to him, was to create greater liquidity in the capital market and more opportunities for private investment.

Of the 33 companies identified under the divestment programme, 24 would see the exercise effected on them between this year and 2012,’ he said.

He mentioned the recent successful flotation of Felda’s MSM Malaysia Holding Bhd as an example of the divestment, adding that seven GLCs had so far been identified for listing under the divestment programme.

Interestingly, his announcement comes at a time when one of the key GLCs already on Bursa Malaysia, namely, Malaysian Airline System Bhd (MAS), is struggling to keep its rating intact.

The media reported that MAS’ share price had taken a huge beating after reporting a big loss in the first quarter ended March 31 and might cut further its passenger carrying capacity in the coming quarters to blunt the impact of higher fuel prices.

But The Star newspaper said the management did not elaborate on how it intended to achieve this objective, or whether the plan would involve reducing flight frequency to some destination~ or using smaller aircraft on less popular routes.

It quoted the airlines’ Managing Director and Chief Executive Officer Tengku Datuk Azmil Zahruddin Raja Abdul Aziz as telling the Press after the company’s annual general meeting on July 4: ‘One of the things we will have to do is pare down capacity a little bit. We would probably see more of that in the third and fourth quarters of this year.’

MAS suffered a loss of RM242 million in the first three months of this year, despite reporting an 11% growth in passenger capacity.

The airline’s long-serving chairman, Tan Sri Munir Majid, was reported as saying: ‘We did quite badly compared to other airlines.’

The airline’s dire straits, according to The Star report, had prompted some to suggest that it should be taken private, or explore the possibility of listing its low-cost carrier unit Firefly.

‘No options are off the table, but we have to consider the pros and cons,’ Munir said.

MAS’ shares had fallen 27% since the start of the year to RM1 .56 on the day of the AGM, after hitting its worst level of RM1 .34 in more than a decade. MAS was one of the privatised GLGs to be renationalised after the 1997-98 Asian’ Financial Crisis.

Adding insult to injury, its low-cost rival, AirAsia, is going places, literally. Soon after announcing at the recent Paris International Air Show that it had signed up to buy 200 Airbus A320 aircraft, the airlines added another 100 to bring its order to a record-breaking 300 planes.

The deal would make the budget airline one of the world’slargest carriers. AirAsia and Airbus Industries announced a US$ 18.2-billion deal for 200 planes at the show last month, shattering aviation records for the largest ever airline order. The additional order takes the list price of the contract to a staggering US$ 27 billion.

GETTING TOUGH ON ERRANT CHINA COMPANIES ON BURSA

IT would appear that Malaysia is not alone in being taken for a ride by unscrupulous investors from China. This magazine has repeatedly highlighted the need for Bursa Malaysia and the capital market regulators to be more circumspect in accepting the listing of China companies.

Analysts have blamed the poor showing of China stocks on Bursa Malaysia to their owners and promoters cashing out. They said the owners and promoters were selling much more than investors had been buying.

It was reported from  Washington DC that accounting controversies in Chinese companies listed in the US have raised concerns over diminished appetite among US investors to back small to mid-sized China groups that are trying to raise capital to expand their businesses.

James R Doty, chairman Accounting Oversight Board (PCAOB), has been quoted as saying: ‘I believe we share a common objective with Chinese regulators to protect investors and safeguard audit quality through our mutual co-operation.’

The board and the US Securities and Exchange Commission (SEC) last year launched reviews looking at companies with stock trading in the US that had most of their business operations overseas.

Many of these companies are based in China and entered the US through reverse mergers, a process whereby they obtained stock listings by acquiring a publicly traded shell company.

Last month, accounting firm BDO resigned as auditor of China-Biotics, citing concerns after finding that the signature on a sales contract belonged to a different company from the one supposedly involved in the deal.

It also cited mathematical errors it found in a portion of the group’s interest income statement that management dismissed as clerical mistakes, according to regulatory filings.

The PCAOB last month rejected the registration of a Hong Kong-based auditor for the first time, citing its inability to inspect the firm’s work.

The SEC has suspended trading in 20 China-based companies after questions about their accounting practices were raised.

The Stock Exchange of Singapore has realised its mistake in admitting China companies, and investors there are demanding tougher rules to prosecute executives of China- based companies after scandals from New York to Hong Kong wiped out the market value of such firms.

According to a July 8 Bloomberg report, the US and Hong Kong regulators have been ramping up Chinese company probes as Muddy Waters LLC (a research firm that specialises in China stocks) said last month that Sine-Forest Corp overstated its timber holdings, erasing as much as 82% off the China-based tree plantation owner’s market capitalisation in Toronto.

With more than one in 10 Chinese firms listed in Singapore delisted or suspended since 2008, the regulators there are under pressure to seek a balance between the need for investor protection and a desire to attract foreign companies.

Lawyers said executives of China companies that trade in Singapore, so-called S-chips, are beyond the reach of current law as long as they remain in China.

‘Some of these rogue executives are unreachable by staying in China,’ said former lawyer David Gerald, who is president of the Securities Investors Association (Singapore), which represents 70,000 retail shareholders. We can’t afford to have another scandal and let investor confidence wane further. We need to get this problem arrested from Singapore to the US.’

As such, it is important that Bursa Malaysia and capital market regulators like the Securities Commission, Bank Negara Malaysia and the Finance Ministry adopt a tough stand against errant China companies listed on Bursa Malaysia and not to admit suspicious China enterprises.

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