Blue-eyed boy makes government see red - malaysiakini

KUALA LUMPUR, Jan 25 – He is without doubt the blue-eyed boy of corporate Malaysia, sitting atop the country’s top investment agency and lording over the vast government-linked company empire.

But Tan Sri Azman Mokhtar’s recent statements in the press have caused some unease with members of the outgoing Abdullah administration and raised some red flags with some supporters of incoming prime minister, Datuk Seri Najib Tun Razak.

Senior government politicians are wondering why he has been bent on embarrassing the government with comments about Valuecap and KLIA East, statements which have put the administration on the back foot.

In comments published in the New Straits Times on Saturday, he said that Valuecap has yet to get the RM5 billion capital injection from the government.

“It’s on the way,” he said.

Last October, the government said that it would help boost Valuecap’s fund by RM5 billion to buy undervalued stock and provide a boost to the market.

The government’s move to support Valuecap and obtain a loan from the Employees Provident Fund has been criticised sharply inside and outside Parliament.

As a result, the government has been particularly prickly to any statements made on Valuecap, especially in the economic slowdown climate where it wants to assure Malaysians that all funds promised by the administration to create economic activity is being disbursed in a timely fashion.

The Malaysian Insider understands that following the worsening global economic situation late last year, the Ministry of Finance decided that the RM5 billion loan from EPF to Valuecap will be drawn down in tranches and not as a lump sum.

The reason: the government believes that it may need to seek further help from EPF during this drawn out economic crisis to stimulate domestic demand and create a multiplier effect across the Malaysian economy.

While boosting Valuecap funds is important to creating movement on Bursa Malaysia, it is not likely to have as strong an impact on the economy as pump-priming.

So a decision was taken by the government to allow Valuecap to drawn down the RM5 billion in tranches. A sum of RM1 billion was released by EPF in December and more money will be given to Valuecap as and when necessary.

“The last thing the government needs now is for confusing statements to be made in public. The public and stakeholders expect the government to follow up each plan or policy statement with concrete plans. Only then will there be confidence,” said a government official, adding that
Najib may have to clarify the funding situation with Valuecap.

Valuecap is jointly owned by Khazanah, Permodalan Nasional Berhad and the
Retirement Fund Inc.

Earlier this month, Azman went public with his views on the RM1.6 billion new low-cost carrier terminal in Labu. He said that there was no need to build a new LCCT away from KLIA.

Khazanah is a shareholder in Malaysia Airport Holdings Berhad and would naturally be opposed to any move by Air Asia to move away from KLIA and operate its own LCCT.

But government officials felt that Azman should have made known his objections about the LCCT project to the Prime Minister, Deputy Prime Minister and Second Finance Minister privately, given that all three members of the Cabinet are also members of the Khazanah Nasional board of directors.

They charge that Azman has access to the top decision makers in government and he could have made persuasive arguments to the PM, DPM or anybody else in Cabinet.

Was there a need to exert pressure on government by going public, they wondered.

Supporters of Azman, Khazanah Nasional and MAHB say that he had little choice but to go public given the firestorm of protests the new LCCT project provoked. Staying silent as the biggest shareholder of MAHB was not an option.

Also, they point out that Air Asia had many powerful supporters in government in its corner and Azman’s statement helped to shift the balance of power a bit, at least in the public arena.

Or, at least, it set the stage for more public debate on this project, which has an impact beyond Air Asia, Khazanah and MAHB.

The Edge which has been critical of the plan to build a new LCCT away from KLIA, noted in its editorial this week that Khazanah Nasional has a vested interest in making sure that KLIA East does not happen, not only because it is the substantial shareholder of MAHB but also a controlling shareholder of Malaysia Airlines.

“The idea of an aggressive Air Asia, now Air Asia X with full control of its own airport must worry Khazanah, MAHB and MAS… Here is a case of a tenant (Air Asia) that wants to get out of its tenancy because its landlord (MAHB) has a close relative (MAS) who competes in the same business and thus would not make things easy for it. But will it be allowed to?

“And what’s wrong with the idea of a privately-owned managed LCCT competing with MAHB? Isn’t it true that competition leads to improved services and lower cost for customers?, ‘’ said the Edge.

The impasse over KLIA East is likely to be settled this Friday with odds on the government reversing an earlier decision to allow Air Asia to finance and build its own LCCT.

It will be a victory of sorts for Azman and may vindicate his tactic of going public with his opposition to the airport project. -- TMI

VALUECAP: Furious debate in Parliament - malaysiakini

By Debra Chong
KUALA LUMPUR, Nov 11 — The Federal Government’s pressure on the Employees Provident Fund to inject RM5 billion into Valuecap continued to stir up a flurry of questions from both sides of the divide in the Dewan Rakyat today.

Second Finance Minister Tan Sri Nor Mohamed Yakcop assured members of the House that the RM5 billion loan would not be used to pay off existing loans.

“The RM5.1 billion that needs to be paid by February 2009 is a loan from Valuecap's main shareholders, that is Khazanah, Pension Trust Fund Council (KWAP) and Permodalan Nasional Berhad.

"However, these shareholders have agreed to refinance the loan," Nor Mohamed said in reply to a question from Rembau MP Khairy Jamaluddin.

To a claim by Gombak MP Azmin Ali that the EPF loan to Valuecap was less effective in boosting economic growth than a direct injection into the "real economy" such as is being done in the US and in China, Nor Mohamed replied that the government did not dispute this view and had announced several initiatives towards that goal.

He said that it did not mean the methods were "mutually exclusive" of each other, adding that the EPF, as the single biggest collection of funds in the country amounting to over RM330 billion, must channel its funds towards supporting investment in the real economy.

"This is part of its mandate, for example, through the bonds offered by the corporate sector," said Nor Mohamed.

He stressed that EPF was not an investor in Valuecap and therefore did not hold any equity in the company.

"Valuecap is not for raising the Bursa Malaysia index or to shore up the market," he emphasised.
He clarified that Valuecap was a long-term investment institution and would only invest in shares listed on Bursa Malaysia and not in any foreign portfolio.

"It would be used for investments in companies where the share prices are low but have strong fundamentals and potential," he said, noting that now was a good time for Valuecap to invest.

He assured the House that Valuecap is run by a team of professionals who would provide adequate information on the company so long as it did not jeopardise its investment strategies.
"We will be transparent but whatever we disclose must not jeopardise its investment strategies. We have nothing to hide," he said. -- TMI

EPF's LOAN TO VALUECAP STILL A PUZZLE - malaysiakini

by Surin Murugiah

KUALA LUMPUR: Second Finance Minister Tan Sri Nor Mohamed Yakcop yesterday removed some degree of ambiguity on the proposed RM5 billion loan that is being extended by the Employees Provident Fund (EPF) to Valuecap Sdn Bhd.

He clarified that the EPF would not take up an equity stake in Valuecap nor would the RM5 billion go to meet debt obligations to Valuecap shareholders.

However, there were no clear answers as to why the EPF was extending the loan to Valuecap. All Nor Mohamed offered was that the loan was good for EPF as it was guaranteed by the government.

“The EPF, or any other fund for that matter, can choose to either invest directly in the equity markets or extend loans. This (loan to Valuecap) is better for the EPF as it is guaranteed by the government,” he told reporters after a cheque presentation here.

Valuecap is an entity established by the Ministry of Finance (MoF) in 2003 to invest in undervalued stocks in the local bourse. Its initial capital of RM5 billion was injected by shareholders that comprise Khazanah Nasional Bhd, Permodalan Nasional Bhd and the Pensions Trust Fund Council.

Last month, Finance Minister Datuk Seri Najib Razak announced that Valuecap would receive an additional RM5 billion from the EPF, a move which sparked some criticism.

This came about after it was reported that Valuecap had a RM5 billion bond issued to shareholders that expires in February next year. The fear was that Valuecap would utilise the RM5 billion to meet the bond obligation.

To this, Nor Mohamed did not rule out the possibility of Valuecap’s shareholders extending the repayment period.

“They might give an extension,” he said.

Valuecap is styled after the Tracker Fund of Hong Kong that was launched during the Asian financial crisis in 1997-98. The fund, sponsored by the government, was a huge success as it was later sold with a handsome profit. In light of the current global financial crisis, similar funds were launched in Qatar and South Korea.

It has been reported that as of Dec 31, 2007, Valuecap had total assets of RM7.56 billion and had posted an after-tax profit of RM1.1 billion. As for returns to shareholders, it has been reported that from its inception to September 2007, Valuecap had paid out a total of RM135 million in dividends.

Based on industry information obtained by The Edge Financial Daily, Valuecap is believed to have about RM4.9 billion worth of investments in 70 companies currently.

The companies are from diverse segments and include YTL Group, IJM Group, Malayan Banking Bhd, Hong Leong Bank Bhd, Public Bank Bhd, Tenaga Nasional Bhd, Malaysian Oxygen Bhd, Amway (M) Holdings Bhd and PLUS Expressways Bhd. The list also shows that Valuecap has interest in Real Estate Investment Trusts (REITs) such as Axis REIT and Quill Capital Trust REIT.

Meanwhile, commenting on the stimulus package announced by Najib on Tuesday, Nor Mohamed said the measures were to help cushion the impact of the global financial crisis.
He said the US and other economies had so far pumped in an estimated US$2.5 trillion to save failing businesses, and to keep recession at bay.

“There is consensus that western countries could face recession, and Malaysia being fully integrated into the global financial system will feel the impact of the crisis affecting the West,” Nor Mohamed said.

However, he stressed that Malaysia was resilient and had adopted measures that would safeguard its economy, based on lessons learnt during the Asian financial crisis.

“We have adopted expansionary measures and the government will lead the way in spending. The RM7 billion (stimulus package) will be spent on areas where it is easier to disburse and create multiplier effects quickly,” he said. -- the edge daily

DAP WANTS RM5B VALUECAP PLAN STOPPED - malaysiakini

By Shannon Teoh

KUALA LUMPUR, Nov 4 — The DAP today reiterated calls for Finance Minister Datuk Seri Najib Razak to withdraw the RM5 billion injection into ValueCap Sdn Bhd as the state investment company must pay off a RM5.1 billion debt by February 2009.

Party publicity chief Tony Pua said Najib, who is also Deputy Prime Minister, was at best giving only a "half-truth" when the minister said "the government has doubled the amount of money to buy undervalued stocks to RM10 billion."

The Petaling Jaya Utara MP told a press conference in Parliament that as RM5.1 billion would have to be released in February, it was a "zero-impact move" — the incoming amount being used to pay off an outstanding debt, thereby leaving ValueCap with the same amount of money to invest.

"It puts at risk the hard-earned retirement savings of ordinary Malaysians," he said of the plan to utilise RM5 billion from the Employees Provident Fund to prop up share prices.The Malaysian Insider had yesterday broken the news that ValueCap still owed the sum in interest-bearing unsecured bonds which were due to mature in February 2006 but was then extended to February 2009.The debt was incurred in March 2003 when ValueCap borrowed the amount from shareholders Khazanah Nasional, Kumpulan Wang Amanah Pencen and Permodalan Nasional Bhd to invest in the stock market.

"As it has already been extended by three years as allowed in the terms of the bonds, ValueCap is required to return the monies come February," Pua said.

The information, which is readily available from the Companies Commission, also reveals that the interest payable to the shareholders is 3.5 per cent per annum payable every six months.

Pua also called for ValueCap's investments since its inception in 2003 to be disclosed to explain its "inability to repay the initial loans." -- TMI

QUESTION MARKS OVER VALUECAP DEBT - malaysiakini

KUALA LUMPUR, Nov 3 — State investment company Valuecap Sdn Bhd owes its three shareholders RM5.1 billion, which is due to be repaid in February 2009.

This debt, in the form of interest-bearing unsecured bonds, raises questions over plans for the Employees Provident Fund to lend RM5 billion to Valuecap to invest in the stock market.

In March 2003, Valuecap borrowed RM5.1 billion from shareholders Khazanah, Kumpulan Wang Amanah Pencen and Permodalan Nasional Bhd to invest in the stock market. At the time, world stock markets were bracing for a looming war in Iraq which followed on the September 2001 attacks on the US.

Valuecap’s bonds were due to be repaid in February 2006, but the company was given another three years to this coming February. At the end of 2006, the three shareholders each held RM1.7 billion in these bonds, according to documents obtained by The Malaysian Insider.

Since these debt instruments were not listed and are not tradeable, the three shareholders are probably still holding these bonds today.

Recently, the government proposed that EPF lend Valuecap RM5 billion to invest in the stock market. In view of its impending obligation to repay its shareholders, however, questions arise over whether the loaned funds will be used to redeem the bonds.

As at the end of 2006, Valuecap’s investments were valued at RM4.8 billion. Since then, the stock market has lost 21 per cent of its value. If Valuecap’s investments have tracked the stock market, these could be worth RM3.8 billion currently.

Valuecap may have managed to unwind some of its positions when it launched a RM840 million Islamic investment fund earlier this year. Called myETF Dow Jones Islamic Market Malaysia Titans 25, the fund is managed by a wholly-owned subsidiary, iVCAP Management Sdn Bhd.

At the end of October, the fund's value was 41 per cent lower than at its launch in January this year.

Market observers have speculated that this was Valuecap’s version of Hong Kong’s Tracker Fund, which the Hong Kong government launched in 1999 to unwind US$15 billion (RM52.5 billion) worth of stock positions accumulated during the 1997 Asian financial crisis. The fund concluded the disposals of almost the shares by the end of 2002.

Current market conditions make it difficult, if not impossible, for Valuecap to unwind its positions.

If it is unable to sell its stock market investments, it may repay its shareholders in kind, transferring its share portfolio to them instead of coughing up cash.

If it did so, the EPF loan would provide fresh cash to make new investments. If its shareholders require to be repaid in cash, however, Valuecap may need the cash infusion from EPF.

The company has been servicing the interest on the debt. It has also established a sinking fund to set aside funds to repay the debt. As at December 2006, the sinking fund stood at roughly RM780 million, and it held RM1.7 billion in cash and deposits. - TMI

WILL VALUECAP THROW GOOD MONEY AFTER BAD? - malaysiakini

COMMENTARY

OCT 27 — Last week it seemed like Malaysia was dusting off its playbook for the 1997 Asian financial crisis, starting with a proposed RM5 billion stock market injection. It seems par for the course that the government would borrow the money from the Employees Provident Fund to finance the investment through government agency Valuecap Sdn Bhd.

This time, there would be no tut-ting from Western governments, who are busy shoring up their own tottering financial systems, or global investors, who are reeling from the depth and speed of the current financial crisis. Since the contagion has also affected the Malaysian and other Asian stock markets, the gloating from this side of the world has been discernible but muted.

So what's the difference between what Valuecap will attempt to do, and what the Federal Reserve and European counterparts are doing to save their collapsing banks?

Simple. The American and European bailouts are pouring much-needed fresh capital directly into the banks, and not buying shares in the open market. The central banks' stakes consist of new shares, some with preferential terms to protect the taxpayers who are ultimately footing the bailout bill. Existing shareholders are diluted, while share prices continue to be determined by market forces, driven by either greed or fear as conditions dictate.

In contrast, Valuecap will be trying to boost stock prices by buying up shares from investors and stockholders eager to get out of the market because they are basically betting prices will continue falling.

It is not just investors who would benefit from such largesse. Take what happened with KNM Group Bhd, one of the most heavily traded stocks earlier this month. Now it appears a lender was selling shares owned by a company director and pledged as collateral for a loan.

The unnamed lender sold more than 72 million shares on Oct 16, when KNM was the top volume stock with 342 million shares traded. Anyone who bought the shares that day, in hindsight, may feel hard done by, as the stock has fallen almost 30 per cent since then to 50 sen a share.

Would Valuecap end up in this position, buying shares and easing the exit of a lender? Would its operations perhaps even help maintain share prices above critical levels, preventing margin calls? Would taxpayers and EPF contributors be told whose shares were bought?

And how will Valuecap exit from its positions in the future? Set up in 2003 to help buffer the stock market against any fallout from a looming war in Iraq, the state investment company in some aspects appears to be modelled on Hong Kong's August 1998 stock market intervention fund.

Within two months, Hong Kong had released details of the US$15 billion portfolio of stocks it had bought, and by March 1999, formulated a plan to cut down these holdings by 80 per cent. The government eventually created the Tracker Fund, an open-ended unit trust which gradually released the rest of the shares back into the market.

Valuecap may have taken the first step in that direction, through a spin-off fund management company, I-VCAP Management Sdn Bhd which earlier this year launched a RM840 million Islamic exchange traded fund seeded with shares supplied by Valuecap, its shareholders as well as Lembaga Tabung Angkatan Tentera and Lembaga Tabung Haji. The fund has already lost about half its value.

These concerns are at the heart of protests against the loan and the stock market injections. Too little is known about Valuecap itself, which has been described as "highly secretive", and about its activities.

There have been repeated assurances that Valuecap's investments would be viable, and profitable for its shareholders, namely Khazanah, the Kumpulan Wang Amanah Pencen and Permodalan Nasional Bhd.

Yet it was reported to have extended the lifespan of RM10 billion in bonds due in 2006 by another three years. The new deadline is this coming February. Was it because it lacked a good enough exit plan, no one can say at this point.

What can be said is a market meltdown is well beyond the control of a fund with RM5 billion at its disposal. Such a sum would be much better used injected directly into the economy itself, via tax breaks for small and medium sized enterprises, or short-term loans for exporters to help smooth over the rocky road ahead.

Anything else would really be throwing good money after bad. -- MI

PROTEST AGAINST RM5 BILLION MOVE TO BLOSTER STOCK MARKET - malaysiakini

KUALA LUMPUR, Oct 24 - Malaysia’s largest labour union and opposition leaders yesterday denounced government plans to inject RM5 billion into the stock market, saying they fear public funds could be misused to bail out ailing, well-connected companies.

The government earlier this week said it would double the size of state agency ValueCap Sdn Bhd to RM$10 billion to invest in stocks regarded as undervalued because many fundamentally strong companies were trading at low prices.

It has said the Employees Provident Fund (EPF) would provide a RM5 billion ringgit loan to Valuecap.

But the Malaysian Trades Union Congress, which represents some 500,000 workers, said the EPF is the custodian of people’s money and “not the ATM for the government” to bail out state-linked firms.

“This is the hard-earned money of the workers, their retirement plan. How is this bailout plan going to benefit the workers?” it said in a statement.

Opposition leader Datuk Seri Anwar Ibrahim said the additional money was merely 1 per cent of market equity and would have no impact on the bourse which has plunged by more than 37 per cent this year.

It “serves no logical purpose other than to prop up some companies in the stock market,” he told reporters in Parliament.

Lim Kit Siang, head of the opposition Democratic Action Party, said Valuecap has operated in secrecy since it was set up in 2003 and that its accounts have not been audited.

“This are the people’s money. In order to ensure that this is not a bailout...there should be a public scrutiny” of Valuecap’s accounts, he said.

The union and opposition leaders said there was no guarantee that the pension fund would profit from the loan to Valuecap given the weak market conditions.

“We want proof that this RM5 billion will not go down the drain,” the MTUC said.

The move to bolster the stock market was part of government measures to help improve sentiment and boost the economy amid the global financial downturn. The government has said it may have to cut its 5.4 per cent growth forecast for 2009. - AP