Khazanah’s orderly divestitures

In my conversation with The Oracle of Syed Putera (a 4 part series will appear next week), I asked about the selling down by Khazanah. Khazanah is the investment arm of our government. Its chairman is our PM and the MD is Azman Mokhtar. One board member is the minister in charge of the EPU. He was made a member when he was the Finance Minister 2. By right he should relinquish the position to allow the present MF2 to sit on the board. But he wants to hold on to the post. Azman Mokhtar was handpicked by him to head the GLC and to educate the stupid public what is KPI.

Except that the public is not stupid all the time.

When I asked the Oracle about this, he asked me back. Why are we placing too much emphasis on what Khazanah does? The value of the portfolio it holds is relatively minuscule when compared to say, what PETRONAS has. We should focus our attention to PETRONAS.

The more significant portion of the answer was, to whom does Khazanah divest its holdings? We are not exactly clear on that. If Khazanah sells its portfolio holdings to other GLC such as the EPF, this is tantamount of transferring from one pocket to the other. The public is not enriched by such transaction. Of course, Khazanah gets money from selling down its portfolio. It improves it liquidity it says.

The sale to EPF is also questionable for it can be interpreted as temporarily parking the portfolio until a suitable suitor comes along.

It's also questionable since we are also not certain whether EPF has the smarts to manage its new acquired portfolio. Didn't EPF say it the last time, it doesn't have the competency to handle investments and that was the main reason given when it surrendered management of a sizeable fund to another private entity? Remember Valuecrap Valuecap?

Now it has the competence to buy over what Khazanah sells them. It should be able to declare better dividends this year.

A short while ago, the Khazanah boss, Azman Mokhtar hit out at criticisms against Khazanah's divestitures and insisted everything is orderly. In December 2009, khazanah sold 86.85 million shares in TNB and got RM 700 million. This is the beginning of Khazanah's process of divesting shares that it holds to other buyers. And over the last 5 years, Khazanah had sold RM 12 billion worth of shares and gained RM 3.6 billion. It has sold its stakes in Bintulu Port, PTP Port, RHB Bank, Tradewinds Hotels and Time Dotcom.

Who were the buyers? The owners of the other bloc of shares in the respective companies? If that is so, then the shares that Khazanah held in the first place and paid for were means to provide additional liquidity to the owners of that business. In actuality, the money parked by Khazanah was a form of soft loan.

Therefore contrary to the aims of Khazanah as being the investment arm of the government that buys shares for strategic reasons, it was just acting as a business partner binging along with it, OUR money to help out selected businesses. When it sold back to presumably the original owners, it really wasn't looking out after the strategic interest of holding something valuable on behalf of the ketuanan Melayu or on behalf of whomsoever interest it thinks it wants to define at any particular time. All it was doing was holding out for the interests of the privileged few.

Let us debate a little on the semantics of 'orderly'. Just what does this phrase mean? If it means, when doing the transactions Khazanah's accountants and financial experts pored over details, and the lawyers combed through with due diligence, then, we have no quarrel over the term orderly.

But what if orderly means, the prospective buyers are all selected buyers known only to Khazanah? Or in the words of Khazanah's boss- whichever company we feel is non-core, or has reached a certain maturity that we feel we don't need to hold and there are good buyers at the right price and of the right type sp that they can tackle that particular industry and company further….

It doesn't need a rocket scientist to figure out that the right type of buyer will be the existing owners of the other shares not previously held by Khazanah. Because certainly, they know the business and can be the only type of buyers who can take the company farther.

If this is the reasoning, then it reconfirms our suspicions that Khazanah was holding the shares not for reason of strategic Bumiputera/national interests but participated at the beginning, to inject some loan sanitized as capital, into the original venture.

I think full public disclosure of who are the buyers of Khazanah shares is most apt. After that we shall form our KPI on Khazanah so that we can judge how clever these people are.