KUALA LUMPUR: The DAP says Khazanah Nasional's investment of 300 million yuan (USD44 million or RM150 million) in Oriental University City Ltd (OUCL) in Hebei Province, China raises more questions than confidence.
DAP national publicity secretary Tony Pua had on Thursday, Feb 11 queried Khazanah's investment role, strategy and philosophy following its recent acquisition of a 10% stake in OUCL for RMB300 million or RM150 million.
"Is Khazanah a strategic investor meant to play an active role to bring and develop key industries and technologies in Malaysia via mega developments such as the multi-billion Iskandar Malaysia project?
"Or is it a strategic investor in Malaysian companies to help provide local firms with the necessary capital and financial backing for success, such as its holdings in PLUS Expressways, Malaysian Airline System, Malaysia Airports, Silterra semiconductors as well as many prior failed projects such as the Langkawi prawn farming project?" he said.
Pua, who is also MP for Petaling Jaya Utara, raised the question whether Khazanah had now become Malaysia's sovereign wealth fund taking up portfolio investments in businesses overseas without a strategic role in them, such as the 10% OUC investment where Khazanah is neither experienced in the education sector, nor does it have the scale and leverage to manage its Chinese investments?
On Wednesday, Khazanah announced the aquisition of a 10% stake in OUCL from Singapore's listed Raffles Education Corporation Ltd. OUCL, through its subsidiaries, owns Oriental University City (OUC)- a 3.31 million square metre self-contained campus located in Langfang, Hebei Province.
Khazanah added this flagship project was an hour's drive from two of the most affluent and populous cities in China - Beijing and Tianjin, which combined population is approximately 28 million.
OUC currently houses and provides education services to 16 colleges with a total student population of approximately 36,000. OUCL focuses on the vocational education segment, which is a large yet under-served education segment in China.
However, Pua had on Thursday queried Khazanah managing director Tan Sri Azman Mokhtar's statement the latest investment was part of its China and education services strategy giving “exposure into the exponential growth potential of China's education services sector”.
Pua said the pertinent question to ask was how much funds has Khazanah allocated to its China or education services portfolio or is this investment more “opportunistic” in nature, and isn't really part of any strategy.
In his review of Khazanah's existing portfolio companies, Pua said there was not a single “education services” provider in sight, whether in or out of Malaysia ruling out any like synergies between its investee companies.
When reviewing the details of the acquisition, more questions arise, for not only has Khazanah turned itself into some form of portfolio investor, but it has also become a “pre-IPO” venture capitalist.
Pua also said OUCL's valuation 3 billion yuan with its 2009 net profit of 52 million yuan meant that Khazanah paid an astronomical historical price-earnings (PE) ratio of 58 times for its purchase. In addition, the acquisition is valued at more than 8 times OUCL's net book value.
"It is clearly a high-risk transaction for the investment is predicated on a stock exchange listing in 2013," he said.
He said as a comparison, at today's prices for substantially lower risk, but equally exciting global growth prospects, Khazanah could have purchased Apple Inc for a PE of 24, Google Inc for a PE of 26 or even Amazon.com Inc at the same PE of 58. Why did Khazanah pick an investment in Hebei which is expensive, high-risk and illiquid?
"Should Khazanah not be focusing its energies on ensuring the success of Iskandar Malaysia which is today threatened with not only declining investments but also investor withdrawals, to ensure that its RM7.6 billion investment in the project over 5 years will generate reasonable returns to the government and its rakyat?
"Instead, it's out-of-the-blue investment in education services provider all the way in Hebei, China drains the confidence of Malaysians in Khazanah's ability to professionally manage the wealth of the nation," he said.