Everyone was affected by the crisis... but I think it was a good experience... In fact, the crisis made all these companies stronger... All have survived. They're still here - Azman

The global economic crisis has become a blanket reason cited for a company’s non-performance in 2009. But it would seem that Tan Sri Azman Mokhtar, the “face” of Khazanah Nasional Bhd, is listing the crisis under “people — or in this case, factors — to thank” for its companies kicking off 2010 on a stronger footing.

“Everyone was affected by the crisis… but I think it was a good experience. All of them [companies under Khazanah’s stable] were forced to get down to business… in fact, the crisis made all these companies stronger… if we did not do the bulk of the heavy restructuring, the rolling-up of sleeves in 2005, 2006 and 2007, some of them may not have survived when the crisis came, but all have survived. They’re all still here… as long as it doesn’t kill them, it is good-lah, makes them stronger,” says Azman, who is Khazanah’s managing director.

Indeed, it would seem that Azman, 49, “had been wise enough to not waste the crisis”. (Read Azman’s article published in The Edge for the week of Dec 28, 2009-Jan 10, 2010.)

A product of the kind of education where one is given an extra lashing (rather than less) for being “family”, he belongs to the school that believes patronage hinders progress. That a WCT Bhd subsidiary was selected over its own property subsidiary by Khazanah unit Iskandar Investment Bhd to jointly develop and co-own the RM600 million 1Medini residential project in Medini Iskandar, Johor, is but one such testament to Khazanah’s stand on competition and competitive bidding.

“They [Khazanah-controlled UEM Land Bhd] didn’t speak to us for a month,” Azman candidly told reporters at Khazanah’s sixth annual review at its Kuala Lumpur headquarters last Thursday evening.

UEM Land was certainly not the first. The BlackBerry units held by some 300 people on Khazanah’s payroll today may be from its Axiata Group Bhd’s Celcom (M) Bhd, but pioneers will tell you they used to be serviced by businessman Ananda Krishnan’s mobile operator Maxis Bhd until Celcom earned their business.

Set up in mid-2004, Khazanah, which owns substantial stakes in many government-linked companies (GLCs), has nine main holdings which it calls its “K9” companies. They are Axiata, CIMB Group Bhd, Tenaga Nasional Bhd, Telekom Malaysia Bhd, UEM Land, Malaysia Airlines System Bhd (MAS), Malaysia Airports Holdings Bhd (MAHB), Pos Malaysia Bhd and Proton Holdings Bhd.

Azman, who will complete his sixth year as Khazanah’s managing director in May, says 2010 will see the companies in its stable reap the immediate benefits of the various crisis management measures put in place from 2004 to 2009. But the job is far from done, he says.

“The still fragile global recovery means a cautious stance in 2010… While one has to be perhaps cautiously optimistic, but cautious nonetheless, we need to gradually move back [from  crisis management mode] into transformation mode and do what some of us call the peacetime restructuring as opposed to wartime. To be honest, the distinction is perhaps exaggerated. In fact, the crisis... gives you the opportunity to really run through your business processes and head count carefully and really mobilise that… Thankfully we did our round of VSS earlier during better times… it was in 2005 that a lot of the big GLCs took out about 10% [of their employee count]. So in 2009, there was hardly any VSS,” Azman says.

The crisis did force many of its companies back to the drawing board. Axiata, the basket of local and regional mobile phone operations which had just been spun-off from Telekom Malaysia (TM), for instance, had to resort to a RM5.25 billion cash-call in early 2009 to bolster its balance sheet when investors began selling down stocks with high debt obligations after Lehman Brothers’ collapse in September 2008. But Azman maintains that the de-merger worked well for both Axiata and TM, citing the ability of both companies to grow their customer base even as they engage in healthy competition. And Khazanah is looking at making Axiata a regional champion by 2015. The Datuk Seri Nazir Razak-led CIMB Group is the other obvious candidate.

“We have a 2015 target when we want to create regional champions… The 10-year [revamp] actually ends 2015, not 2013. Khazanah was set up in 2004, but the GLC transformation programme was launched July 29, 2005… [The companies] are affected [by the crisis] for sure, there are challenges, obviously, but that target is not really lost.

“Some of the companies are breaking through, CIMB has done well. Some did a good turnaround, MAS, for example. That industry is so difficult. They have to do another round of turnaround. But it is not just MAS, if you look at some of the market leaders in the region, some are making bigger losses… Some are more difficult… SilTerra [Malaysia Sdn Bhd] and Proton. There has been progress, but they would require bigger strategic solutions… Time dotCom, for instance, has been divested… it is still early but hopefully, they are on a good recovery,” he adds.

Other GLCs, whose operations are predominantly in Malaysia, are expected to be on par with rivals in the private sector.

Khazanah will still play an active role in the nine companies it is holding, especially where there is still need for strategic direction, such as in the case of SilTerra and Proton. But ideally, Khazanah hopes that the need for it to step in will eventually be minimal, if at all, for the more “mature” companies once the restructuring has been implemented and the transformation process is underway.

“That’s the way the GLC programme works. We are now in the second half. In the first half, we came out with the rainbow-coloured books and managed things. But in the the second half of the journey, the onus has to be more on the companies. We are holding companies for nine of them, but there are others… a lot of processes, systemic-type measures have been established… the boards and management will take on more responsibilities over time…The second half is where the performance of the better companies will be more pronounced vis-a-vis those who don’t perform as well,” he says.

Besides Khazanah, there are four other government-linked investment companies (GLICs), namely Permodalan Nasional Bhd, the Employees Provident Fund, Lembaga Tabung Angkatan Tentera and Lembaga Tabung Haji.

Building partnerships, investments
To further strengthen its investment portfolio, Khazanah will continue to resolve outstanding restructuring and re-organisation cases, as well as progressively divest non-core and non-competitive holdings in an orderly manner, either via direct sales, swaps or the issuance of instruments like sukuk.

In 2009, Khazanah realised RM1.2 billion gains from divesting RM3.1 billion worth of assets in eight transactions, including some equity holdings in Tenaga, MAHB and PLUS Expressways Bhd. This brings the total gains on divestments in 2004 to 2009 to RM8.11 billion, from asset sales worth RM17.93 billion from 29 transactions.

This year, a potential divestment could be its 10% stake in EON Capital Bhd. Khazanah has received Bank Negara Malaysia’s go-ahead to start talks to sell the stake to Hong Leong Bank Bhd, which is looking to take over and merge with EON Cap. Khazanah would not say how much the block carried in its books, but at RM7 apiece, the block would be worth some RM486 million.

Khazanah continues to be open to divesting some of its holdings to strategic partners, Azman says. Some of these deals include those involving Bintulu Port Bhd, RHB Bank Bhd and the latest, Time dotCom where, in Azman’s words, capable entrepreneurs were allowed to enter via an efficient ownership alliance despite not having deep pockets.

“For some of our companies, it’s not just about selling, but selling to the right party that will bring in other things. This is something that we can also look towards… I’m afraid I cannot be more specific about sectors, as you can appreciate,” Azman adds.

Khazanah’s key investment focus in 2010, and in the medium-term, will continue to be on strategic sectors and assets that are both financially profitable and have the potential to transform the economy. “The identified sectors include the Iskandar Development Region; leisure and tourism; agriculture; life sciences; healthcare; as well as technology and creative sectors”, it said in a statement.

To this end, Khazanah will also continue to look out for collaboration and co-investment opportunities from both local and foreign players to increase domestic investments without relying on government spending. Agreements signed to bring in Legoland in late 2008 and with Kidzania in June 2009, are examples of partnership deals to boost tourism, one of the identified strategic segments.

“We are doing a lot of longer tail work and this is not easy, because these are real economy investments. But we really think there is a future. Not just for economic multipliers, but certainly if we do it well, you’re talking about potentially in three to five years, hopefully, there will be results,” he says.

When asked to comment on his contract, which will expire on May 31 if not renewed over the next four months, Azman says the decision is not his to make. But his next sentence shows where his heart is: “There is still work to be done here”.

This article appeared in Corporate page, The Edge Malaysia, Issue 789, Jan 18-24, 2010