khazanah the role of glcs - sept 2006
DESCRIPTION
Khazanah - The Role of Government-linked Companies - September 2006TRANSCRIPT
Malaysia-Africa High-level Knowledge Exchange Seminar
Kuala Lumpur September 21-22, 2006
Overview of KhazanahOverview of Khazanah
1
Agenda
• Overview of the Mandate
• Progress to date
• Investment Focus
• GLC Transformation
• Summary and Appendix
2
• Khazanah is Malaysia’s strategic investment arm, entrusted to manage the commercial assets held by the government, and to undertake strategic investments in new industries and geographies.
• Khazanah is also tasked in shaping selected strategic industries in Malaysia, nurturing their development with the aim of pursuing the nation's long-term economic interests.
• Khazanah is also the key agency mandated to drive shareholder value creation, efficiency gains and enhance corporate governance in companies controlled by the government, commonly known as Government-Linked Companies, or GLCs.
• Khazanah is set up as a company, and has an eight-member board comprising representatives from both the public and private sectors.
• Prime Minister Abdullah Ahmad Badawi is Chairman of the Board. Second Finance Minister Nor Mohamed Yakcop and Central Bank Governor Zeti Akhtar Aziz are also members of Khazanah’s board.
• Khazanah’s management team is headed by Managing Director Azman Mokhtar and the team comprises of professionals with extensive regional and global experience in investments, finance and consulting.
Who We Are and Our Role
3
Dato’ Seri Abdullah Ahmad Badawi, Prime Minister of Malaysia14 May 2004
Legacy investments Streamline, restructure
GLC trans-formation
Increase value: shareholder + strategic
New investments
New sectors, cross border
Active leadership development
… via four Strategic Pillars … and success measured by KPIs
Financial metrics as primary KPI: TSR and economic profit, ROE, Net Worth
Strategic value creation: capability building in customer acceptance, sectoral and geographic exposure, market penetration, human and knowledge capital, technology
Institution building: processes, charter, systems and controls, work culture, brand equity
Our Framework
“… decisive action requires nothing less than a remaking of Malaysia Inc…”“The Government would like to see Khazanah emerge as one of the biggest and most dynamic investment houses in the region… emerge stronger, more nimble and able to create more value”
Key themes of our Mission…
• Strategic investment house
• Sustainable value creation
• Nation-building and national competitiveness
• Performance culture
Human Capital Management
4
1st Foundation: a focus on long-term nation-building
2nd: Core values: integrity, diligence, teamwork, professionalism, mutual respect
3rd: Building capacity in talent, processes, knowledge and infrastructure
Leading strategicinvestment house that creates
sustainable value for a globally competitive Malaysia
Our Mandate
Legacy investments
Streamline, repair,
restructure portfolio
New investments
New strategic sectors and geographies
GLCtransformation
Increase shareholder
value, strategic value
Human CapitalManagement
Active development
of Human Capital for the nation
1 2 3 4
Accomplish Strategic Vision
and Mission
Execute Strategic Pillars
Get foundations right, build
capacity
5
The Historical Context of Micro-Economic Restructuring
PrivatisationsPLUS and other expresswaysIPPsMobile telcos
From 1987 1997 2001 2004
Asian Economic CrisisStabilization, Capital ControlsCDRC, Danaharta, DanamodalReflationary monetary and fiscal policiesBanking consolidation
& Partial Public Listing;MAS, TM, TNB, PGASCo-existence of large GLCs and aggressive owner-manager firms
Corporate restructurings, includingMostly “war-time” financial restructuring, Renationalization; institutional holding and professional mgmt. Danasaham/Renong/UEM Group RestructuringMRCB, KUB RestructuringMAS – “Widespread Asset Unbundling”
GLC TransformationMostly operational (“peace-time”) restructuringKhazanah Revamp“Culture of High Performance”; KPI and PLCLeadership changes – BOD and managementBuild on previous: UEM, MAS, MRCBInitial focus on key GLCs – TNB, TM, SD, Focus to increase to industry structures
Phase IPhase I
Phase IIPhase II
Phase IIIPhase III
Phase IVPhase IV
6
The Role of Government in Economic Management – The Right Objectives in the Right Boxes
Developer and Public Goods
Regulator
Investor
• Provider of public goods, infrastructure or services• Provision of law and order• More socio-economic in nature• Clustered under MOF Inc. – public transport,
sewerage etc.
• Providing level and conducive playing field• Protection of public interest• Enforcement
• Government owns and operates enterprises• Creates economic value• Differentiated investment focus between
Khazanah, EPF, PNB, KWAP, TH due to differences in return objectives, risk appetite,investment horizon, liquidity requirements, and beneficial owners
Khazanah as GOM’s strategic investment arm• Necessarily the risk taker
among government agencies
• Focus on shareholder value creation, both majority and minorities
• Careful not to crowd out private sector. Balanced co-existence with GLCs
• Optimal and evolving holdings in companies, sectors and holding levels reflecting changes in strategic emphasis
Roles of Government
7
Five-Pillar Terms of Engagement Framework with GLCs
Description
LeadershipBench
• Ensure professional, capable, experienced and appropriate – Board of Directors– Senior Management team
Strategy • Drive through the Boards and management, high-quality implementable business strategy
Systems and Controls
• Place key systems and controls to underwrite growth and value creation: e.g. Governance, Risk Management, Performance Management, TalentManagement, Procurement, Internal Audit, Investor Relations
Industry Structure
• Drive or give inputs to how industry structures evolve – optimal competitive environment and regulatory structure
• Leverage inter-company synergies
Monitor & Empower
• Once the above in place, do not micro-manage• Continuous monitoring of progress• Empower management to carry out its job
8
Agenda
• Overview of the Mandate
• Progress to date
• Investment Focus
• GLC Transformation
• Summary and Appendix
9
• Steady, well-diversified GDP growth: 5.8% 2006F (5.7% H1/2006, 5.25% 2005, 7.1% 2004).
• Inflation moderating (4%yoy avg in Jun-Jul) after a 21% hike in fuel-product prices in February 2006 (after 3 hikes in 2005) caused March inflation to spike to 4.9%yoy
• Strong BOP: current account surplus > 16% of GDP, with growing trade surplus and shrinking services deficit: foreign visitor arrivals soared to 16.4 million in 2005 from 5.5 million in 1998.
• Foreign investments robust: FDI inflows of 3% of GDP in 2005 and 3.9% of GDP in 2004, but large portfolio outflows in H2 2005 after Ringgit peg was removed (portfolio inflows renewed in Q1 2006).
• Strong foreign reserves (at US$80.14bn 8/05, up 47%yoy) 9 months’ import cover and 6x ST external debt. Reserves up US$1.5bn in 1st month post RM float.
• Fiscal discipline. Gradual consolidation fiscal deficit of 3.5% of GDP in 2006E (from 3.8% in ’05, 4.3% in ’04 and 5.4% in 2003). Strong revenue growth and cuts in fuel subsidies a fiscal surplus (4.3% of GDP) in H1 2006; 4-quarter moving average of the fiscal deficit shrank to just 1.4% of GDP in June 2006.
• Strong banking system. RWCR of 12.9% and a net NPL ratio of 4.2% at 7/06.
Malaysian economy remains a beacon of stability
10
Malaysia: The investors choice within the region
• Network of well-maintained highways and railways • Well-equipped seaports and airports • High quality telecommunications network and
services • Fully developed industrial parks, including free
industrial zones, technology parks and Multimedia Super Corridor
• Talented, young, educated and productive workforce • Multilingual workforce speaking two or three
languages, including English • Comprehensive system of vocational and industrial
training, including advanced skills training. • Harmonious industrial relations with minimal trade
disputes
Developed infrastructureEducated workforce
• Pro-business policies • Responsive government • Liberal investment policies • Attractive tax and other incentives • Liberal exchange control regime • Intellectual property protection
• Natural resources - oil, gas, tin, timber, palm oil, rubber
• GDP growth – 2005: 5.2%; 2006F: 5.8%• Gross national savings – 2005: 37%GNP; 2006F:
38.1%GNP • Current account surplus – 2005: 16.4% of GNP;
2006F: 17.2%GNP • Unemployment rate – 2005: 3.5%; 2006F: 3.5% • Inflation(CPI) – 2005: 3.0%; 2006F: 3.5-4.0%• Reserves - USD79.7bn and 8 months of retained
imports as at 31 July 2006
Source: Bank Negara Malaysia
Supportive government policiesEconomic strength
11
The Ninth Malaysia Plan - ambitious, yet internally consistent
• Ambitious growth targets (especially given the performance in the past two plan periods), but there is consistency between its goal of accelerating growth through efficiency gains and the emphasis on enhancing human capital and service delivery to deliver such gain
• Emphasis on value-add, knowledge and human capital relevant to Malaysia’s next phase of development; signified by greater importance of Private Finance Initiatives in development allocation (RM20bn out of the RM220bn total)
• We expect sector regulatory issues to be better-addressed over the next five years
• Emphasis on implementation (e.g., formation of National Implementation Task Force) denotes government’s commitment to execute the plan and reduces execution risk significantly
12
90
100
110
120
130
140
150
160
170
May-04 Aug-04 Nov-04 Feb-05 May-05 Aug-05 Nov-05 Feb-06 May-06
Source: Bloomberg; Khazanah analysis
GLC-23130.7
KLCI ex GLC125.6Khazanah-10126.4
Decomposition of Total Shareholder Return of GLC-23 from 14 May 04 to 26 May 06
As at 26 May 2006, based on weekly close
PNB-9129.4KLCI128.0
Petronas-3141.7
K-10
PNB-9
PET-3
GLC-23
KLCI ex GLC-23
KLCI
13
Agenda
• Overview of the Mandate
• Progress to date
• Investment Focus
• GLC Transformation
• Summary and Appendix
14
Investments Holding Structure As at 5 May 2006
Khazanah Nasional Berhad
51.7%
DRB-Hicom10.38%40.15%
30.04%
Astro AllAsia
21.47%
Telekom
PTExcel
comindo
20.0%
Tenaga Nasional
39.31%
25.0%
19.96%
AIC Micro-electronics
MTDC51.09%
33.33% Spring HillBioventures
95.85%
SilterraMalaysia
D’nonce
AIC Technology
25.0%
Auto /Industrial Products
Transportation FinancialInstitutions
Technology PowerCommunications
&Media
Property / Construction Conglomerate
72.74% MalaysiaAirport
PLUS Expressways
26.34%
BumiputraCommerce
9.12%
BI WaldenVentures
Ketiga
33.33%
30.0% BankMuamalat
6.23%
Megasteel
15.0%Modenas
MSC VentureOne
30.0%
15.59% Putrajaya Holdings
34.09%
RHB Bank
42.74%STLR
100%
EON
10.0% Tradewinds Hotels & Resorts
25.67%
Westport8.55%
MISC0.53%
Royal Mint
22.3%
Valuecap
10.0%
PROTON
Eon Capital
UEM World
54.48%
Pharmaniaga
UEM Builders
CIMA
OpusInternational
62.37%
53.63% 24.85%
37.93%
40.21%
Time Engineering
45.03%
43.83%
50.01% UDA Holdings
10.0%
Malayan Banking
MAS
100%
100%
Penerbangan Malaysia
69.34%
2.55%
Ho Hup17.20%
72.55%
Parkmay
4.88%
RHB Capital
0.16%
SWEC12.0%
Healthcare
Apollo Hospitals
87.52%
Unlisted CompanyListed Company
16.67%
Faber
PosMalaysia
29.85%
MobileOneLtd
Others
17.24%
AtlanticQuantum
75.28%
Lippo Bank
Time dotCom
80.0%
NorthernUtility
20.0%
MiyazuSeisakusho
UEM
SouthernBank
3.55%
Crystal ClearTechnology
100%
SunshareInvestments
16.81%
56.92%
Updates as at 04 APRIL 2006
ParksonRetail
ParksonRetail
9.9%
10.87%
15
Investments and Divestments – Selected Achievements
Source: Khazanah
Funding
New Investments –
SelectedAchievements
Domestic Investments
• 12 new discretionary investments in the last two years. The portfolio of these new investments are up by RM318 million
• Shuaibah 3 IWPP – USD2.5bn project, and first privatisation by Saudi government. Already won several international awards - Power Deal of the year for Europe and Middle East by PFI and Desalination deal of the year by Global Water
• Landmark USD414 million PLUS Exchangeable Bond in December 2004• RM3.2bn Islamic MTN and CP, the largest Sukuk Musyarakah issuance, in
March 2006
• Increased presence in domestic banking sector to spur industry consolidation – BCHB/CIMB stake
• Driving efforts into the development of South Johor Economic Region• Spearheading the development of certain aspects of the agriculture sector,
including supply chain management in fresh produce, aquaculture, high-value tuna farming and herbal products
• Considerable investments and capex by key investee companies such as Tenaga, TM, UEM Group
16
Khazanah’s International Investments
Apollo Hospitals Enterprise Ltd, India
Shuaibah Phase 3 IWPP, Saudi Arabia
Parkson Retail Group Limited, China
Excelcomindo, Indonesia
PT Bank Lippo, Indonesia
MobileOne Limited, Singapore
17
Investment Portfolio Distribution AnalysisAs at 31 May 2006
Breakdown of Portfolio by Country/ Region
Breakdown of Portfolio by Sector
Automotive2.5% FIG
14.5%Healthcare
0.3%
Infrastructure &
Construction12.0%
Media & Comm28.6%Other
1.1%Property
1.4%
Technology0.2%
Transportation14.7%
Utilities & Power24.5%
Singapore, India,Japan, China,Middle East
2%
Indonesia4%
Malaysia94%
18
Agenda
• Overview of the Mandate
• Progress to date
• Investment Focus
• GLC Transformation
• Summary and Appendix
19
• Capital Market constituent: 54% of KL Composite Index• Employer: 5% of workforce
• Utilities e.g. public transport, water• Services e.g. telecommunications, airlines, banking
• E.g. automotive, semi-conductors
• Foreign ventures• Investments in new growth sectors
• Human capital• Suppliers
GLC Transformation is Critical for Malaysia
Source: GLC Transformation Manual launched on 29 July 2005
Significant part of economy
Provider of strategic utilities
and services
Executor of industrial policy and development
Builds international linkages
Policy instrument to develop Bumiputera community
20Updated as of September ’06 Source: Joint Working Team
3rd Quarter ’06Programme on the Framework for Continuous Improvement
To enhance operational efficiency and effectiveness through the adoption of a Framework for Continuous Improvement
Enhancing Operational Efficiency and Effectiveness
10.0
Launched
Launched
3rd Quarter ‘06
Blue Book Version 2
Announcement of Headline KPIs
Programme on Value-Based Management
To encourage adoption of performance management best practices at GLCs
Intensifying Performance Management Practices
9.0
LaunchedProgramme for Managing Regulatory Environment
To enhance regulatory capabilities at GLCs and create a Regulatory Knowledge Network
Improving Regulatory Environment
4.0
3rd Quarter ‘06Silver BookTo guide GLCs in becoming responsible corporate citizens while creating value for their shareholders and stakeholders
Achieving Value through Social Responsibility
5.0
LaunchedRed BookTo enhance the effectiveness and efficiency of the procurement processes in GLCs
Reviewing and RevampingProcurement Practices
6.0
4th Quarter ‘06Purple BookTo establish guidelines for GLCs to optimise their capital structureOptimising Capital Management Practices
7.0
4th Quarter ‘06Orange BookTo improve GLCs capabilities in attracting, developing and retaining talent through the adoption of best practices
Strengthening Talent Management Practices
8.0
2nd Quarter ‘06Blueprint for GLICsTo reinforce the ability of GLICs to monitor and manage individual GLCs
Enhancing GLIC M&M Functions
3.0
4th Quarter ‘06Directors AcademyTo develop a strategy to match Directors to the right Boards andalso to establish a Directors Academy
Strengthening Directors Capabilities
2.0
LaunchedGreen BookTo enhance Board effectiveness through revamping Board practices and processes
Enhancing Board Effectiveness
1.0No. Initiatives Description Output Launch
GLC Transformation Initiatives (2005/6)
21
Agenda
• Overview of the Mandate
• Progress to date
• Investment Focus
• GLC Transformation
• Summary and Appendix
22
In Summary
40.0
65.0
31 May 2006
33.342.0Net Worth (RMbn)
50.962.8RNAV (RMbn)
14 May 2004
31 May 2005
Strategic MandateStrategic Mandate
• Legacy investments• New investments• GLC Transformation• Human Capital Management• South Johor Economic
Region• BCIC Agenda• Agri. Food Corp.
Capacity BuildingCapacity Building
• Human capital build-up on track
• Risk management framework in place
• Physical infrastructure upgrade completed
• ICT & processes upgraded
Restructuring & ReorganisationRestructuring
& Reorganisation
Turnaround on-track• SilTerra• MTDC• MASExit• Northern Utilities• CCTOngoing• Proton• Malaysia Airports• Time/Time DotCom
Investment & DivestmentInvestment & Divestment
• New investments up RM318mPT Bank LippoPT ExcelcomindoMobileOneApolloShuaibah 3 IWPPParkson
• Funding PLUS Exchangeable BondsIslamic CP/MTN
• DivestmentsPLUS, Bintulu Port, Jardine C&C, YTL Power
GLC TransformationGLC Transformation
• Program on track• Launch of GLCT Manual• Launch of initiative
books - Blue, Red and Green Books
• Headline KPIs• Quick wins/efficiency
gains at various GLCs
Performance to Date (as at 31 May 2006)Performance to Date (as at 31 May 2006)
23
Thank YouVisit our website at : www.khazanah.com.my