Published August 13, 2008

Khazanah told to focus on overseas deals

This will give smaller firms a better chance to secure local business

By PAULINE NG
IN KUALA LUMPUR
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KHAZANAH Nasional has been asked to focus more on international business investments so as to allow smaller companies a greater shot at clinching opportunities locally in the increasingly competitive local scene.

'We do not want Khazanah to be monopolistic and disallow other companies to do business in the country,' Public Accounts Committee chairman Azmi Khalid said at a media conference on Monday after the parliamentary select committee had been briefed on Khazanah's activities by its chief executive officer, Azman Mokhtar.

After the booming 1990s when most sectors of the local economy enjoyed double digit expansion, growth has been more tepid in many sectors as markets move towards maturity or saturation point. Diminishing opportunities in these sectors have led to smaller business groups lobbying for government linked companies (GLCs) to use their greater financial heft and resources in pursuit of international investments or contracts.

The economic pie is still growing - only not as fast, economists said. 'The excess liquidity and money piling up in the bank shows the lack of opportunities for investment,' one observed, noting that private investments accounted for 11-12 per cent of gross national product; in the 1990s, it was a third.



The better prospects elsewhere has seen more firms heading out, including Khazanah. Its latest investment is in China, in the area of developing municipal waste-to-energy projects where it plans to invest as much as US$150 million over the next three years in some eight projects. Its wholly owned subsidiary Tanjung Rhu Investments will take a majority stake in the joint venture with Beijing China Sciences General Energy & Environment Co Ltd as its technology partner.

It is the state investment agency's first investment in sustainable development - a growth sector and strategic in its eyes.

Indeed, Khazanah has made more from its overseas investments in the past four years reaping 60 per cent from these investments compared to 11 per cent for its local ones which contain legacy issues in many instances.

Some 85 per cent of Khazanah's investment portfolio is local, the balance is overseas. However, because a number of its stable of companies now own considerable international assets, its overseas assets are closer to a quarter.

Despite calls for Khazanah to maximise the returns on its investments overseas, it continues to shoulder the burden of 'national agenda' projects that have not taken off, the largest being Proton - the national car company brought under its control following a share swap with another government entity, Petronas.

CIMB-GK regional economist Song Seng Wun agreed that GLCs should venture abroad if there are opportunities but suggested that they should also look at less attractive but increasingly vital sectors, such as agriculture, which have long gestation periods. 'It's not glam, but they can take it to the next level, in terms of research and development and marketing. Turn it into something that can make money for others,' he said.

Because Khazanah's mandate to invest abroad only came about in 2004, its overseas strategies should become clearer in the longer term.

The Malaysian GLC that had a much earlier head start and since demonstrated its mettle internationally is Petronas, which continues to reap increasing returns from its global investments. In its last fiscal year to end March, revenue from international operations of RM90 billion (S$38.1 billion) accounted for a third of group revenue, making it the biggest contributor.