17Th-30Th 000 MARCH

12345678910PP MAGAZINE KINIBIZ.COM ISSUE 17th-30th 000 MARCH

“How it all began” Taxing capital How will Astro Maxis & the fibre Who killed the Karex gains grow? chipmunks Nokia phone? “The govt has a WEAK economic team”

Daim Zainuddin Former Finance Minister

CONTENTS

Corporate

10 Bursa’s suspect call on EPF

12 Too many agencies dishing out money

16 A strong case for taxing capital gains

Corporate / TigerTalk

18 End populist policies, do right intead

20 Govt blunders with tiered oil subsidy

22 Maxis and the ﬁ bre chipmunks

24 1MDB: A renegade that has to be brought under control

Investing / StockStalk Former long-time SP 26 Setia boss Liew Kee QL Resources: Counting chicks before they hatch? Sin, now a director in fast-rising Eco World Development Group, 28 SKP Resources: Where your Dyson is working on a special machines come from? purpose acquisition company (Spac) eyeing 30 Astro: Will weak consumer the international spending aﬀ ect growth? property scene.

32 Aeon Credit: A virtual unknown but 34 no straggler

4 CONTENTS

Featured / Corporate : Man In A Hurry

35 Coming out of retirement

38 Eco World, a property brand in a rush You need a strong 40 Will Liew rise on the back of Battersea? cabinet and people who understand the history of Enterprise : How Karex Covered The Worlds the country, who can 44 How it all began anticipate problems, not 46 A day at the condom factory to react.

48 What comes next for Karex? 52

Cover : Doesn’t Give A Daim World

54 Najib too soft 64 China’s balancing Act

57 ‘No fallout with Dr Mahathir’ 65 The intellectual battle against ISIS

59 Najib should not be Finance Minister 67 Paying for productivity

62 I am not funding Barisan 68 Who killed the Nokia phone?

70 Why the Fed will go faster

Take 5

72 Oil prices drop, but transport fares up. How?

6 KINIBIZ MAGAZINE

EDITORIAL

Joint CEO & Founding Editor P. Gunasegaram

Executive Editor Nesa Sivagnanam

News Editor Khairie Hisyam Aliman Editor’s Note Assistant News Editor Introducing the KINIBIZ MAGAZINE Khairul Khalid

Chief Reporter ome of you may be familiar with KiniBiz, the online subscription business news portal, Sharmila Gunapathy which brings you daily business news and tops it up with unbiased analysis and trenchant Journalists commentary on the most vital of these. This makes it a compelling read for those who Stephanie Jacob need to be well-informed on all things business in Malaysia. The website was introduced in Xavier Kong S February 2013 and built a name for itself along with a steady following. Stephanie Augustin This magazine that you hold in your hands is an extension of the online product to print and Sub-Editors represents the prototype of the fortnightly we will launch in March next year to be called simply Andy Heong The KiniBiz Magazine, which is exactly what it will be. Geraldine Tan Justin Ng We have used actual content from our website (www.kinibiz.com) to give you a real, genuine feel for the product. We fully expect it to be the best business publication in its class. Graphic Designers The KiniBiz Magazine will be a high quality business print publication aimed at an affl uent Syariman Badrulzaman and infl uential market in a format which is attractive to readers and advertisers. It will especially Rajita Sivan Fakri Jamaluddin appeal to those who want to have and read a repository of good, researched, well-written and suit- ably related articles on the Malaysian business scene, put on paper as they unfold. Design Consultant Merdeka LHS Sdn Bhd Huang Ean Hwa Here are some key features: Co-Chief Creative Offi cer Editorial: High quality content which provides independent, intrepid, impartial, informed and insightful news, relevant analysis and unfl inching but fair commentary on business news of importance. CORPORATE Production: Full-colour, illustrated magazine in easily readable format with high quality paper and reproduction to make it visually attractive for both readers and advertisers. Joint CEO Target market: High-income, sophisticated audience which includes professionals, busi- Premesh Chandran nessmen, investors, top executives, decision and policy makers, academics and anyone else who wants to know what’s behind the news. General Manager Advertising: Visually attractive advertisements of the highest quality for an affl uent audience K Manohar which is likely to revisit the same issue of The KiniBiz Magazine over and over again. Compelling Human Resources content ensures high visibility for advertisements. Shamini Arumugam This copy is only for promotional purposes to give our business associates and others a pretty Advertising good idea of the product we will have when we begin production for public consumption next John Joseph - Senior Manager [email protected] March. It is not for sale yet. We hope you enjoy reading it and will certainly welcome any com- ments and suggestions. Please send these to [email protected]. Yong Wang Ching - Manager [email protected] YoursYours sincerely,sincerely,

Circulation Ignatius JC Edwin - Manager Adam Rozairi Zainal Abidin - Executive

Technology Aizu Ikmal

Contact us at: Published by: Printed by: Copyright: Email: [email protected] KiniBiz (584870M) KHL Printing Co Sdn Bhd (235060-A) 2014 by KiniBiz Sdn Bhd Phone: 03-22835567 PJ 51 Business Park, No 9, Lot 10 & 12, Jalan Modal 23/2, No material may be reproduced Fax: 03-27884539 Jalan 51/205A oﬀ Jalan Tandang, Seksyen 23 Kawasan Miel Phase 8, without written permission. 9 46050 Petaling Jaya, Selangor. 40300 Shah Alam, Selangor, Malaysia. Bursa’s suspect call on EPF CORPORATE

By P Gunasegaram [email protected]

workers – its right to vote on a major deci- tees US$3.5 billion of 1MDB’s loans taken for Why? How powerful is Aabar in Malaysia? sion. 1MDB’s energy acquisitions. And Aabar holds And why are they so powerful? How far does an option to subscribe for an initial public their infl uence go? When the rights of major shareholder the Employees Provident Fund was denied in a major banking Now, taking Bursa’s fi rst and second reason off er of 1MDB’s energy assets, whenever that merger involving CIMB Group and RHB Capital alarm bells were triggered. KiniBiz investigates. together, of course EPF has a signifi cant infl u- happens. Press reports put Low Taek Jho or Jho Low as ence in the RHB Cpital and MBSB. Does that the Malaysian whizz-kid fi nancier who is close mean that it should not vote on it? No, un- That should be suffi cient to show Aabar’s to the Abu Dhabi government. Low was one of less there are other situations of confl ict. The clout in Malaysia. the persons who set up 1MDB in its early stages 14.5% stake in CIMB Group is not controlling and is said to be intimately involved in many of Aabar is a potential spoiler of the merger its moves. n Aug 17, 2007, a special pur- with RHB Capital and Malaysia Building So- overall position would diff er from a par- although material and other shareholders will because it has a 21% stake in RHB Capital pose acquisition vehicle called ciety (MBSB)? Yes, MBSB is a subsidiary of ty who is merely a shareholder of MBSB, hold main sway here. which it acquired (at that time it acquired a He is known to be close to Prime Minister Na- Synergy Drive was given the EPF (65%), it owns 41.5% of RHB Capital and especially given the diff ering terms and 25% stake) at RM10.80 a share in 2011, when jib Abdul Razak’s wife Rosmah Mansor. go ahead by their respective a mere 14.5% of CIMB Group which is below valuations applicable to these three (3) O CIMB and Malayan Banking were actually shareholders to acquire the as- the 20% to be considered an associate compa- aff ected companies; and contemplating a takeover off er for RHB Cap- The latter’s infl uence is said to be strong sets of three major plantation ny. But is that enough reason? Why has it seen (c) EPF had prior knowledge of the Proposed ital. and extensive and includes many businessmen groups – Sime Darby, Kum- fi t to break away from established precedent? Merger as it was notifi ed by CIMB Group among them. pulan Guthrie and Golden Hope – eff ectively before the issuance of the letter of intent That deal, basically a swap of the RHB Cap- merging them. (The overall merger also in- Let’s reproduce Bursa’s core reasons as by CIMB Group dated 9 July 2014.” ital stake from one arm of the Abu Dhabi gov- The ruling by Bursa Malaysia will be consid- cluded some other companies.) contained in an announcement by MBSB: ernment to another, and bearing no relation Let’s start with the third reason fi rst. Does ered a victory of sorts to Aabar and by extension to the market price, put paid to any off er that to Jho Low and Rosmah. Among all three companies, there was one “EPF’s position is not the same as the other prior knowledge itself disqualify EPF in this Maybank or CIMB were then contemplating common ultimate shareholder, Permodalan shareholders of MBSB premised on the fol- case? It would if EPF was a majority or con- for RHB Capital. It is undoubtedly a loss for Nazir Razak, iron- Nasional Bhd or PNB, the operator of the na- lowing:- trolling shareholder of CIMB but it is not. It ically the prime minister’s brother, and chair- tional unit trust scheme and the single largest (a) EPF’s controlling stakes in MBSB (64.5%) would if EPF was involved in the merger deal. Bursa’s decision to exclude EPF from voting man of CIMB Group which originated the plan. investor on the local bourse, even eclipsing the and RHB Capital (41.5%) place it in a There is no evidence to show it is. its 41.5% stake in RHB Capital puts Aabar in Employees Provident Fund or EPF. position of signifi cant infl uence in these a strong position to spoil a merger yet again. companies; Since it has just a 14.5% investment stake in If EPF was allowed to vote it would have been Right now, the lack of substantive reasons And get this, there was NO ruling from reg- (b) As the single largest shareholder of MBSB CIMB Group, and no management infl uence, pretty much a done deal for the merger. for denying EPF the right to vote must put ulator Bursa Malaysia that PNB should not and RHB Capital and a major sharehold- it should be allowed to vote its shares in a mat- Bursa Malaysia in a bad light as well as raise vote its very substantial stakes in each of the er in CIMB Group, EPF may benefi t from ter where its interests are at stake. Otherwise, So long as EPF is not the originator of the Instead it has been stymied by the regulator questions as to whether its ruling is one that three companies. PNB then owned quite close the transaction as a shareholder of RHB it would be denying a major shareholder – CIMB Group proposal to acquire RHB Capital Bursa Malaysia on rather fl imsy reasons. was made fairly and without duress. to 40% of Sime Darby while it had majori- Capital and/or CIMB Group. As such, its and one that represents millions of Malaysian and MBSB, it should be allowed to vote on the ty control of Kumpulan Guthrie and Golden deal. At the very least Bursa should have allowed Hope. EPF to exercise its votes in RHB Capital and MBSB instead of a blanket refusal. Bursa then seemed to be implicitly accepting arguments that this was a deal presented Such a strange decision from the market reg- to PNB by the investment bankers, who ironi- ulator will raise eyebrows and questions will cally at that time was CIMB Investment Bank. emerge as to how powerful is the Abu Dhabi investment group Aabar Investments PJS, an The deal was done before it even started be- investment arm of the Abu Dhabi government. cause PNB, which is owned by Yayasan Pela- buran Bumiputra, and chaired by the prime Aabar, a “strategic” investment Aabar is no ordinary company. It is very close- minister of the day, was allowed to vote its company is involved in a RM18 billion ly linked to Malaysia’s own infamous “strategic stake in all three companies. Besides PNB, investment” company 1Malaysia Development “strategic” partnership with 1MDB for other agencies owned by the government or Bhd or 1MDB and closely involved with some of close to it had signifi cant stakes in all three the development of the Tun Razak 1MDB’s shenanigans which KiniBiz has exten- plantation companies. Exchange or TRX, with much of the sively chronicled in its website, www.kinibiz. com. capital coming from Aabar. It is a bit hard to swallow that PNB did not know anything about the deals. If there was a Aabar, a “strategic” investment company is case of confl ict of interest and related party involved in a RM18 billion “strategic” partner- transactions, this was clearly it. Yet Bur- ship with 1MDB for the development of the Tun sa Malaysia did not object. Razak Exchange or TRX, with much of the capital coming from Aabar. Why is it now objecting to EPF voting its blocks of shares for On top of that Aabar’s parent, IPIC, guaran- the merger of CIMB Group

10 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 11 Too many agencies dishing out money

By Sharmila Ganapathy [email protected]

Budget 2015 had a slew of incentives for the entrepreneur community amounting to hundreds of millions of ringgit. The sheer amount of money being dished out has KiniBiz wondering if all that money will be spent wisely.

ccording to the World Bank report Doing Business 2014, Ma- laysia ranks 6th globally in terms Incentives for Entrepreneurs under Budget 2015 A of ease of doing business. It is also the top country in the ease of getting credit. In other words, Agency Programme Allocation :KRLWZLOOEHQH´W if you’re keen on starting a business, Malaysia is theoretically the place you want to be. TEKUN RM500 mil Bumiputera, Chinese & Indian entrepreneurs, as Indeed, Budget 2015 has allocated fund- well as armed forces ing to various entrepreneurship initiatives and veteran entrepreneurs schemes, which should be commended as entre- RM375 mil over 5 preneurs — particularly start-ups — fi nd it a chal- SME investment years (RM250 mil Start-ups Partner Programme lenge to secure fi nancing. According to the prime from SME Bank, RM10 mil from minister in his Budget 2015 speech, small-to-me- private investors) dium enterprises (SMEs) currently contribute Business Accelerator 33% to gross domestic product and the share is RM10 mil SMEs Programme (SME Corp) targeted to increase to 41% by 2020. Soft Loan Scheme RM80 mil Manufacturing The only issue KiniBiz has with the above is the for Automation & Companies Modernisation of sheer number of programmes for entrepreneurs SMEs (MIDF) out there and the agencies that run them. On the right is a list of some of the incentives for SMEs Malaysia Global Expatriate entrepreneurs Innovation & Cretivity and entrepreneurs under Budget 2015 and the can establish a Centre (MaGIC) start-up with a paid-up agencies in charge. capital of RM75,000 and will be provided Now, if your brain is just a little boggled by with a one-year pass all the diff erent incentives and programmes out there for SMEs and entrepreneurs, let us gently EKUINAS RM600 mil Bumiputera entrepreneurs remind you that these are not all the funds out Bumiputera Entrepreneurs there for entrepreneurs. Startup Scheme RM30 mil Bumiputera entrepreneurs

There are several more programmes for Restricted Investment Account (RIA) under RM200 mil Bumiputera entrepreneurs entrepreneurs who need various stages of Bank Islam funding, such as the Graduate Entrepreneur Fund and the Young Entrepreneurs Fund by Amanah Ikhtiar RM1.8 bil Bumiputera entrepreneurs SME Bank, Syariah-compliant SME Financing Malaysia Scheme oﬀ ered by the Islamic banks, the Green Strengthen Technology Technology Financing Scheme by The Green Commercialisation RM50 mil Research & development Technology Corporation, Halal Industry Fund Platform Programme community (a collaboration between SME Bank and Halal (Agensi Inovasi Malaysia) Development Corporation), Cradle Investment Programme (by Cradle Fund Sdn Bhd), Enterprise Innovation Fund (by the Ministry of Source: Budget 2015 Science, Technology and Innovation) and so on.

KiniBiz wants to know what the rationale is for having so many diﬀ erent kinds of programmes

12 KINIBIZ | March 03-15, 2015 CORPORATE

for entrepreneurs. The more pressing question is whether these programmes managed well, because as you can see from the list, many of the programmes are not run by organisations with entrepreneurs at their helm. This leads to more questions:

Many of these agencies or funds are government-owned or backed. Do these agencies/ funds have the manpower knowledgeable enough about the entrepreneurial landscape today in Malaysia and what entrepreneurs really need?

Despite the many forms of ﬁ nancing out there, KiniBiz has heard complaints from the entrepreneurs that they are often denied funding because some agencies do not understand their business model or technology.

What quality controls are there in place to “Many of these agencies or funds are ensure that indiscriminate approvals are not government-owned or backed. Do these made by the various agencies? Are business failure/success rates of entrepreneurs being agencies have the manpower knowledgeable measured by these agencies to ensure that the enough about the entrepreneurial landscape money disbursed does not go to waste? today in Malaysia and what entrepreneurs Excuse us for being cynical, but apart from really need?” those by a handful of organisations such as MaGIC, Cradle, EKUINAS and Agensi Inovasi Malaysia, we have serious doubts that ﬁ nancing programmes for entrepreneurs are being well- managed in this country. The rationale for saying this is partly because these organisations are not run by former entrepreneurs and At the risk of attracting brickbats, we also incentives targeted at entrepreneurs. For corporate personalities who know what being think that the over-abundance of funding these incentive programmes to work, all an entrepreneur is all about and are thus programmes and agencies dedicated to disbursement should be monitored, and equipped to manage these agencies. helping entrepreneurs is “spoiling” many the progress of recipients also kept track of a Malaysian. No doubt there are many to ensure that precious public funds are not KiniBiz thinks that existing government entrepreneurs who deserve funding, but misappropriated. funding programmes for entrepreneurs should there is also a large number of those who be consolidated and parked under MaGIC and are rather dependent and have a sense These agencies would do good to Cradle as they are run by people who already of entitlement where securing start-up publish their success rate in funding have track records as entrepreneurs. These are funding is concerned. legitimate entrepreneurs in their annual the agencies that truly deserve funding and, reports and websites for the public more importantly, will understand what local It is this latter group that KiniBiz is deserves to know that their money is entrepreneurs really need and deserve. afraid will be “spoiled” by all the new being well spent.

14 KINIBIZ | March 03-15, 2015 A strong case for taxing capital gains

By Chan Quan Min [email protected]

Malaysia must consider taxing proﬁ ts made from stock market and bond trading. Far from stiﬂ ing investment, a capital gains tax is a strong signal to the market that speculation must give way to value investing.

apital gains tax – should we money.” Capital gains are essentially that – held for longer than fi ve years. fear it or should we embrace profi t from the purchase and subsequent sale it? But before we look into that of capital assets such as company shares, A maximum rate of 7% on clean profi t, not question it pays to compare the bonds and property. capital, will hardly dent income let alone the C capital gains tax to the goods wider economy. and services tax or GST, which It isn’t exactly right to say all capital gains are will come into force from April. untaxed. We have a form of capital gains tax A tax on profi t, if not unreasonably high, will specifi c to property transactions, the real estate not deter investors. If an investment does not The debate over the introduction of a GST in property gains tax or RPGT, which has proven turn a profi t there is no tax. If it does, then the Malaysia has rightly centred on the impact the eff ective in curbing property speculation. tax will only make up a percentage of that profi t. tax will have on the less well-off . Similarly, the debate on the capital gains tax should take the It does this by using variable rates. A Like the RPGT, a capital gains tax for same format. homeowner is charged a higher rate of RPGT Malaysia can use variable rates to guide on property held for a shorter period of time – investors to make long–term investments. You Critics of the GST say a tax on consumption a rate of 30% for less than three years but no can have a high rate of, say, 15% for shares held is regressive, meaning it hurts the poor more tax at all after fi ve years. for less than a year that will later drop to less than the rich. They say this because low- than 5% or lower for shares held longer than income individuals spend a larger percentage This leaves stocks and bonds as major forms a year. of their income on consumer items than their of investment and sources of wealth creation wealthier counterparts. that are not taxed. Most developed economies have a capital gains tax on share trading and Malaysia The textbook answer to this is: Yes, GST is a Malaysia’s capital market at last count was should be no diff erent. However, most Asian regressive tax. Therefore, to lessen its impact valued at RM2.7 trillion. Of this the bond economies do not tax capital gains and there is when it comes into force from April next year, market is worth about a trillion while equity a fear that our market will be at a disadvantage some 900 items have been made GST-free. market capitalisation was RM1.7 trillion. should we begin to tax capital gains. There will also be cuts in income and corporate Which is no wonder why opposition coalition tax rates beginning January. Pakatan Rakyat is strongly for a capital gains To allay such fears, the introductory capital tax to replace GST, which they argue the gains tax rate must be low and target only With these measures and with the long country is not prepared for. speculative investments. Worth considering is list of GST-free items – making up about no capital gains tax at all for investments held a third of the basket of goods and services Unlike GST, capital gains tax is a progressive longer than, say, two years. that determine the Consumer Price Index – tax, which should help to address income government offi cials now contend that the tax inequality issues in keeping with one of the There will be resistance from fund managers is no longer regressive. Instead, they claim it is principles of taxation to redistribute wealth. and the wealthy. Some may even threaten now progressive, taxing the rich more than the Not doing so would be unjust. to pull out investments from the country. poor as a percentage of income. It will be short-lived. Malaysia is a unique Pakatan Rakyat’s alternative budget investment destination. You won’t fi nd the Whether or not a list of exemptions can turn a estimates potential takings from a capital same companies listed on the Jakarta or regressive tax into a progressive one is diffi cult to gains tax in a given year at RM3 billion, which Singapore exchanges as Kuala Lumpur’s Bursa ascertain without complex calculations. We can pales in comparison to the RM20 billion or so Malaysia, although this has recently changed however be certain that Malaysia’s GST is less the GST will net in just nine months next year. with the Asean Trading Link. regressive than similar systems in other countries with fewer exemptions, such as Singapore’s. There is reason to believe the estimate is The benefi ts of a capital gains tax are hard to conservative, given the size of Malaysia’s ignore, especially more so with the government Regressive or progressive, the overriding capital market, which is now worth close to looking to reduce the percentage of revenue case for the GST is tax reform, done through three trillion ringgit. But capital gains tax from petroleum sources. the replacement of an ineffi cient system of collections will fl uctuate with market fortunes. sales and service taxes. Together with prudent spending, additional An earlier estimate by PKR think tank sources of tax income such as the capital gains With the GST, Malaysia now taxes salaries, Institut Rakyat estimated takings of between tax will strengthen fi nances and make the diffi cult corporate profi ts and consumption, together RM8.7 billion to RM10.2 billion a year from a task of balancing the budget that much easier. with duties on a number of specifi c items. capital gains tax on share trading. This is based on a variable rate of 7% for shares held for less Best of all, the man on the street might not But one major form of wealth creation than one year, 5% for shares held for between grumble about a capital gains tax like they do remains untaxed: capital gains. There is a one and three years, 3% for shares held for the GST as only a small and affl uent portion of saying that goes: “It takes money to make between three and fi ve years, and 1% for shares society hold shares.

16 KINIBIZ | March 03-15, 2015 End populist policies, do right intead By Stephanie Jacob [email protected]

While populist policies provide some short-term comfort and can boost government approval ratings, they often do not bring long-term beneﬁ ts. Tiger thinks it’s time that politicians started making the right calls, rather than the popular one.

t sometimes can be hard being to be angry at something, and that is the fact the most impressive cat in that the government seems content to tell us the whole jungle. Being fast, what we want to hear, rather than what we The fact is the I smart and fi erce tends to cause need to hear. country cannot a lot of envy among the rest afford blanket of the population, and it can Another example would be the fl ip fl op over sometimes be lonely. But that teaching science and maths in English, and subsidies. is what a tiger is, and one cannot change its ultimately the decision to revert to teaching Furthermore, such stripes just to make others superfi cially happy. it in Malay. Was this done because regardless subsidies often of what language the students learn it in, what Occasionally, Tiger thinks that the benefi t those who government faces a similar predicament – do not need it, although not necessarily the fast and smart more than those part. But the need to be liked part – it is tough to strike a balance, between being an eff ective who do. governing body and being liked. Even more so for an elected government. It is much easier to sell a pretty picture, even if it is a false representation of the facts, than to be straight outdated status quo or to improve the way talking and honest. things are done is implemented, there should no backpedalling for political expediency or Case in point being the fuel subsidy quick vote winning. rationalisation. The blanket fuel subsidy system has not worked for a long time, and, But Tiger is not so naive to imagine that in fact, there are many who will make a all politicians are going to stop spinning convincing argument that it was never an facts to secure votes for some greater good. eff ective way to help Malaysians who needed So Malaysians themselves have to become it the most. more savvy – they need to start intelligently evaluating and scrutinising political promises. But there were many who did need help, and so it was the popular thing to do – never mind Populist policies almost never work, because that it might have been the irresponsible call. often they are not sustainable in the long run. This does not mean ignoring those who need People are understandably angry that aid or help; rather, it means providing direct the subsidies are going, and many refuse to and targeted support so that the help goes accept that they are simply unsustainable to matters is their mastery of the subjects? Or where it is most needed. It means tying that maintain. Is there any surprise here, given was it just another case of telling one’s political aid with programmes that can help move that they have got so used to it? base what they want to hear, rather than what people out of low income groups into more they need to hear? fi nancially secure positions. Prime Minister Najib Abdul Razak once said that subsidies are like opium, and once given What Malaysians need is for our politicians Furthermore, when Malaysians stop accepting they are hard to take away. The question is, to be honest not just with our money, but also short-term populist policies, it will allow us to what kind of responsible government gives its in its policies and governing. Responsible become more focused on calling for what is really people such a thing? governing goes beyond defending and needed and important. Irritation over the fuel protecting the rights of communities today; it subsidy cuts should be channelled into demanding The fact is the country cannot aff ord blanket is also about ensuring a strong secure future a comprehensive and integrated public transport subsidies. Furthermore, such subsidies often for them beyond their own terms in offi ce. system and into keeping a very very close eye on benefi t those who do not need it, more than the ongoing mega transportation projects. The those who do. But the public does have a right This means that once a plan to change the politicians have no more room for excuses.

18 KINIBIZ | March 03-15, 2015 Govt blunders with CORPORATE / TIGERTALK tiered oil subsidy By P Gunasegaram [email protected] The fi gure of RM5,000 per month for individual income, the This new, hair-brained scheme, if it goes ahead, will result in cut-off for subsidies, is more than three times the median salary numerous complications on top of that. Imagine going to fi ll up which means that well over half and perhaps as much as four- your car. The petrol pump attendant presumably will check your fi fths or more of Malaysian individual incomes are likely less than car registration, ask for your MyKad with details of your income, Tiger read with great interest and increasing alarm that we are going to have a tiered subsidy system RM5,000 a month. but what if the car he is driving is not in his name? Does he get for fuel. Now, whoever came up with this feeble idea and who will gain from it? Who will enforce it? exemption anyway? Or it car specifi c? Tiger groans at the scheme’s plain stupidity and wonders what’s the motive. And those who don’t get any subsidies at all (individual income of over RM10,000 a month) are likely to be a very small Who will compile the income data? Even Inland Revenue has percentage, most likely in the single digits. But even this group is problems computing that and regularly challenges your declared likely to get subsidies because it is so easy to do so. amounts. And how is that whole thing going to be computerised?

ell me if I am wrong. Aren’t fuel subsidies All you need to do is to register your vehicle in the name of your Who is going to get the contract for this? How much is the supposed to be a toll on government ﬁ nances wife or son or daughter or some other relative who does not have system going to cost? These are interesting questions because and encourage on top of that, the use of an income or whose income is rather low. that may well be the motive for coming up with this ridiculous T wasting resources instead of discouraging their scheme in the ﬁ rst place – money. unnecessary use? Isn’t that why the government is cutting subsidies bit by bit?

According to Second Finance Minister Ahmad Husni Hanadzlah, the fuel subsidy rationalisation programme will be divided into three tiers, depending on monthly income.

Those earning below RM5,000 will receive a full subsidy, while Malaysians earning between RM5,000 and RM10,000 will have some form of subsidy, though there are no further details on the quantum. Those earning RM10,000 and above would not be eligible for any fuel subsidy. Ahmad Husni “The programme is being worked on by the Hanadzlah Domestic Trade, Cooperatives and Consumerism Ministry,” said the minister. According to a Bernama report, the government will monitor the claimant and entitlement for each car based on the registered owner of the vehicle.

The implementation would be based on the registered owner’s salary and a special body will All you need to be set up to verify the entitlement and monitor do is to register your vehicle the implementation of the subsidy rationalisation scheme. in the name of your wife or son or daughter or some First, let’s look at the tiers. If you earn less than other relative who does not RM5,000 a month, your fuel will be subsidised. According to government ﬁ gures, the median have an income or whose household income for Malaysia is RM4,258 a income is rather month. In other word, half of all Malaysian households earn less low. than RM4,258 a month. Those earning below RM5,000 will receive Mind you, this is household income, not individual income. a full subsidy, while Malaysians earning If more than one individual works in an household, and that between RM5,000 and RM10,000 will have is likely to be quite common, individual income is a lot lower. The end result is likely to be that nearly everybody will get Will it result in long queues at petrol stations? Will a black some form of subsidy, though there are no subsidised fuel! Why bother then with removing subsidies and market for petrol emerge? When nobody was hankering for a Salary can be good proxy for income. A salary survey by the further details on the quantum. then imposing a tiered subsidy which is likely to exempt nearly tiered scheme and the public was already beginning to accept the Statistics Department shows that the median salary for 9.3 everyone? concept of subsidy withdrawal, why go and throw a spanner in million Malaysian workers for 2012-2013 is just RM1,500 a the works? month. That means 50% of salaried Malaysians earn less than Far better to utilise the subsidy savings to pay the really needy RM1,500 a month. to give them some relief from poverty, which was the original Tiger continues to be puzzled and amused in turn by intention in the ﬁ rst place of removing subsidies. Also, it will government antics such as this and is tired of this tiered subsidy encourage better use of wasting resources. thing.

20 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 21 Maxis and the CORPORATE / TIGERTALK ﬁ bre chipmunks By Khairul Khalid [email protected]

had explained my predicament over the phone. “It must be them Eager to take its digital credentials up a notch, Tiger upgraded its Internet experience with Was Cheech making a joke to pacify my fury? Apparently not. He was pesky squirrels. It’s Maxis fi bre, not knowing that furry creatures (not its own) and technical incompetence dead serious. I started doubting myself. Had I made the same mistake a problem in some could ruin even the best of intentions. of not reading the fi ne print yet again? I tried hard to recall any “Beware areas. They’re a Squirrels!” warning labels on the brochures. I was now starting to slap myself in the face intermittently. I was in my own recurring bad dream. nuisance. The cables snap easily.” Cheech came the following day and repeated his squirrelly theory in good Internet connection is Although I argued that the sales And by the way how much extra will it cost? earnest. He installed new cables and the problem was solved. I then asked fast becoming a necessity rath- representative from Maxis had convinced me Cheech what had caused the problem. Even he was baffl ed. “I don’t know. er than a luxury, especially if to take the package on an installation free of “We will have to charge you RM170 for The cables look fi ne,” Cheech said with a slight disappointment in his A you are using it intensively in charge, unconditionally, I had committed the climbing the roof,” said Chong with nary a voice, perhaps because his furry fi end wasn’t the real culprit. professional life. So after more cardinal sin of not reading the fi ne print. Later mention about how many miles of extra cables than two years of inconsistent on I found out that only the fi rst 15 metres of were going to be utilised. Now, my Maxis fi bre Internet is back in order but I keep services from an Internet provider that shall fi bre cable to the customer’s premises is free. reminding myself of the few important lessons that I took remain nameless (ok then, it rhymes with Obi If the length required exceeds that amount, By now, I had already expended most of my from these series of unfortunate incidents. Wan), I explored my options. the extra charges would be borne by the anger towards Maxis over the phone earlier customer. and had none left in the tank to rail against A visit to a local Maxis outlet sealed the the admittedly polite and friendly Cheech deal. The sales representative recommended and Chong. I was still seething but gave them the fi bre Internet package based on my the nod nevertheless. They got their tools requirements. Besides all the fi zzy hyperbole and ladders out. Cheech and Chong huff ed Firstly, there is no such thing as free installation, or free anything for about blazing speeds, unlimited downloads and puff ed up the roof and completed the that matter. Always read the fi ne print. In fact, at any mention of the word and uninterrupted signals, the sales rep’s installation. “free”, grab the sales person by his ankles if you can, turn him upside down copious use of “free installation” persuaded and force him to cough out the truth. me to sign up. Six days later, my brand new Maxis fi bre Internet connection failed. I duly informed Second, although I am paying for a Maxis product, the multibillion This was the beginning of the end to Maxis and the following day, another pair of ringgit tele–communications giant is still at the mercy of TM when it my Internet nightmare. No more crawling technicians from TM and Maxis arrived. But comes to a critical component of its much touted premium off ering – after through web pages. I was almost in tears. they weren’t Cheech and Chong. This time, it sales service. Most of the technical services required are performed by TM Within a blink, my erratic multimedia super was Cumi (naturally, not his real name) and contractors. And since TM decided to outsource their after sales technical highway was about to be transformed into a Ciki (of course not his either) coming to my services to third party vendors and contractors, they do not have much personal digital autobahn. Or so I thought. rescue. control over their quality of services either, as I found out much to my despair. It leaves Maxis in utter limbo in dealing with cases like mine. All After waiting anxiously for a few weeks, “It looks like Cheech did a sloppy job. they do is shift responsibility and blame to TM, who in turn shift the blame the installation team from TM (Telekom Did not follow SOP (standard operating to their outsourced contractors. Malaysia) and Maxis fi nally arrived. Although procedeure),” said Cumi giving his expert I was subscribing to a Maxis off ering, TM analysis. And what of Malaysia’s plans to increase Internet penetration, especially owns approximately 90% of telephone lines in rural and semi-rural areas? and fi bre infrastructure in the country. They After much contemplation, Cumi are mainly responsible for connecting the concluded that the problem could only be As long as the market is not liberalised further, it is likely to remain a pipe cables into homes for the Maxis fi bre Internet. I was wrong not to read the full agreement solved by Cheech and Chong, the original dream. TM owns most of the backbone infrastructure and other players Maxis only leases the fi bre lines from TM. that I had signed but I felt duped regardless. contractors. Why, I asked, weren’t Cheech and have no choice but to lease them at TM’s rates to off er broadband services. I immediately rang Maxis and stated my case. Chong sent in the fi rst place? I was quickly The installation team went straight into I was misled. The Maxis sales representative boiling up again. Much of my valuable time Take it or leave it. TM has a virtual monopoly of the infrastructure and action. To protect their identities, let’s call should have at least mentioned these extra was being wasted unnecessarily. thus very little incentive to improve their services and lowering prices to them Cheech (not his real name) and Chong charges before I’d signed up but none was end users. And that is before taking into account various types of super (not his real name either). They are third forthcoming. Not even a whisper. Cumi appeased me and rang Cheech furry animals terrorising Internet cables. party vendors and contractors outsourced by But after being shunted from one offi cer to immediately to make another appointment. TM and Maxis. another over the phone for almost an hour, I Which is why, although I am reasonably content with my Maxis fi bre “Looks like this won’t be a free installation,” relented. I was so close to broadband heaven “It must be them pesky squirrels. It’s a Internet at the moment, occasionally I wake up in the middle of the night in said Cheech after a brief tour around my and just wanted it to be over and done with. problem in some areas. They’re a nuisance. cold sweat, with nightmares of sinister chipmunks dancing and chomping home. Get on with it, I said to Cheech and Chong. The cables snap easily,” said Cheech after I on my wires.

22 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 23 1MDB: A renegade that has CORPORATE / TIGERTALK to be brought under control

By P Gunasegaram [email protected] If 1MDB truly wants to clear the air, here are 10 basic questions begging to be answered for a long time. KiniBiz wonders if there is correlation between the current haze and 1Malaysia Development Bhd, which promised in a recent statement to “clear the air”. That statement did no Why were your bonds badly mispriced? Why are foreigners involved in your property such thing but made things hazier This is the way that most of the money is being siphoned projects? than the haze out there. Here are 10 1 off . By pricing what are eff ectively government- 7 Alright, you maintain land is strategic but why do questions 1MDB must answer well to guaranteed bonds low, those who get the bonds at that you need foreigners as partners to develop this land? pave the way towards blue skies. price merely have to fl ip it on the market for a massive Can’t you just hire the best people money can buy gain. KiniBiz calculations show that for the fi rst few tranches and do it yourself? Then you can develop a masterplan, amounting to RM20 billion, the mispricing is worth RM4 billion! require developers to build according to plan and open out How much more was mispriced for the subsequent loans which tenders to everyone. Are you using joint ventures so you can amounted to some RM17 billion? Perhaps another RM4 billion? Can siphon out further value from 1MDB through these foreign ver since, it was set up in February last year, KiniBiz we assume you allowed RM8 billion to be siphoned off upfront from partners? Is that not selling out our own country? (www.kinibiz.com) has been keeping a very close loan mispricing? eye on developments at 1Malaysia Development Why did you go into power? E Bhd or 1MDB. The fi rst series of articles on 1MDB Why did you pay such high fees for your loans? Power is about the only assets you bought which will was on unanswered questions over billions of When your bonds were off ered on such attractive rates, 8 have a steady recurrent income. But you paid way too ringgit. 2 why was there a need to pay 10% or more to place these much. Is that yet another way of siphoning money out when 2% or less is the norm? Who did these fees of out of 1MDB? And is the purchase of power assets an This series appeared in March last year more than RM400 million go to? Is this yet another means attempt to quickly get cash generating assets which you and represented the most comprehensive of enriching some people by siphoning off what belongs to sorely lack? series of stories written on 1MDB up to that 1MDB? point, blowing the lid on the way it operated, Why do you want to list your power assets? outlining how billions of funds were in suspect Why did you make such crazy investments with 9 You obviously don’t need money going by your last investments and explaining how RM4 billion your borrowings? balance sheet which showed cash and and near cash and more could have been siphoned off upfront 3 1MDB is a strategic fund which is supposed to attract like items at a whopping RM23 billion plus. That makes your through loan mispricing. investments into the country. Yet you are fi nancing other desire to list the power assets rather strange. Is the awarding people for investments they are making elsewhere and in of a slew of power contracts to you a ploy to increase the Less than a month later, in April 2013, as quite dubious ways. Are even the funds you raise in ineffi cient value of your power holdings so that on listing you will have more information unravelled from the one-year and corrupt ways at risk and earning too low a return? realised gains which can off set losses elsewhere? delayed release of 1MDB’s annual report for the year ended March 31, 2012, KiniBiz ran yet Why do you have so much cash and still borrow Why are your accounts delayed yet again? another series of articles highlighting further money? This is the third time that we know off that your questions, including a new US$3 billion loan, 4 Your accounts as at March 31, 2013 show you have 10 accounts have been consecutively delayed. Are you the movement of RM7 billion to the Cayman cash or near cash items of over RM23 billion. Why are negotiating with your latest auditors – your auditors Islands and an unexplained intimacy with US you going on such a borrowing spree when the money have been changed twice already – to give the best giant investment bank Goldman Sachs. sits there already earning very little? Is it because you have possible picture for your accounts? Come on, tell us, what lucrative ways to misprice loans for the benefi t of a few and are you trying to hide? The release of its results for the year ended want to exploit this to the full? March 13, 2013, again more than a year late, in ...... April this year saw KiniBiz write another series Why is most of your profi t to date from property on 1MDB explaining how a disaster is unfolding revaluations? right before our eyes. 5 If not for property revaluation gains of RM2.7 billion in That should suffi ce for now. If 1MDB, our strategic investment fund, the last available accounts you would have made losses. can give full and satisfactory answers to these pressing questions let The series, amongst others, highlighted that 1MDB would “The series, amongst others, Basically, the gains came from revaluing cheap government them do so. have made billion ringgit losses if not for gains from revaluation land allotted to you to market rates. Does this not imply that of property; there were RM1.2 billion in writedowns of power highlighted that 1MDB would despite RM37 billion in borrowings, you are still not getting enough Otherwise they must be simply regarded as a multi-billion ringgit assets bought, a RM23.6 billion cash pile obtained from massive have made billion ringgit on your investments and have to resort to this to show profi ts? renegade government company which has gone totally out of control, borrowings, etc. In short, an unfolding disaster. In between all losses if not for gains from operates according to its whims and fancies and is a danger to the these, KiniBiz and others have reported on a myriad issues Why are you developing property when there is country and its people. affecting 1MDB, including the latest round on high fees paid. revaluation of property.” a glut? Questions far outnumber the answers that are forthcoming. 6 How strategic is property development when you Needless to say, although in this case KiniBiz feels that even the basically get cheap land from the government and develop most obvious must be said, 1MDB must be brought under control and it, especially during a time when a glut is developing? made responsible to the rakyat.

24 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 25 QL Resources: Counting INVESTING / STOCKSTALK chicks before they hatch?

By Xavier Kong [email protected]

QL Resources Bhd has made a conditional takeover offer to acquire all shares it does not own in Lay Hong Bhd, on account of shareholders not re-electing QL Resources’ representative to their board of directors. However, is this really the best move that QL Resources could have made? by them, totalling 73.2% of Lay Hong’s total shares, was because Chia Mak Hooi, the group’s representative in Lay Hong’s board of directors, was not re-elected by Lay Hong’s Business model: QL Resources was started Among the group’s board of directors What analysts think: Analysts fi elded mixed shareholders, and this in turn raised concerns back in 1987 and began as a feedstuff trading include Chia Seong Pow and Chia Seong responses about the group’s decision for a condi- in QL, as the group then loses any control of company, founded by the group’s current man- Fatt, brothers-in-law to founder Chia Song tional takeover off er to Lay Hong Bhd, with most the direction that Lay Hong would be able to aging director, Chia Song Kun. The group then Kun, who both are benefi cial shareholders staying cautious about the off er. UOB Kay Hian take. proceeded to grow through adjacency expan- of Farsathy Holdings Sdn Bhd. Also there noted a negative outlook on the off er, claiming sion to cover food for human consumption. is Chia Song Kooi and Chia Song Swa, that the valuation of Lay Hong’s shares were at However, the decision to pay such a the brothers of Chia Song Kun, who hold a hefty 24 times FY15 price-to-earnings ratio, as premium for the shares that the group does The group now operates in three sectors, interests in the largest shareholder of the compared to its peers, at about 20 times. not own in Lay Hong appears to be a rather namely integrated livestock farming, which group, CBG Holdings Sdn Bhd. All four are hasty move, as the amount of RM128.2 covers poultry farming, feedstuff trading and executive directors of the group. “Besides its smallish size (6% of egg market share million, assuming it is fully funded by bank consumer brands, marine products manu- in Malaysia), Lay Hong also generates very thin borrowings, will raise the group’s gearing facturing, which includes surimi and fi sh- On the board as well is Chia Mak Hooi, margins of 3%-4%. Although Lay Hong provides level to 0.47 times, which, while manageable, meal processing and its associated consumer nephew to founder Chia Song Kun, as an a marginal earnings enhancement to QL, we will leaves little wiggle room. Analyst calls on Ql Resources Bhd brands, and palm oil activities, which include executive director. be more positive if the acquisition funds are chan- Research House Recommendation Target Price / Fair Value (RM) milling, plantations, and biomass clean energy. Chia Mak Hooi was also the director on nelled towards higher-margin segments, such as The largest obstacle towards the acquisition Lay Hong Bhd’s board of directors that the marine product manufacturing and palm oil ac- will be acquiring the approvals of Lay Hong’s AllianceDBS Buy 4.00 QL Resources operates in and supplies to was not re-elected, prompting the takeover tivities divisions,” said UOB Kay Hian. shareholders, which might be a reason for RHB IB Neutral 3.60 Malaysia, Indonesia, Vietnam and China, off er. However, the other research houses claim a the elevated off er. This is supported by Lay with transcontinental market long–term benefi t to the Hong’s managing director Yap Hoong Chai PIVB Outperform 3.85 penetration, including to Japan, deal, citing synergy for jesting that QL’s off er had to be “an off er that TA Securities Buy 4.12 Korea, Singapore, Pakistan, the group regarding its we can’t refuse”. With major shareholders UOB Kay Hian Hold 3.05 Bangladesh, Spain, Portugal, and takeover off er. and related parties holding 44.17% of Lay Source: Various KINIBIZ North America for its fi sheries Hong’s shares, QL is looking at a tough battle. sector, and its livestock sector According to Public Investment Bank, in QL Resources Bhd Earnings Forecast the event the off er does not entice the major YE 31 March FY12 FY13 FY14 FY15 FY16 FY17 shareholders, outlay will reduce markedly to RM50.8 million for the 29.02% minorities. Revenue 946.7 2146.3 4257.2 2732.8 3020.4 3327.9 Core EBITDA 241.0 257.8 299.6 338.0 387.0 432.2 QL Resources’ share price has also been EI 0.0 3.4 0.0 0.0 0.0 432.2 trending upward over the year, and, at RM3.43 last done, the price may be a bit 3UHWD[SUR´W 172.3 173.7 203.8 248.7 290.9 331.6 high for new investors to hop on. The stock 1HWSUR´W 131.4 131.7 159.9 190.8 223.2 254.4 could indeed be a long-term stock to hold, as To buy... or to sell? 131.4 128.3 159.9 190.8 223.2 254.4 everyone does need to eat, and the success of &RUHQHWSUR´W this deal would only serve to help QL in the EPS (sen) 10.5 10.6 12.8 15.3 17.9 20.4 supplies to the Philippines, Singapore, Share performance: Over the past year, Both TA Securities and AllianceDBS Research long term. EPS Growth (%) 5.5% 0.2% 21.4% 19.3% 16.9% 14.0% Cambodia, Brunei, and Hong Kong. QL Resources has seen a general uptrend of noted that, while the pricing does come at a bit of PER (x) 33.1 33.0 27.2 22.8 19.5 17.1 its share price, rising by roughly RM1.00. a premium, the acquisition could show potential This is tempered, however, by the short- Dividend 2.8 2.8 3.5 4.1 4.8 5.5 Shareholders and management: A revenue and cost synergies for QL Resources, term storm that has to be weathered in the substantial portion of the group’s shares is held Historically, QL Resources has only considering the two groups were in the same event of the takeover off er being accepted, Div Yield (%) 0.8% 0.8% 1.0% 1.2% 1.4% 1.6% as the group will be operating at a tough, but by CBG Sdn Bhd, totaling 42.84%, or 534.63 announced dividends during the fourth sector, with BIMB Securities concurring the Source : TA Securities KINIBIZ million of the group’s shares. The next largest quarter of the group’s fi nancial year. Over notion. TA Securities also opines that the impact manageable 0.47 times gearing level. shareholder is Farsathy Holdings Sdn Bhd, the 2011 to 2013 fi nancial years, the group will not be signifi cant. with 12.67%, or 158.14 million of the group’s has managed to maintain a dividend payout shares. Founder and managing director Chia of between 4.3 sen to 4.5 sen, but the KiniBiz’ take: QL Resources had stated that Song Kun holds on to 0.77%, or 9.58 million of dividend payout slipped to 3.5 sen in the the reason for the conditional takeover off er for the group’s shares. 2014 fi nancial year. the remainder of Lay Hong’s shares not owned Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KiniBiz makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a refl ection of Bursa Malaysia, we say.

26 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 27 SKP Resources: Where your INVESTING / STOCKSTALK Dyson machines come from

By Chan Quan Min it believes that its future earnings performance has [email protected] already been priced-in by the market.

Kenanga noted that Dyson has recently increased its orders and SKP will now produce the ﬁ rm’s newest vacuum cleaners and bladeless fans. “The new products are expected to fetch higher margins in view of better product eﬃ ciently,” read the Kenanga Have a thing for Dyson’s high-end, high-tech household machines? The whirr of its cyclone technology report. “Note that management has a cost pass- powered vacuum cleaners can be heard at Johor-based SKP Resources. But SKP is more than just through mechanism with clients, which allows the a way to buy into Dyson’s growth story. group to mitigate currency and raw materials risks.”

KiniBiz’ take: First off , SKP is a great local market Business model: SKP Resources Bhd is Shareholders and management: A fa- corporation contracts”. pick to get close to Dyson. If you are a fan of the high- soon to be Malaysia’s largest plastic parts ther-and-son team runs SKP. Gan Kim Huat UOB Kay Hian is optimistic on growth end, high-tech vacuum cleaners, bladeless fans and manufacturer after the completion of a is the managing director with over 30 years prospects, predicting 58% year-on-year growth hand dryers Dyson sells at hefty price tags, SKP is takeover of a smaller rival. The company experience in plastics injection moulding. for the fi nancial year ending March 2016 after worth considering. counts among its largest customers’ big- taking into consideration the acquisition of name multinationals such as Dyson, Hewlett- His son Gan Poh San is an executive Tecnic. Even on its own, the company sells itself. Investors Packard and Sharp. director, also with wide knowledge of plastics are increasingly looking beyond blue chips on engineering. He is fl uent in the Japanese Other analysts to the exception of Kenanga account of their expensive valuations. But unlike Based in Batu Pahat, SKP calls itself a language, which helps tremendously in were similarly upbeat about the company. RHB most companies in the small to mid-cap range, SKP is one-stop shop for injection moulding, spray communicating with the company’s many Research said SKP is “poised to achieve a two-year well managed and invests heavily in new technology. coating and assembly of plastic parts and Japanese customers. earnings compound annual growth rate of 58%”. Analyst calls on SKP Resources devices. The acronym SKP stands for Sin TA Securities, which has the highest target price Manufacturing operations that stay ahead of the Kwang Plastic. Gan Kim Huat indirectly controls a 49.5% for the stock at RM1.10 reckons the SKP-Technic game through innovation like SKP are typically Research House Recommendation Target Price / Fair Value (RM) equity stake of SKP Resources while Gan Poh deal has many “potential synergies”. For one, favoured by investors. This is because manufacturing Kenaga TDNH3UR´W 0.57 Recent years have seen the company San also has a sizeable 21% stake. the merger would “reduce the long–standing in Malaysia is often a low-margin game with little RHB Research Buy 0.75 branched out more into property, man- single customer risk”, the fi rm said in a report. excitement, which makes SKP look like a breath of ufacturing precision injection fresh air. TA Securities Buy 1.10 moulds, and the assembly of elec- Dyson, a UK-based UOB Kay Hian Buy 0.83 tronic and electrical equipment company specialising in The concern over single customer risk brought up by some analysts appears valid. But, in truth, there though subsidiaries Goodhart high-end vacuum clean- Source: Various KINIBIZ Land, Goodhart Technology and ers, accounts for a rev- is little to no chance of Dyson and SKP parting ways. Goodhart Industries. enue share of 55%. TA Both companies have a strong links established over Earnings Forecast for SKP Resources Securities estimates that years. Forecast and Valuations Mar-12 Mar-13 Mar-14 Mar-15 Mar-16 SKP has specialised tools and capabilities unique Total turnover (MYRM) 415 423 426 572 781 to Dyson’s product range. It would be diffi cult now for Dyson to fi nd a new contract manufacturer. 5HSRUWHGQHWSUR´W 0<5P 36.8 39.6 30.1 47.9 75.0 Another reason investors may go for SKP is to jump 5HFXUULQJQHWSUR´W 0<5P 36.8 39.6 30.1 47.9 75.0 in early before the company reaps the benefi ts of its 5HFXUULQJQHWSUR´WJURZW 40.4 7.3 (23.9) 59.3 56.6 acquisition of Tecnic, which could be a catalyst to Recurring EPS (MYR) 0.06 0.05 0.03 0.05 0.08 another rally. DPS (MYR) 0.03 0.02 0.02 0.03 0.04 Most analysts feel the price paid for the acquisition Recurring 9.9 11.6 18.3 11.5 7.3 is fair. Investors also have to be aware that future P/B (x) 2.03 2.76 2.49 2.24 1.94 earnings may have already been priced in. Short- P/CF (x) 12.5 7.9 27.6 6.5 7.2 term investors might also fi nd that the share price Dividend Yield 5.0 3.6 2.7 4.4 6.8 only moves sideways. 5HWXUQRQDYHUDQJHHTXLW\ 5.07 5.95 9.52 5.66 3.56 For the fi nancial year ended March 2014, Share performance: Shares in SKP listed this share will fall to 35% after the takeover of 1HWGHEWWRHTXLW\ 21.8 20.9 14.3 20.6 28.5 SKP turned in a pre-tax profi t of 40 million on Bursa Malaysia saw a sharp revaluation Tecnic is complete. TA Securities’ RM1.10 target price for SKP is Our vs consensus net cash net cash net cash net cash net cash on the back of revenue of 413 million. between April and June earlier this year. According to the securities fi rm, SKP and based on forward price-to-earnings ratio of 12 times The share price doubled during those three Tecnic are a “match made in heaven”. The for the fi nancial year ending March 2016, which is (36 DGMXVWHG reasonable. SKP is in the midst of acquiring smaller rival months to the current trading band of enlarged entity will reportedly have more Source : RHB Research KINIBIZ Tecnic Group Bhd for RM200 million to be sat- between 58 sen and 68 sen. market clout and the ability to “off er current isfi ed in two equal parts by cash and new shares. and prospective customers an increased range If the growth story goes according to plan, the What analysts think: Following a visit of value-added services”. share price will eventually go past the RM1 mark, no The company is expanding very rapidly. to SKP earlier this month, analysts at UOB doubt about it. The real question is when? A new plant currently slated for completion Kay Hian gushed at the company’s “lean A July report by Kenanga was more from December is expected to add 75% to manufacturing and tooling capability, which circumspect. While the investment bank is Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention are the key criteria in securing multinational confi dent on the company’s continued growth, is to highlight the key factors you might want to think about before plunging in or scrambling out. While KiniBiz makes production capacity over the next three years. every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a refl ection of Bursa Malaysia, we say.

28 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 29 Astro: Will weak consumer INVESTING / STOCKSTALK spending affect growth?

By Sharmila Ganapathy [email protected]

Some analysts believe that consumer spending is set to slow next year due to the subsidy rationalisation and that this will affect Astro Malaysia Holdings Bhd’s subscriber growth. Is this just conjecture, or will it be a reality for the company?

annual percentage rate at which customers stop subscribing to a service.)

Business model: Astro Malaysia Holdings Measat Broadcast Network Systems Sdn call on the stock, whereas another has an Kenanga’s other area of concern is the Bhd (Astro) is an integrated consumer media Bhd (a wholly-owned subsidiary of Astro), “underperform” rating and yet another with company’s sluggish IPTV subscription, as entertainment group with operations in Ma- a position she still holds. a “sell” call. the group had only garnered some 17,000 laysia and other countries in Southeast Asia. subscribers with 33,000 in total since the It has four key areas of business: pay-TV, ra- Also in the management team is Augustus Of the analysts tracked by KiniBiz, two have offi cial launch of the Maxis-Astro IPTV dio, publications and digital media. Ralph Marshall, who is deputy chairman of a “buy” rating on Astro, two with “hold” and services. Astro, as well as a non-independent, non- another two with “neutral”, whereas one has According to its website, Astro has 3.8 executive director in the company. He is an an “underperform” rating on the stock. Earnings forecast: Kenanga Research million residential customers or 55% executive director of Usaha Tegas Sdn Bhd expects Astro’s 2015 revenue to hit RM5.32 penetration of Malaysian TV households. It (UTSB), group chief executive offi cer of Astro UOBKayHian Research and Hong Leong billion, with a net profi t of RM561 million off ers 171 TV channels delivered via direct- Holdings Sdn Bhd (AHSB) group, executive Investment Bank Research, which both have for the period. It expects revenue for 2016 to-home satellite TV, IPTV (Internet protocol deputy chairman of Astro Overseas Limited “buy” ratings on Astro following the company’s to increase further to RM5.7 billion, with Analyst calls on Astro Malaysia Holdings Bhd television) and OTT (over-the-top) platforms. (AHSB’s wholly-owned subsidiary) and most recent quarterly results (2Q2015), are RM647 million in net profi t for the period. The company also introduced NJOI, the executive director of Tanjong Public Limited expecting the company’s margins to improve Astro’s dividend policy is to achieve a Research House Recommendation Target Price / Fair Value (RM) country’s fi rst non-subscription based Company, in which UTSB has signifi cant going forward. However, they have diff erent payout of at least 75% of profi t after tax to HLIB Research Buy 3.88 satellite TV service, which off ers 22 TV and interests. views on consumer sentiment. UOBKayHian its shareholders, according to the company’s 20 radio channels. He also serves as a non-executive director sees Astro as a direct consumption play, to 2014 annual report. For the year ended Jan UOB Kay Hian Buy 3.65 on the boards of several other companies in benefi t from rising household income. Hong 31, 2014, Astro announced four quarterly PublicInvest Hold 3.43 Astro also owns Astro radio, which reaches which UTSB also has signifi cant interests such Leong, on the other hand, says that although dividend payments of 2 sen per share, an Maybank IB Hold 3.30 12.3 million weekly listeners and has captured as telecommunications fi rm Maxis Bhd and its consumer sentiment remains weak, it believes increase of 33% from the previous year. This 55% of radex (radio advertising expenditure) holding company Maxis Communications Bhd. Astro will “pull through” given its steady pick- translates to a net dividend yield of 2.7% RHB Research Neutral 3.55 share in Malaysia. Meanwhile, up of viewership shares for 2014 according to Kenanga. (A dividend MIDF Research Neutral 3.75 Astro’s digital arm is involved in year-on-year from 44% to yield of 3% and above is considered healthy.) digital publishing, applications 47%. This is coupled with Kenanga expects the dividend yield to Kenanga Research Underperform 3.10 and platforms, as well as publish- NJOI’s growing mass mar- increase to 2.9% in 2015 and 3.3% in 2016. Source: Various KINIBIZ ing entertainment and lifestyle ket reach that will allow magazines. Astro to grab a larger share Earnings Forecast for Astro Malaysia Holdings Bhd of the TV adex market, it KiniBiz’ take: The outlook for Astro FY JAN (RMm) 2014A 2015E 2016E said. appears uncertain, given that consumer sentiment could likely weaken going Turnover 4,791 5,316 5,701 forward due to subsidy rationalisation and EBITDA 1,616 1,829 2,701 the impending GST. This will likely aff ect subscriber growth numbers next year, PBT 569 756 872 although some analysts believe the company 1HW3UR´W 13 448 561 647 is strong enough to weather any storms that 448 561 647 come its way. We are not so sure that it will, &RUH 13 given that there are signs that consumer &RQVHQVXV 13 - 542 709 sentiment is weakening. Astro’s pay-TV Earnings Revision - - household segment experienced lower net adds in the fi rst half of 2015, which is evident &RUH(36 VHQ 8.6 10.8 12.5 in the company’s 2Q15 results. If this is a sign Core EPS growth of future things to come, investors may want to pause and consider before actively trading '36 VHQ 9.0 9.7 11.2 Shareholders and management: As Share performance: According to In a research note dated Sept 22, Kenanga in this stock. We believe that in the long run, %936 50 0.119 0.129 0.142 Research, which has an “underperform” of Sept 22, the company’s major sharehold- Bloomberg data, Astro has been trading at the fuss surrounding subsidy rationalisation, PER 39.2 31.3 27.1 ers are Astro Holdings Sdn Bhd, which has a a 52-week range of between RM2.80 and rating on the stock, also expressed its GST and infl ation will taper off and consumer 42.4% stake in Astro, business tycoon Anan- RM 3.70. As of Oct 14, its one-year return concerns over weak consumer spending. sentiment will strengthen, boosting Astro’s 3ULFH%936 [ 28.5 26.1 23.8 da Krishnan (16%) and Pantai Cahaya Bulan was 12.42%, outperforming the benchmark performance accordingly. 1HW*HDULQJ [ 4.2 3.9 2.9 Ventures Sdn Bhd (8.3%). FBMKLCI index, which returned 3.9% in the It said that while it expects Astro’s FY15 past year. Ebitda margin to normalise back to 34.4% 'LYLGHQG

At Astro’s helm is chief executive officer on the back of lower swap out and lower sales Source : Kenanga Research KINIBIZ and executive director Rohana Rozhan. What analysts think: As of Oct 14, and installation costs, it is cognizant of the She was the group chief financial officer of analysts polled by Reuters appear optimistic ongoing subsidy rationalisation plan that Astro All Asia Networks Limited (previously on the stock, with six with a “buy” call on could slow down consumer spending, which listed on Bursa Securities) and was later the stock and seven with an “outperform” might translate into slower subscription rate appointed as the chief executive officer of rating on it. Eight analysts have a “hold” and higher churn. (The churn rate is the Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KiniBiz makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a reﬂ ection of Bursa Malaysia, we say.

30 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 31 Aeon Credit: A virtual INVESTING / STOCKSTALK unknown but no straggler

By Chan Quan Min [email protected]

(MBSB) will likely see proﬁ t growth of only about 8% this year.

Unlike MBSB, Aeon Credit is rather low profi le, Flying under the radar is a fi nancial services company that has managed to turn in earnings growth known only to investors in the know. Both companies trade at a price-to-earnings ratio rates of about 40% in the past three years. Such impressive growth is unlikely to continue but the of about 10 times. In comparison, full-fl edged Aeon Credit remains one of the best investments for exposure to the burgeoning consumer lending fi nancial institutions trade at an average price-to- market. earnings ratio of about 14 times.

Putting all this information together: If Business Model: Aeon Credit Service refl ecting Aeon Credit’s ownership structure AllianceDBS thinks Bank Negara tightening Aeon Credit keeps up growth, and current valu- (M) Bhd is a non-bank fi nancial institution as a unit of Japan’s Aeon Finance Service. measures could moderate loan growth because ations stay, its share price could rise in the com- (NBFI) generally involved in vehicle fi nanc- of the central bank’s current focus on managing ing months to the target price of RM18 pegged ing and consumer loans. Share performance: Aeon Credit stock is high household indebtedness. RHB Research by RHB Research calculated based on a forward trading on Bursa Malaysia at about RM15.40 a and AllianceDBS advise investors to “hold” the (fi nancial year ending February 2016) price-to- The company reportedly services over a share, down from a recent high of RM18.00 in stock while Kenanga Research believes Aeon earnings ratio of 10.5 times. million customers out of 52 branches. As of mid-August after the company reported a sud- Credit could “outperform”. September, Aeon Credit has issued 178,000 den increase in its non-performing loan ratio. Should Aeon Credit outperform earnings credit cards. Earnings forecast: According to Kenanga forecasts, or pique the interest of investors such What analysts think: Latest analyst re- Research estimates, earnings are expected to that its valuations improve, then investors could Vehicle fi nancing accounted for 43% of total ports say Aeon Credit is likely to meet their grow 25% y-o-y for the fi nancial year ending see the share price rise to even higher that that. revenue of RM436 million for the six-month earnings forecasts but warn of a slowdown in February 2015 and February 2016. This is period ended August. Consumer loans, which business from weakening consumer demand. lower than the preceding three years, which The downside for investors would be that Aeon Analyst calls on Aeon Credit include personal fi nancing and general easy saw average earning growth rates of about Credit’s earnings performance is sensitive to payment, accounted for 35% of total revenue RHB Research cautioned investors to “watch 40% y-o-y. general consumer demand. No doubt, private Research House Recommendation Target Price / Fair Value (RM) while credit card income was 14% of the total. out” for possible deterioration in asset quality consumption has been healthy in recent years after the company reported a spike in its non- Aeon Credit has an unoffi cial dividend payout and has in fact been a key driver of economic AllianceDBS Hold 16.38 For the 2014 fi nancial year ended February performing loan ratio to 2.65% in the latest policy of about 30% to 40% of profi ts paid out growth. But consumers are now increasingly Kenanga Outperform 17.80 the company posted a pre-tax profi t of RM234 quarter ended August. to shareholders twice a year. This equates to becoming more cautious with spending. million on the back of revenue of a dividend yield of about RHB Research Neutral 18.00 RM673 million. 3%. Market traders should note that the recent Source: Various KINIBIZ reported spike in Aeon Credit’s non-performing Profi t growth rates in the past KiniBiz’ take: Aeon loan (NPL) ratio caused a slump in its share price. Earnings Forecast for Aeon Credit three years have been nothing Credit’s investor relations It can be argued that this is unwarranted given short of spectacular, averaging offi cer, when contacted re- the company’s insistence that the NPL spike was FY Feb (RMm) 2014A 2015E 2016E cently, acknowledged they seasonal in nature. Net interest inc. 475.4 618.0 778.3 It can also be argued that earnings growth Other operating inc. 139.2 134.4 155.6 estimates of 25% by analysts could be an Total income 614.6 752.4 933.9 understatement given company management’s plans to leverage on a potential customer pool of PBT 233.9 292.8 367.1 over three million. 1HWSUR´W 13 175.4 222.5 279.0 Sister company Aeon Co (M) Bhd is a leading Consensus NP - 213.3 254.3 operator of supermarkets and hypermarkets in Earnings Revision (%) - - - the country. Aeon Credit’s managing director To buy... or to sell? Kenji Fujita is reportedly looking to drive future EPS (sen) 121.80 154.50 193.70 growth by increased product cross-selling with EPS growth (%) 18.4 26.9 25.4 Aeon Co, a wise strategy. NDPS (sen) 46.3 59.0 74.0 about 40% year-on-year. However, growth is are guiding for slightly lower earnings growth BVPS (RM) 3.79 4.74 5.94 expected to slow in the next few years. Aeon Credit’s non-performing loan ratio has been as general consumer sentiment is showing Undoubtedly, Aeon Credit is company with increasing for the past four quarters from an signs of weakening. Despite this, earnings strong fundamentals as attested by the presence ROE (%) 32.6 25.7 23.9 of Aberdeen Asset Management as a major Shareholders and management: Aeon average of about 1.74% in the 2013 calendar year. growth will continue to remain in the “dou- PER (x) 13.5 10.7 8.5 Financial Service Co Ltd, based in Japan, is ble-digits”. shareholder. The investment fund is known the parent company with a 60% equity stake Company management reportedly told to pick companies based on the strength of Price/BV (x) 4.3 3.5 2.8 management. in Aeon Credit. Aberdeen Asset Management analysts the jump in non-performing loans is What this likely means is that instead of Net Dvd Yield (%) 2.8 3.6 4.5 is a major shareholder with a 6% equity stake. seasonal in nature and that asset quality will growing at 40% a year profi t will instead improve in the next quarter. expand at a slower pace of about 25%, All in all, Aeon Credit could be an opportunity in Source : Kenanga Research KINIBIZ The current managing director is Kenji Fujita. Kenanga Research foresees a “deceleration in according to analyst estimates. the making given the right entry price. What is He was appointed to the post in June after the growth of gross fi nancial receivables” in the certain is that the counter defi nitely deserves a serving a year as executive director. near-term on “weaker consumer sentiment and These earnings growth rates are the envy of mention. a more challenging business environment”. the fi nancial services industry. A comparable Four out of the 11 directors are Japanese, NBFI lender, Malaysian Building Society Bhd Important Note and Disclaimer: This article should NOT be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KiniBiz makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware — a refl ection of Bursa Malaysia, we say.

32 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 33 FEATURED / CORPORATE

By Khairie Hisyam [email protected] Coming out of retirement

Just six months after retiring, former SP Setia chief of nearly 18 years Liew Kee Sin is starting a new adventure with his long-time partner Teow Leong Seng. And they are set to make history by heading the ﬁ rst property-based special purpose acquisition company (Spac) listing in Malaysia.

ast Thursday Eco World the Securities Commission (SC)’s website as starting out on their own career paths, I am MAN IN A Development Group Bhd of publishing time. Companies Commission looking forward to spending more time with announced its intention to records show that EWI was incorporated on them, mentoring and guiding them,” said Liew. L subscribe to 30% of the proposed Aug 28, 2013 although all six current listed Spac’s enlarged issued and directors were only appointed on Sept 12, 2014. This was consistent with his earlier denial paid-up capital, amounting to to KiniBiz when asked about his connection RM562.5 million. At that price, In comparison, Liew announced his to fast-emerging Eco World Development the Spac – named Eco World International retirement in January this year and concluded Holdings Sdn Bhd, which was then undertaking Bhd (EWI) – is set to raise RM1.875 billion, his nearly two decades as SP Setia president a reverse take-over (RTO) exercise for 65.05% though it is early days yet to tell if this would and chief executive offi cer on April 30. When of then-Focal Aims Holdings Bhd. indeed be the fi nal amount raised by the initial announcing his retirement, Liew cited a desire public off ering (IPO). to spend more time with his children. “I want to retire, enough of work!” said Liew to KiniBiz at the time. Notably Liew’s son HURRY Nevertheless this amount would nearly “With my children all growing up and Tian Xiong is among the buyers in the RTO match 2014’s biggest IPO which saw IOI and ended up with a 35.05% stake, which was Properties Group Bhd raise some RM1.89 fi nanced by Liew senior and wife, according to In this three-part series of articles, KiniBiz considers billion in January. Bursa Malaysia fi lings. Liew Kee Sin’s new adventure. We begin by looking To put things into context, raising that Following the RTO, Focal Aims was at the fact that Liew Kee Sin is working on a Spac “I am looking eyeing the international property scene. We then amount would also dwarf all four previous subsequently renamed Eco World. move on to the Spac’s make-up. With a hard- Spac listings in Malaysia, which collectively forward to However fi ve days after leaving SP raised RM1.89 billion. Setia, Liew surfaced as a board member hitting line-up of directors and seeking to match spending more at Eco World on May 5, though he did the collective proceeds of all four previous Spac “The proposed subscription will time with them, not have any direct stake apart from listings on Bursa, Liew’s Spac listing is no joke and enable Eco World to venture overseas mentoring and those owned by his son Tian Xiong. may further hasten the larger Eco World brand’s via investing in a property Spac with already meteoric growth rate. We end the series by a management team that has a proven guiding them.” Teow resurfaces discussing some of the concerns surrounding this track record in identifying, acquiring and Spac. How would this venture hurt the existing Eco implementing overseas projects successfully,” On the other hand, the World company’s prospects? Can Liew have his said Eco World in a regulatory fi ling last week. announcement marks cake and eat it too? Teow’s public resur- And it is a formidable track record indeed, facing after his offi cial considering the fact that Liew with his trusted last day at SP Setia on lieutenants had been credited with driving SP July 31. He had earlier Others stories in this section: Setia to become the foremost property brand tendered his resigna- in Malaysia over the years – indeed Liew’s tion at the same time name itself is arguably a property brand unto as Liew in January. 38 Eco World, 40 Will Liew rise its own now. Teow’s departure was a property on the back of attributed to a desire to brand in a Battersea? Liew did not respond to KiniBiz requests for pursue his personal goals rush comment. Phone calls to his mobile number and other career aspira- were unanswered. tions. He was notably Liew’s long-time partner in head-

Months in planning? ing SP Setia apart from Voon Tin Yow, who succeeded Plans to list EWI as a Spac appears to have Liew as acting president and been in motion for months up to the Eco chief executive oﬃ cer at SP World’s announcement last week, though Setia after the latter left. no draft prospectus had been published on However Voon is leaving by

34 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 35 FEATURED / CORPORATE FEATURED / CORPORATE

end-December this year after announcing his Heavyweights behind EWI Retirement Fund Incorporated or KWAP as on his door. “We’ve been together for such a while company secretaries Tai and Tan are said to wait and see what comes along. resignation last month. well as UMW Holdings Bhd, among others. long, long time.” the only listed shareholders of EWI Project The company’s list of directors alone makes Management with one share each. “A world full of challenges, I think I’m Notably Voon and Liew’s history together quite a reading given the backgrounds of each The sixth director, Ahmad Johan or better However Liew added that if that comes to relatively still young – I enjoy a challenge go back to their time as colleagues in a individual, representing a heavyweight line-up led known as Johan Raslan, is an Eisenhower pass, he would fi rst have to ask Voon why he While Liew, Teow and Heah do not every once in a while,” said Liew on what property development company in 1990. by Liew. fellow who was previously chairman and resigned from SP Setia and if something was apparently hold any shares in EWI Project might be the next challenge for him to take After deciding to strike out on their own by director of PwC Malaysia, which is part amiss. Management, they are named in three of on. “I think fi rst thing is to assist Chang and acquiring a 225-acre plot in Ampang, Liew Azlan Mohd Zainol was chief executive offi cer of the global PricewaterhouseCoopers fi ve charges on EWI Project Management by his team including my son to make sure that and Voon’s outfi t ended up being acquired of the EPF for 12 years before retiring, after which global network of accounting fi rms in 157 According to public records, the stated Hong Leong Investment Bank Bhd. Eco World achieves greater heights..let’s see by SP Setia on a share-swap basis and they current CEO Shahril Ridza Ridzuan stepped countries. Johan Raslan is also the fi rst son nature of EWI’s business is that of a holding what happens then.” became directors and shareholders of SP in. At present Azlan is chairman of property of the late Mohammad Raslan Toh Muda company for the development of building The fi rst charge is for a memorandum Setia. and infrastructure group Malaysian Resources Abdullah, who among others was Malaysia’s projects for own operation, i.e. for renting of deposit amounting to RM19.125 million In Eco World’s announcement of its intention Corporation Bhd (MRCB) as well as chairman of fi rst Accountant-General and headed Bank of space in these buildings, as well as borrowed by Liew while the second charge is to subscribe to the proposed Spac listing, the RHB Bank Bhd, among others. Bumiputera Bhd – which later evolved to construction of these buildings. No fi nancial for RM3.75 million borrowed by Heah. Teow is company said its investment in EWI has the become part of CIMB Group today – when activity was recorded in the Companies named in the third charge for RM9.375 million. potential to boost the sales of its Malaysian On the other hand Cheah Tek Kuang is it was founded in 1965. Commission’s records. projects through association with the EWI currently chairman of plantation, prop- Tan Cheng Yong is named in the fourth charge brand when the latter is established globally. erty and manufacturing group IOI Door open for Voon? for RM2.625 million while the fi fth charge names Group Bhd. Notably Cheah was Norhayati Subali, also for RM2.625 million. “As a listed entity in its own right, EWI formerly group managing direc- Should Voon prove to be joining Liew’s Eco World International Directors

A world full of challenges, I think I’m relatively still young – I enjoy a challenge every once in a while. Azlan Mohd Zainol Cheah Tek Kuang Liew Kee Sin Teow Leong Seng

Siow Kim Lun Ahmad Johan @ Siow Kim Lin Mohd Raslan Source: Companies Commission Malaysia

tor of fi nancial services group AMMB Hold- latest venture eventually, it would mark a Links to SP Setia, again Interestingly Norhayati Subali is also the would also be able to undertake a larger and They then asked Teow, who was the ings Bhd for seven years up to his retirement in reunion for the Liew, Voon and Teow trio managing director of Battersea Power Station more diversifi ed pool of projects globally banker they worked with to fi nance their April 2012, a stint which followed a long career after their separate departures from SP The majority shareholder of EWI is EWI Malaysia Sdn Bhd, a wholly owned subsidiary than Eco World would be able to do on its fi rst acquisition, to join them at SP Setia. within the group that began in 1978. Setia. This in turn may be a combination Project Management Sdn Bhd, which owns 75 of Battersea Project Holding Company Ltd own,” said Eco World. that would further excite potential million EWI shares. EWI company secretaries (BPHCL), according to news announcements Apart from long-time property stalwarts No slouch is Siow Kim Lun, a former SC direc- investors in the Spac given the trio’s nearly Tai Yit Chan and Tan Ai Ning each hold one and an earlier check on the Companies “This enables Eco World, as a fi nancial Liew and Teow, also listed as directors of tor who is currently a director at Citibank Bhd, two decades of track record in growing SP share. Commission records by KiniBiz. She was investor in EWI, to gain a wide exposure to EWI are Cheah Tek Kuang, Azlan Mohd the Malaysian arm of US-based multinational Setia to where it is today. also the SP Setia group marketing general global property markets without the need Zainol, Siow Kim Lun @ Siow Kim Lin and fi nancial services and banking corporation Citi- Tai is managing director of Boardroom manager. In turn BPHCL is a 40:40:20 joint to incur the cost of maintaining its own Ahmad Johan Mohd Raslan. group Incorporated. Siow is also on the board of Liew had previously been vague about Corporate Services (KL) Sdn Bhd, which venture between SP Setia, Sime Darby Bhd international management team.” where Voon is heading after leaving SP provides corporate secretarial services. In turn and the Employees Provident Fund (EPF) to Previous SPAC Listings in Malaysia ( as of 20th October 2014) Setia, saying Voon had not told him where the company is a subsidiary of Boardroom Ltd, redevelop London’s iconic Battersea Power “Given that EWI will be solely responsible he intends to go after SP Setia. However a network that spans Singapore, Malaysia, Station site. for the day-to-day management of the Name Sector Status Listing IPO proceeds Liew added, in an interview with radio China, Hong Kong and Australia. international projects undertaken by EWI, station BFM, that a man with Voon’s Liew’s second coming? Eco World will therefore be able to stay Hibiscus Petroleum Oil & Gas Listed July 25, 2011 RM235 mil experience and knowledge is a “wanted On the other hand, EWI Project Manage- focused and channel more resources to fund CLIQ Energy Oil & Gas Listed April10, 2013 RM363.5 mil man” by all other developers. ment was incorporated on Feb 11, 2014 and The backgrounds of Liew and Teow’s fellow its business development and expansion Sona Petroleum Oil & Gas Listed July 30, 2013 RM550 mil has three directors: Liew, Teow and Heah Kok directors in EWI seem a signal of intent for activities in Malaysia,” added Eco World. “Sure, we were together for 22 years – we Boon, formerly head of corporate aff airs at SP the Spac’s proposed listing, which notes Reach Energy Oil & Gas Listed Aug 15, 2014 RM750 mil built an empire, we built Setia, we built our Setia before becoming Eco World’s chief fi nan- international markets as apparently Liew’s However the net eff ect of this exercise, RM1,898.5 mil families, our kids know each other so well,” cial offi cer and executive director. chosen next frontier. should it materialise, is a two-pronged advance said Liew when pressed whether it would When asked by BFM in September on what into both domestic and international property Source: Various be surprising if Voon ends up knocking All three were appointed on Sept 10, 2014 would be the next big thing for him, Liew only markets by the larger Eco World brand.

36 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 37 FEATURED / CORPORATE FEATURED / CORPORATE

arguably Malaysia’s foremost property brand. “It is a key term of the contract of sale that board every quarter – the plans, etc,” said Liew. EcoWorld, a property brand in a rush the vendor (Menara Parramatta) requires the “I’m sure Chang and his team will go global.” His proposed Spac may raise up to RM1.9 purchase price to be fully settled by 30 May With a hard-hitting line-up of directors and seeking to match the collective billion in IPO proceeds and that is an 2014,” said Eco World. “As such, it is not Yet Liew’s proposed Spac listing would proceeds of all four previous Spac listings on Bursa Malaysia, Liew Kee Sin’s enormous capital by any measure for a new possible for Eco World to acquire the property essentially place a glass ceiling on Eco World venture. As noted in the previous part in this directly from the vendor within the time- in terms of future expansion as, while there proposed special purpose acquisition company (Spac) listing is no joke. series, that amount matches the cumulative frame stipulated.” is much room for growth in the domestic proceeds of all previous four Spac listings in market, Malaysia’s property sector is still Malaysia. However last month Eco World deferred the small compared to many other markets purchase from its major shareholder for the globally. Another apparent benefi t is that it second time in three months, explaining that it represents a fast track to starting a new listed is currently evaluating other opportunities too. In comparison, Eco World’s public-listed ention the Eco World brand an assets injection exercise followed in April entity focuses on the domestic market. venture with a clean slate. peers in Bursa Malaysia would not have such and the immediate impression 2014, more than tripling both Eco World’s The emerging possibility of a successful constraints in growing beyond Malaysian that springs to mind is speed – total land bank and gross development value On the face of it, having two separate Had Liew gone the traditional route, he EWI listing by Liew is that the Spac entity, shores. M by any measure, the brand had (GDV). developers fl ying the same banner on two would have had to either build a new company seen a meteoric growth rate in fronts would accelerate the growth of the from scratch and subsequently list it on Bursa just over two years. By August 2014, Eco World had clocked larger Eco World brand even further as each Malaysia or acquire an existing property in some RM2.14 billion in sales in the eight- would have the resources of one individual development company, either listed or non- EcoWorld - Project, Landbank and GDV summary And should long-time SP Setia boss Liew month period, stated Liew in an interview with property developer. listed, with the debts, obligations and history that come with the package. Both would entail Project Est Launch Location Land Size Land Size Kee Sin’s proposed blank-cheque initial public business radio station BFM in September. Date (acres) (acres) raising funds on his own and, if he had chosen off ering (IPO), called Eco World International “For a developer who just started a year ago “With the associate stake in Eco World EcoWorld Bhd (EWI), materialises, the brand’s growth may this is very, very impressive,” remarked Liew. International, Eco World will be able to the new build-up route, take much longer to Saujana Glenmarie Completed Shah Alam, Selangor 25.9 0.09 even accelerate further given Eco World And indeed it is – while SP Setia’s record- venture overseas without excessive leverage,” do. Development Group Bhd’s stated intention to breaking RM8 billion in sales for fi nancial said AllianceDBS last week. “Also, it will be EcoSanctuary 2015 Kota Kemuning, Selangor 308.7 8.00 subscribe to 30% of the proposed IPO. year 2013 (FY13), Liew’s last full fi nancial able to focus on Malaysian projects which In that context, Liew’s choice of undertaking EcoTropics 4Q14 Pasir Gudang, Iskandar M’sia 743.6 3.40 year in charge, is perhaps too extraordinary have received overwhelming response from a Spac listing is a much faster, simpler way EcoBusiness Park III 2015 Pasir Gudang, Iskandar M’sia 248.0 2.0 While registered in 2012, it was only in a milestone to compare against, other property purchasers.” to start a new venture with a strong capital Sub-Total 1,326.2 13.49 2013 that Eco World Development Holdings developers posted relatively more modest amount. EcoWorld Sdn Bhd Sdn Bhd – originally Maple Quay Sdn Bhd sales fi gures last year. Why a Spac? EcoSky Dec-13 Jalan Ipoh, Kuala Lumpur 9.6 0.97 – began turning heads. In April 2013, the And this route is only made possible by the EcoMajestic 3Q14 Semenyih, Selangor 1,073.1 11.14 strength of his name and reputation in the company acquired a 613.79-acre land parcel For example Mah Sing Group Bhd, which It is early days still to see if Liew’s proposed Sub-Total Eco Central 1,082.7 12.11 in Johor and a 9.6-acre land tract in Kuala fi rst forayed into property in the 1990s, Spac would happen and if it would be property market. “There’s a euphoria about EcoBotanic Sep-13 Nusajaya, Iskandar M’sia 325.1 3.79 Lumpur from DRB-Hicom Bhd for RM534.7 posted RM3 billion in sales for FY13 ended successful. But his reputation from growing Spacs and he’s probably riding it,” said one 3Q14 Tebrau, Iskandar M’sia 613.8 5.87 million and RM69.92 million respectively. Dec 31 last year, as did UEM Sunrise Bhd SP Setia for nearly two decades would have corporate watcher. EcoSpring for the same period. On the other hand Sime investors salivating at the prospect of his latest EcoBusiness Park I 3Q14 Tebrau, Iskandar M’sia 612.0 3.80 Five months later in September, the Darby Property posted RM2.15 billion sales adventure, especially now that he is essentially The other Eco World EcoBusiness Park II 4Q14 Senai, Iskandar M’sia 383.6 3.01 company, along with Liew Tian Xiong, son of for FY13 ended June 30 last year. eyeing a bigger pond in international property Sub-Total Eco South 1,934.5 16.47 then-SP Setia president and chief executive markets. However the other side of the coin is that Eco Terraces 3Q14 12.8 0.34 of nearly two decades Liew Kee Sin, launched In terms of land bank, with the assets Liew’s proposed Spac, if successful, may Eco Meadows 2015 Paya Terubong, Pulau Pinang 75.7 0.92 a reverse take-over (RTO) exercise to gain injection exercise boosting its land bank and The underlying question, however, is why negatively impact the existing Eco World Eco Macalister Future Devt Bukit Tambun, Seberang Prai 1.1 0.19 a 65% stake in public-listed Focal Aims GDV to 4,433 acres and RM43.52 billion Liew chose a Spac as his next vehicle. Liew property development entity. Sub-Total Eco North Georgetown, Pulau Pinang 89.6 1.45 Holdings Bhd for RM230.7 million in total. respectively, Eco World is fi rmly in the same did not respond to KiniBiz’s requests for Proposed Acquisitions 3,106.8 30.03 Notably Tian Xiong’s part of the deal league as the likes of SP Setia and IJM Land, comment and phone calls to his mobile were When Eco World’s intention of subscribing Grand Total 4,433.0 43.52 was fi nanced by his parents, according to who has slightly over 4,000 acres in land bank unanswered. to the Spac was announced, analysts expect regulatory fi lings. each. the Sydney properties off ered to it by its major Source: Various However the benefi t of a Spac is apparent. shareholder in May to be the fi rst acquisition Joining the big boys The implications of a successful property A Spac is essentially a blank cheque for of the Spac after listing. Spac listing by Liew is a separate, but linked, the management team of the Spac based Going by year-to-date sales and land entity spearheading the Eco World brand’s on previous track record and represents “A 1.2-acre land located at Church Street focusing on international property markets Miles to go to IPO bank growth, it would seem as if Eco World expansion overseas while the existing listed a convenient way to tap into the capital in Sydney, Australia held by the unlisted Eco only, would in turn cannibalise on Eco World’s emerged relatively overnight to rival the big market for funds as opposed to going to the World Sdn Bhd will likely be injected into the own opportunities to venture overseas given That said, the proposed Eco World boys of the Malaysian property sector. banks – which is likely harder without an Spac, we believe,” opined Maybank Kim Eng the 30% stake it would have in the former. International listing still has a long way to go existing business – or using personal wealth last week on the proposed Spac listing. before it debuts on Bursa Malaysia. As Focal Aims Holdings morphed into Eco to start a new venture, which is riskier for the Essentially, Eco World would be restricted World Development Group Bhd over the individual. Eco World’s major shareholder Eco World to the relatively limited Malaysian property Notably, all four previous Spac listings following months of the RTO with a new-look Development Sdn Bhd had originally acquired market while Liew’s EWI swims in a much in Malaysia are for the oil and gas sector. board comprising former SP Setia bigwigs, For Liew, it would be a way to tap into the the land parcel from Menara Parramatta Pty larger pond. One possibility that follows is Proposed Spacs for other sectors, such as strength of his personal brand cultivated over Ltd for A$28 million (RM84.7 million) and potential confl ict between the board of Eco proposed mining Spac Terragali Resources nearly two decades helming SP Setia into off ered to sell it for the same price to Eco World and the potential board of EWI. and proposed food and beverage (F&B) Spac World on May 9. Red Sena F&B, did not materialise. In a radio interview with BFM in September, The reason for the arrangement was Liew opined that Eco World would defi nitely The fi rst hurdle for Liew, then, is getting attributed to the need to close the deal quickly go international when asked whether going regulatory approval to proceed with his which was not possible due to the need for overseas is an aim for the company. proposed Spac listing. “If anyone can make a board and potentially shareholders’ approval, property Spac happen in Malaysia, Liew can,” said the company. “(Eco World’s plans are) presented to the said a corporate observer.

38 March 03-15, 2015 | KINIBIZ 39 FEATURED / CORPORATE FEATURED / CORPORATE

approval, an interesting aspect for scrutiny on this front. upon the liquidation of a Spac come from the Will Liew rise on the back of Battersea? would be the entity’s defi nition of a qualifying trust account, which comprises 90% of the acquisition (QA). Notably Spac players previously opined IPO proceeds, net of any taxes and direct to KiniBiz that outside of the O&G sector, expenses incurred by the redistribution. Former SP Setia general Liew Kee Sin’s proposed special purpose acquisition company In a nutshell, a QA would turn a Spac into returns for Spacs would not be as big and as (Spac) listing is exciting, though it raises concerns of how his new outfi t would hurt a regular listed company with an identifi able quick. In the case of EWI, it would likely go the existing Eco World company’s prospects. In this part of the series we look at other business – any such acquisition requires into markets where Liew has had previous concerns on his latest venture – can Liew have his cake and eat it too? the SC’s approval – and must be completed However a successful property development experience working in. At the helm of SP Setia, in a specifi c time frame, normally within 36 business can be lucratively profi table Liew tasted success in Singapore, London and months from IPO. with property management, planning and Melbourne, meaning these markets may likely execution, qualities that Liew is not short of. be within Liew’s sights. However the QA must be inline with co World Development Group requirements compel companies to disclose make the announcement is understandable. the definition of such an acquisition set Should EWI pass the hurdles of listing and However operating in these markets is Bhd’s announcement last week all relevant information and updates to Prior to last week’s announcement, talk out in the Spac’s prospectus. This means obtaining an SC-approved QA, the resulting diff erent from the Malaysian property market, on its intention to subscribe to ensure informed investing decisions, there is of Liew pursuing a Spac listing had been that in the interest of consistency, once business entity would likely thrive if Liew’s notably in terms of profi t recognition amongst director Liew Kee Sin’s proposed an exception under Chapter 9, which allows circulating in the market rather strongly. a QA is defined a Spac cannot pursue an reputation and track record is anything to go others. E property Spac listing raised eye- for temporary withholding of information for acquisition target that does not conform by. brows, among others, because of various reasons, including if the relevant facts However, earlier KiniBiz queries on the to this definition even though the target “The investment in EWI will allow Eco its apparently early timing. are “in a state of fl ux and a more appropriate rumour to Liew were unanswered. matches its sector. Various industry observers had previously World to gain exposure to overseas property moment for disclosure is imminent”. noted that in SP Setia’s rise to being Malaysia’s markets without overstretching its balance “It’s just intention to subscribe, isn’t it,” said Timing notwithstanding, Liew’s Spac – In Liew’s proposed EWI listing, the top developer, Liew’s leadership had been a sheet,” said Maybank last week, adding that one corporate observer to KiniBiz, referring to That said, the exception is conditional called Eco World International (EWI) – has emerging question is what would qualify as a signifi cant competitive edge. this is especially because “most of the overseas the essence of Eco World’s announcement. upon maintaining absolute confi dentiality some way to go before the Bursa Malaysia QA. According to SC Equity Guidelines, a QA accounting rules (e.g. Australia and UK) only and, should the withheld information become debut gong is sounded. must, among others, result in a Spac having “Liew brings ambition, vision, cohesion and allow recognition of property development At publishing time, no draft prospectus generally known, there must be an immediate an identifi able core business with majority a never-say-die attitude to SP Setia and his profi ts on completion basis”. had been published on the Securities announcement to the stock exchange, Qualifying a property Spac ownership and management control. leadership will be sorely missed,” said CIMB Commission (SC)’s website. according to the listing requirements. Research in May 2013 when commenting on In other words, EWI investors may be Should Liew’s proposed blank-cheque That said, the guidelines provide for an his impending departure. looking at a somewhat longer time frame for However, while Bursa Malaysia’s listing In that context Eco World’s decision to initial public off ering (IPO) get the SC’s exception if there is management control returns on their investments – providing of without majority ownership and if a non- On the other hand, however, the same course that EWI makes it to Bursa Malaysia majority stake is consistent with industry qualities Liew tapped into in driving SP Setia and successfully completes its QA after that. regulations and practices. However this to the top of the Malaysian property food may not apply to property-focused Spacs as chain will be at hand in his new venture, Another confl ict for Liew? majority ownership is not unusual for listed though it remains to be seen if similar hunger property developers. and energy will be present too. Prospects aside, Liew’s proposed Spac listing raises the concern of yet another Analysts expect a 1.2-acre land in Sydney, Tempering expectations confl ict with his existing commitments. acquired by Eco World’s major shareholder in May and subsequently off ered to the company Though Liew’s reputation and track In the previous part of this series here, at the same purchase price, to be EWI’s fi rst record, along with the hard-hitting line-up of KiniBiz looked at the potential implications acquisition after listing. directors he has assembled for EWI, presents of Liew starting a new venture under the Eco an encouraging view of EWI’s prospects, the World banner on the existing listed business Given the value of the Sydney land – question of returns to investors is a separate entity. RM84.7 million – there is certainly much question entirely. “Liew brings ambition, room for simultaneous purchases as Liew’s With EWI eyeing international property proposed Spac is eyeing some RM1.9 billion In the larger context, Spacs had not had an markets, Liew would likely leverage on vision, cohesion and a in proceeds. Of that amount, 90% needs to be encouraging returns history for investors. his track record overseas for the proposed never-say-die attitude placed in a trust account upon listing and 80% Spac listing – the jewel of that would be the of the trust account needs to be used for the From 2003 up to the present, the United Battersea Power Station redevelopment to SP Setia and his QA transaction. States had seen some 212 Spac listings raising project, which was said by industry observers leadership will be US$26.84 billion (RM87.68 billion) between to be his “baby”. This means if the proposed EWI listing does them. Of this number, 118 had completed a QA sorely missed.” Battersea raise RM1.9 billion in IPO proceeds, it would while another 20 are still in pursuit. Another However that, along with the fact that Liew Power Station have some RM1.37 billion to spend on its QA, 74 Spacs had been liquidated after failing to is in essence a competitor once his proposed Development Co though how it defi nes its QA remains to be secure a QA, according to SPACAnalytics. Spac listing happens, would in turn confl ict chairman Liew seen. com. with his current role of chairman of the Kee Sin with CEO Battersea project, which is a 40:40:20 joint Rob Tincknell Will a property Spac work? Notably, the annualised returns for the 118 venture between SP Setia, Sime Darby Bhd Spacs that have secured a QA is currently at and the Employees Provident Fund (EPF). However, a property-focused Spac is -12.4%, according to SPAC Analytics, while the unprecedented in Malaysia, which had only annualised returns for those still in pursuit is To put things into perspective, having the seen oil and gas (O&G) Spacs thus far. at 2% for those still looking and 1.6% for those Battersea project in his profi le is a signifi cant The emerging question is if the property that had announced a target. edge for Liew given the signifi cance and scale sector can sustain the Spac model. This comes of the project. back to the question of what would qualify as For the liquidated Spacs, their investors a QA for such a Spac – much is still unclear would have seen no gain as the funds returned Expected to last up to 15 years, the project

40 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 41 FEATURED / CORPORATE

By Xavier Kong [email protected] boasts a gross development value (GDV) of opined to journalists in February that Liew This was said to have been requested approximately £8 billion (RM42 billion), may stay beyond the current appointment by SP Setia chairman Zaki Azmi “to though the value may go up to as much as £10 which lasts up to September 2015. “Today help ensure the smooth and successful billion. I am confi dent that he will continue to be implementation of these internationally chairman beyond 2015,” said Mohd Bakke prominent projects”. The total GDV fi gure alone is impressive then. for a Malaysian-driven project, dwarfi ng most While Liew had previously denied any listed developers on Bursa Malaysia barring On his part, Liew had been vague about the involvement in the backdoor listing exercise the big property boys. prospect of prolonging his tenure as chairman by Eco World through former Focal Aims of the Battersea Power Station project. Holdings Bhd, regulatory fi lings show that In comparison, SP Setia’s total ongoing Liew and wife fi nanced the shares acquisition and potential GDV for its land bank comes to “My job right now is to ensure everything in by their son – aged 23 – amounting to slightly RM102 billion, of which roughly RM71 billion Battersea is done to perfection,” said Liew last more than half of the entire RM230.7 million is the developer’s portion. Close competitor month when asked by BFM whether he would deal. Mah Sing Group Bhd has some RM66 billion in want to walk away once his term ends. “So terms of total potential GDV and unbilled sales. come September, it’s up to them (the project’s Following his last day at SP Setia on April shareholders) to decide.” 30, Liew joined the board of Eco World on With Liew set to head a new entity eyeing May 5 as a non-executive director with an international property markets, his eff ective This looming confl ict between his EWI indirect stake of 35.05% through the shares status as competitor to Battersea and its vehicle and his role at Battersea comes on held by his son Tian Xiong, an executive consortium would raise the question of director of Eco World. propriety in terms of his extended stay as chairman of the project. Notably three days later Eco World announced that Liew senior is no longer a In terms of prestige, the successful revival substantial shareholder after he submitted of such an iconic London landmark after the necessary papers to cease being regarded previous failed attempts is a feather in as such. Liew’s cap, especially given early scepticism among critics who doubted whether the SP With Liew set to head In essence Liew already has his feet in two Setia-Sime Darby-EPF consortium would be separate developers with links to SP Setia successful. a new entity eyeing through the Battersea project and his position international property on Eco World’s board. Already the launching of the fi rst two phases of the project saw great success. Both phases markets, his effective The context of the inter-relationship is the of the development had take-up rates of 95%. status as competitor mass exodus of talent from SP Setia to Eco World – from the board level as well as top Cumulatively the third phase of the project, to Battersea and its management right down to the front-line staff which will be launched from end-October consortium would – which raises the question of whether Eco onwards, will boast a GDV of RM10.5 bilion World is rising at SP Setia’s expense. – a staggering fi gure for a single phase of a raise the question of devolepment by Malaysian standards. propriety in terms A previous research report estimated that some 80% of Eco World’s 350 staff came “When we fi rst bought the Battersea Power of his extended stay from SP Setia – an astounding fi gure to be Station, they asked ‘who are these Malaysians as chairman of the happening to a prominent property brand. buying’?” remarked Liew to business radio station BFM last month. “There was one guy project. However SP Setia offi cials previously in London who wrote about us – ‘if you can argued to KiniBiz that while a sizeable number sell Battersea Power Station, pigs can fl y’!” of long-time staff had exited, a signifi cant number of old-timers remain with the “But we proved them wrong. We had the company, outnumbering the ones who had HOW KAREX In this three-part series, KiniBiz takes a closer look at the ups and downs of resolve to prove them wrong,” added Liew. left. “Our projects are still ongoing – nothing Karex, the Malaysian company that is the world’s biggest condom manufacturer. has stopped,” said the offi cial who declined to We begin with taking a stroll down memory lane with Karex CEO Goh Miah Kiat Liew had not responded to KiniBiz requests be named. for comment while an emailed query on the and looking at the beginnings of the condom manufacturing giant that Karex is COVERED today. We then take you on a tour of their factory in Port Klang. Finally, KiniBiz potential confl ict of interest to Sime Darby To sum it all up, Liew’s very fi rst obstacle is group president and chief executive Mohd the heels of previous questions of confl ict to get the SC’s approval for his proposed Spac talks to Goh about his plans for the company and what’s in store for the future. Bakke Salleh was unanswered. between his then-position at SP Setia and listing, and then he has to fi nd a qualifying the emergence of Eco World, to which his asset, though this would most likely involve THE WORLD In response to KiniBiz queries, both SP Setia close associates as well as son Tian Xiong are multiple simultaneous transactions. chairman Zaki Azmi and EPF chief executive linked. offi cer Shahril Ridza Ridzuan declined to In the meantime, he really has to look to comment. When Liew announced his end-April exit untangling once and for all sources of confl icts from SP Setia in January this year, eyebrows of interest. Others stories in this section: Will Liew stay on at Battersea? were raised at his prolonged stay as chairman of the Battersea Power Station project until As they say, you can’t have your cake and Notably however Mohd Bakke previously September 2015. eat it too. 44 Of cars and 46 A day at 48 What comes condoms: How the condom next for it all began factory Karex?

42 KINIBIZ | March 03-15, 2015 ENTERPRISE ENTERPRISE

Of cars and condoms: How it all began This had exposed MK to the industry at a actually think about sex fi rst, and then think though Durex was established in 1915, the use If you think the biggest manufacturer of condoms in the world is Durex, think again! That young age, and it continued after he had fi n- about condoms next. Or at least they buy a of condoms was not widespread at that time. particular honour actually goes to a Malaysian company that goes by the name of Karex, ished his studies overseas. MK graduated in pack of condoms and know that if they are go- which listed on the Main Market of Bursa Malaysia on Nov 6 last year with a debut price of 1999 with a degree in economics, and was told ing to have sex, they will be well-protected.” “However, we came in at the right timing, RM2.34, a 26.5% premium to its offer share price of RM1.85, and raised RM75 million. to come home by his family. when HIV/AIDS became full-blown, and A ‘growing’ success governments around the world startedtelling It was here that MK had related that his their people to use condoms. father had not wanted him to join the family MK had plotted his fi rst sales chart in he company may be business, but, as his father had passed away in 2000, where he made sales of about RM7 mil- “The United Nations was also actively en- known as Karex now, his second year of university, he was asked to lion. However, in 2013, last year’s fi gure was couraging the use of condoms, and a lot of but back in 1988, when be part of the family business. RM230 million, a “rapid expansion”, as MK promotional awareness campaigns came in.” T the company was fi rst noted. started by Goh Miah Ki- “I suppose the rest of my family is a little bit “It was there,” MK said, “that condoms at’s (MK) grandfather, more camera-shy, so they pushed me to the moved beyond a safety product to a product the company was called Banrub, with “ban” front,” MK joked, then further mentioned that that had pleasure, and we were there, and we being a dialect term for ten thousand, and he is the only grandson, with not many in his were willing to hear what my customers want, “rub” an abbreviation of the word rubber. Peo- generation, and that joining the industry was When someone instead of telling them ‘take this bag of con- ple asked, why Banrub, as it sounded so much a challenge he took up. buys a pack, they doms, this is what I do,’ but what we did was like bankrupt, and this led to the name of the already know that it we kept our ears open, and we took that as a company being changed in 1994 to what it is Part of the whole deal that makes Karex challenge.” now, “Karex with a ‘K’”. stand out is also their willingness to listen is safe. But people to their clients, then tailoring research and want to know that MK then went on to say that as Karex builds development towards those requests, noting their own machines, they were able to adapt The company started in Pontian, Johor, in the event they where MK’s grandfather had been in the rub- that “condoms are changing, it’s not just a quickly to shifting customer demands. ber industry. However, that particular indus- safety product anymore”. buy a condom, what try was considered a “sunset” industry, and additional pleasure “When people wanted a condom with mul- MK noted examples from the 80s like Mr tiple colours, we took that as a challenge and MK’s grandfather wished to move to a down- can they get from it? stream product. Condom and Mr Safety, and mentioned that we built a machine for it. When people wanted condoms have evolved since that time, that condoms in odd shapes, we were there also to This led to the family turning to a family “people are looking for something besides cater our machines for it. When people want- friend, who was in a rubber research centre, safety”. One particular simile that MK had ed to add all these diff erent fl avours, we were but had left. The family had requested a glove was likening the purchase of a pack of con- there immediately to work out all those fl a- manufacturing machine, which would allow doms to a car. vours for our customers. them to set up a single line of production to “But, I think, most of all is, people today start with. “When someone buys a car, he already have to understand their market. When you “When people wanted a durian fl avoured knows what he is going to get, namely some- come into a market, irrespective of whether it condom, instead of saying ‘no’, I said: ‘OK, However, the family friend had supplied thing with four tyres, round, and made of rub- is condoms or not, I think the understanding let’s look into it.’ We did our durian fl avoured them a condom-dipping machine, but “did ber. That is a given. It’s the same thing with of your market is very important. And today, condoms. A guy from Amsterdam said he condoms. When someone buys a pack, they like in the service industry, people always tell wanted marijuana fl avoured condoms, we not conduct a full trial or anything”, so “a lot Especially when you start a condom factory, you don’t of reverse engineering had to be done by my already know that it is safe. But people want you that ‘your customer is always right’. Peo- also did it,” said MK. uncle, who has a background in engineering”, have the track record, and the needed level of trust that to know that in the event they buy a condom, ple have to really understand that, and deliver according to MK. The family shrugged, fi gured people have in the company is just not there. what additional pleasure can they get from to people what they want.” “I suppose it is the attitude of not saying “Why not?” and got into the business of manu- it?” ‘no’, it was practically just looking into it,” facturing condoms. MK then went on to iterate his growth mod- noted MK, adding that, “as I tell my sales Another aspect was that the newer designs el, that “instead of knocking on people’s door, guys, everyone starts small. No one starts big With the knowledge gained from the reverse are more appealing to young adults. “All that I make sure that we were, number one, very overnight. I think we invested in a lot of small engineering of the fi rst machine, the family be- had to be precise, we went for CNC, and they that people have in the company is just not is just about making sure that people are competitively priced, that is very important, customers that sometimes people were not gan to fabricate their own machines for their would do it,” said MK, who added that the fab- there. well-protected. It’s not like someone picks up and number two, you must have the quali- willing to look at. We took them, we helped production lines. The family began purchas- rication of their own machines was a unique a condom and says that they will go out and ty that people want. It’s no point that I give them grow the business, and today they are ing the parts required, and if anything need- strength of Karex as a company. But at least, today, we have 25 years in the have sex and do so, but it works the opposite people a very low price, but it is not the qual- very loyal customers of ours. You build a re- ed to be fabricated by precision machining, industry, and have built a reputation. I think (way). It’s more like that when two people de- ity they want. I want to be able to deliver the lationship.” they turned to computer numerical controlled “Life was tough when I was younger,” the listing has created a great platform for the cide to have sex, they will think of getting a quality that people want”. (CNC) lathe machines, according to MK. CNC reminisces MK. “Our family didn’t have a company. Suddenly today, people know who pack of condoms,” says MK. “That’s a way of engaging, and basically, for lathe machines are one way of creating preci- lot of money, so we helped out in the con- Karex is.” MK then remarked on how the company me to see how the company has grown, from sion parts for the condom manufacturing ma- dom factory as well. It’s very tough starting MK is of the opinion that this is socially was lucky, as they were in the industry when really a nobody, to what it is today. We’ve put chines on the company’s production lines. a condom factory, and especially when you “It can be said I moved into a condom fac- correct, that the person is being responsible, there “was a revolution happening, when in our eff orts, and I’ll say that it’s not just my start a condom factory, you don’t have the tory since Form 2, to help out with the family and not creating a human life when they do there were a lot of changes happening”, go- eff ort, it was a collective eff ort. On the whole, “If we needed any particular parts, which track record, and the needed level of trust business,” added MK. not have the means to care for it. “People will ing on to note Durex as an example, as, even everybody from my family,” said MK.

44 KINIBIZ | March 03-15, 2015 MarchMarch 03-15, 20152015 | KINIBIKINIBIZZ 45 ENTERPRISE ENTERPRISE

this was to prevent any contamination, which where the products were fi lled with water to be asked. What were they doing? could throw off the results of quality control. and squeezed by hand. Yet another had the Upon donning the garment, KiniBiz was condoms fi lled with saline solution before a “They are checking random samples to make shown to the next area. current is passed through it. A third machine sure that the condoms are to the specifi ed simply fi lled the condoms with air until they length and thickness, which is basically to The scene that met KiniBiz’s gaze was a popped! Each one could be blown up to about make sure that they have been made to the room of testing stations, with workers at each the size of a small bolster. correct specifi cations,” explained Tee. station doing their part in the quality control process. The stations utilise an electrostatic “And that is why you will never fi nd And with that, KiniBiz was ushered to test to determine if the condoms have any someone who will complain that the condom another fl oor, which housed the packing holes, and the stations themselves separate doesn’t fi t!” said Shon as he gestured to the department. The door was opened to a fl urry the rejected pieces from the viable ones. All third machine. of activity, revealing that the condoms, after that is required of the human element is to having been individually packaged, were then apply the unit to the testing apparatus, and “All the tests here are destructive tests,” packed by hand into their boxes. the machine does the rest. explained Shon, with Tee adding that “it means we don’t package any of the condoms that are “The boxes are also up to customer However, KiniBiz noted that some stations here for testing. The condoms for testing are decisions,” explained Shon, stating that there had a single operator, while others had two. Curious as to this arrangement, an inquiry was made to Shon and Tee regarding the setup. It was then explained that the increase of quality control effi ciency is part of Karex’s A day at the condom factory expansion plan, and that the facility was in the process of upgrading the equipment of its In part two of the series, KiniBiz follows Shon Wong Seng Hon and Tee Poh Suan, quality control section as well. respectively corporate affairs manager of Karex and operations manager of Karex’s Port Klang facility, on a tour of the factory. “The older models are the ones with only one operator station, while the upgraded models are those with two operators,” explained Shon, adding that the upgraded models allowed for more stations to be in use t started with a long producing up to 100 million pieces per year,” KiniBiz’s nose. It was explained that, as with at the same time. drive out to Port Klang, informed Shon, who added that the aim was any product concerning latex, ammonia is with a horrible sense for Innolatex to have eight production lines in used to wash the rubber and stabilize the latex Also on that fl oor was one of the packing I of direction and all future, as part of Karex’s plan for an output used in the process of creating the condoms. stations, which packaged the condoms into prayers on the GPS capability of six billion units per year. their individual packages, along with a working. Thankfully, After a few seconds to get used to the scent dollop of lubricant in each piece. Here, it was however, KiniBiz made The tour followed the fl ow of the rubber, and and blink away the sting (thank you chemistry explained to KiniBiz that there were three it to Innolatex Sdn Bhd, Karex Bhd’s Port began at the latex tanks located at the start of lab sessions!), KiniBiz got a good look at the classifi cations of packaging: the standard Klang condom factory without getting too the manufacturing line. Here, KiniBiz was told machines that are part of the recipe that square packaging, the more compact rectangle lost. The reports had stated that the haze was that the tanks link directly to the production makes Karex so unique among its peers. packaging, and the round packaging. horrible in Port Klang in the days leading up lines inside, and that the next step would be the The machines were about 18 paces long, to KiniBiz’s expedition to Karex Bhd’s facility formation of the condoms. The tanks were also by KiniBiz’s count, and utilised the double- “Here at Innolatex we only have the square there, but the weather was thankfully clear as used to stockpile latex at the factory, according dipping method to produce the condoms. and rectangle packaging. The round packaging KiniBiz parked. The Innolatex facility is but to the duo showing KiniBiz around, and could is done at our main plant in Pontian,” selected through random sampling, and this were multiple options for the boxes, like one of Karex’s three facilities, with one other provide the production lines with latex should The double-dipping method is rather explained Tee. She further elaborated that the allows us to spot any problems relatively whether or not the boxes had fl aps and could facility in Hat Yai, Thailand, and of course the regular supply not come in. straightforwardly named, as the molds for packaging is dependent on the client’s request, quickly.” be hung on racks, and how many condoms the company’s fl agship and initial operations the condoms go through two dips of latex to and that they follow the client’s specifi cations went into each box, as well as the mix of base in Pontian. This was followed by the application of produce that one condom. The point of the on the choice and design of packaging. “The quick stop is so we can check the condoms in each box. a hair cap, where KiniBiz was told had the double-dipping method is to strengthen the machines for any errors or problems in the Arriving at Innolatex, KiniBiz was greeted purpose of avoiding contamination to the condoms without giving up the elasticity of the Moving on, KiniBiz was taken to more event any condoms from that machine failed “All of that is customisable by the client, by corporate aff airs manager Shon Wong Sen latex and the fi nished product. Amused items. After that, the condoms were ejected lab-like settings, re-donning shoes and the tests,” continued Shon, adding that if any and we do our best to fulfi ll the request,” said Hon, one of those saddled with the task of by the design of the hair caps, which were from the machine and sent into a tumble relinquishing the blue suit of protection along batch fails the random sampling tests, it is Ms Tee. showing KiniBiz around the facility, which was compacted into a form similar to a straw, dryer, to air out the condoms and ready them the way. To quote Shon, “Here comes the fun immediately invalidated. established in 1999 as part of the company’s KiniBiz followed their actions and put on for the next stage of the production line. part of the tour.” As the condoms made their way into boxes growth. It was explained to KiniBiz, by both the cap, at which point the guiding duo led The explanation carried over to another and the boxes made their way into crates, Shon and operations manager Tee Poh Suan, KiniBiz towards another door. At the next door, KiniBiz was asked to don The lab was where the company conducted station, where people in lab coats were KiniBiz realised that the tour had come to an that the factory currently had fi ve production a blue garment of protection, as well as trade more tests on their products, with rather measuring random-sampled condoms with end. Following the boxes and led by Shon and lines, with the sixth under installation. As Shon and Tee opened the door into a pair of shoes for a pair of slippers, before interesting and amusing apparatus and rather precise calipers. Of course, curiosity Tee, KiniBiz stepped back out into fresh air. the section where the production lines were being allowed entry into the quality control methods. Among the test methods was one got the better of KiniBiz and the question had And thus was the tour of the factory ended. “Each production line is capable of running, a sharp whiff of ammonia stung section of the factory. It was explained that

46 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 47 ENTERPRISE ENTERPRISE

death among ages 20 to 24 years old world- MK would also like to see Karex Bhd grow a exports to over 110 countries, with the compa- What comes next for Karex? wide,” MK continued, stating that HIV/AIDS brand, as “that’s where the value of a brand or ny’s own brand Karex overseas. is not just a problem faced by the previous gen- company is, because organic growth can bring erations, but also by the current generation, you to a certain level, but beyond that, how “In my recent EGM, people have asked me Karex Bhd has come far from its beginnings in Pontian, where it only had the one line of which, as MK notes, “is a third of youths be- much can you grow?” the question, why don’t they see Karex’s brand tween 13 to 19 years old, who are really young”. here, locally in Malaysia? I said that unfortu- production going for it. Now, the company has grown to the three facilities it has now, with the At this point, MK mentioned that there was nately, maybe we are more well-known over- ground-breaking ceremony recently conducted for its new Pontian facility. This will still be the “I think about how we can get the young peo- one more thing he constantly stressed to his seas than we are in Malaysia,” said MK, noting primary facility of Karex Bhd’s production, contributing 67% of the group’s total manufacturing ple to use condoms, right? Are they going to management staff (also his family members), that the Karex brand is a brand leader in the capability. What next? use condoms if they are just going to be plain, and that was to have a plan. Middle East. unbranded condoms? If we just throw them with regular, you know, boring condoms? Are “I do not want to be in a position where, “There are a lot of challenges, it’s always a iniBiz was told that, the young going to be using it? Unlikely. No.” you know, after 10 years of building this taboo subject, but I suppose it is a challenge at full production, company, and growing organically, then ten that I am willing to take,” said MK, with be- the Innolatex facility “It takes “But, I suppose, as manufacturers, we have years later I look back and say ‘Why haven’t coming a global brand the goal, which would K in Port Klang should years to build to engage with them, we have to understand I done something like that?’ It takes years include Malaysia. It will be a step-by-step pro- have eight produc- what they want. Give them something inter- to grow a brand,” said MK, noting here that cess, as MK himself admitted. tion lines, 11 in Karex expertise like esting to play, I’m sure then they will protect one area he would be interested in for Karex Bhd’s Thai facility in Hat Yai, and 40 pro- that. People themselves,” said MK, again stressing on the would be brand acquisition, whether it be MK believes that the company fabricating duction lines in Pontian. With each line pro- have built importance of communication between the through organic growth or through acquisi- their own machines and the attitude of “Why ducing more than 100 million condoms per manufacturer and the product end-user. tions. not?” remain unique points of Karex Bhd, and annum, this would bring the company’s to- homes and tal production to about six billion condoms communities per annum, which is what the company has there. I promised its shareholders. feel that is Karex chief executive offi cer Goh Miah something Kiat, or MK, as he prefers, has professed that everything is going smoothly, that they are important still keeping to their promise made to double for me.” Goh Miah the company’s production capacity during Kiat the company’s IPO listing. To meet that, the company has been growing internally, with expansion following the company’s growth. thing important for me.” proceeding towards our target of six billion con- Accordingly, Karex Bhd has recently gone doms per annum production capability, as we through the ground-breaking ceremony for In addition, the new Pontian factory will have promised our shareholders, which we will do by its new complex in Pontian. The complex, Karex Bhd’s environmental and sustainability measures far the end of 2015,” said MK, who is keeping his which will be built on an 18-acre parcel of Board of beyond those required by state or national laws. options open with regards to the future plans of land, will house approximately 2,500 work- Directors at MK had been determined from the outset to de- the company. the company’s ers, and will replace the existing Pontian fa- sign and construct an environmentally respon- listing cility, becoming the new fl agship of the com- sible factory. “Last year, we expanded our Thai facility. I pany. The new factory will also house the also look at economies of scale. Even if we have production facilities of the group’s products, “Reducing the environmental footprint of the expanded the factory, there is still only one fac- such as catheters, probe covers, lubricating new Pontian factory required serious consid- tory manager, one QA manager. So I can reduce jelly, and, of course, condoms. eration by all design professionals engaged on my operational costs. Same guys with bigger op- the project from the planners, architects, en- erations. That is how we grew,” explained MK. MK admits that others have asked him vironmentally sustainable design consultants, why he does not relocate his operations to structural engineers, mechanical and electrical The passion and the drive “To me, I see that as a growth, and how we’re However, MK knows as well the problems are also competitive advantages. Myanmar or Vietnam, with both countries engineers as well as the process engineers. At going to grow ourselves, within this industry. and risks of building a brand, listing down off ering cheaper labour. His answer was the heart of each decision throughout the de- However, what motivates the man? What Because it is going to be a long- term thing, such problems as introducing the brand, at- “It’s not just about the machines, though they that “by the time you move there and resign process was the aim of reducing Karex’s de- leads MK to pursue this fi eld? KiniBiz wanted to but, again, as I say, as long as the passion is tracting consumers, and increase value to are important. But, I think beyond everything coup your costs, labour costs are going to pendence on natural resources,” said MK. know as well, and proceeded to ask MK there, it is very interesting,” said MK, who also shareholders, “as I suppose is my job today”. else, it is the management of a company that rise eventually. What then? Are you going to professed that he will continue to watch Karex makes a company who it is. I think the manage- move to another country? You can’t habitu- It is in the hopes of the company that the “Thirty-one percent of new HIV infection cas- continue to grow in the next fi ve years. Here, KiniBiz felt the question had to be ment has always had the approach of ‘why not?’, ally be moving like that”. new complex would better serve their aim of es in 2012 were young people between the age asked. With Malaysia being a country where you know? Just go for the market, and what the reaching the six billion condoms per year tar- of 13 and 19,” MK quoted from an article he had It was also noted that the listing ceremony sex was a taboo, how would Karex Bhd grow market wants,” said MK, noting that it falls to the “That’s where my staff , my workers, and get. read, adding that these were very young people for Karex Bhd was a major milestone for the a brand here? management for the mindset of the company. my colleagues are. It takes years to build that were being infected. company, with MK stating that it has “brought MK confi dently replied that he was looking expertise like that. People have built homes “We are currently at a production of about Karex to a diff erent chapter in business”, by at a global perspective, noting that Karex Bhd “I suppose, that is probably one of our great- and communities there. I feel that is some- four billion condoms per annum, and we are “AIDS is the second most common cause of raising the company’s profi le. is not just a Malaysian company, but a base of est strengths today,” said MK.

48 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 49

By Khairie Hisyam P Gunasegaram [email protected] [email protected] Doesn’t GIVE A DAIM.

KiniBiz speaks to the elusive former Finance Minister Daim Zainuddin. We start with Daim speaking candidly on politics and whether Umno wants to replace Prime Minister Najib Abdul Razak. In the second part, Daim denies any fallout with former Prime Minister Dr Mahathir Mohamad in relation to his second exit from the cabinet in 2001. We move on to Daim’s opinion on Putrajaya’s ﬁ nancial management and why Najib should not be ﬁ nance minister. KiniBiz ends the series with a trip back in time to the 1994 stock crash, why Daim decided to go into business and his political connections.

Others stories in this section:

54 Najib 57 No fallout 59 Najib should 62 I am not too soft with not be Finance funding Dr Mahathir Minister Barisan

52 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 53 COVER COVER

Najib too soft

Former Finance Minister Daim Zainuddin feels that Prime Minister Najib Abdul Razak should ﬁ rm up.

hat they (people Notably, when speaking to the man there out, of course there is infl ation and exchange on the ground) is a hint of toughness despite Daim’s cordia- rate etc, there is a big problem. But I would people say infl ation is coming up. People want want is strong friendly manner underscored by his simple not be investing, not at this stage. to know why the government do all (the in- W leadership,” said cotton shirt and slippers. Occasionally there fl ation-inducing announcements) at the same Daim to KiniBiz, was a glint of steel in his eyes as he broached In the stock market, you mean? time. People start to criticise policies and ask revealing that certain subjects – opposition leader Anwar (Laughing) At this stage. why the timing is like this, why the announce- based on feedback he has received personally, Ibrahim, for instance. ments be in December when people’s families many feel Najib is neither fi rm nor decisive Is that because of economic fundamen- need money for their children’s school ne- enough. The stark contrast between his demeanour tals or is it because of the political situ- cessities and all those things. It was not well- and the glimpses of the hardened man inside ation in the country? planned, the consequences not well thought Notably during the conversation Daim was mirrors that of the unremarkable building in Both, not only just here but also overseas of. emphatic about Malaysians turn- which his offi ce is located and the lush where there are political issues too. ing serious attention to the interior space, adorned by myriad For the fi rst time in history, people are look- What about things like maybe political country’s political situa- artworks from his personal col- ing seriously at the political situation here – issues? tion “for the fi rst time” lection. seriously looking at it. They want to know People are not happy. There is the talk and criticised the gov- what’s happening. And if you see foreigners about serious corruption in the government. ernment’s weakness in Barely seated after brief writing (about Malaysia), they’re beginning to But really, corruption is bigger in the private dealing with infl ation introductions, the man doubt the stability of the country. sector (laughs). All studies show that 70% (of as well as agent provo- pops the question: “Why I think what they want to see is strong lead- corruption) is clearly from the corporate sec- cateurs seeking to cre- are you writing about me?” ership. And they perceive that there isn’t one. tor. ate religious tension. That was perhaps to be expected given how he has So there isn’t a strong leadership at the What about things like religious issues, However, Daim was also shunned the limelight for so moment? say the Allah issue for instance. Do you critical of opposition leader many years. This is not me (saying), I’m talking about consider that a threat to the country? foreigners. They are questioning. It was never brought up before, this issue. It was never brought up. In Sabah and Sarawak Do you think that the leadership is it’s not an issue. And why would you suddenly “What we want is to make weak? Daim want to bring this issue to Peninsular Malay- I’m a strong supporter of the government Zainuddin sure the govt is moving in the sia? right direction” (laughing). And I have been criticising the government but sometimes they misinterpret Would you consider that the claim of it, thinking that I oppose the government – I Islam being under siege in Malaysia is don’t. What we want is to make sure that the true? government is moving in the right direction, I was brought up in a Catholic school that people have confi dence in the govern- (laughs). So I went through this (school) and Anwar Ibrahim, who he says “has never been Here are excerpts of the interview. ment and support the government. But people there was never an issue. I think it’s the poli- able to solve any problem” even when part of want to see, they want to feel comfortable with ticians who like to highlight this kind of thing the government. Overall, the former Umno Are you more invested in cash now? the government. And I think that the majority (religious issues). treasurer feels that Anwar is also a weak (Declined to say, laughing) Then people – if you go to the ground – feels that some- leader. would interpret and say… (still laughing) thing is not right somewhere. Why do you think they are highlighting You don’t want to do the same thing you did in But it is for the government now to make this? Daim was speaking to KiniBiz in a rare face- 1994 lah (referring to a statement he made in the assessment, not for me. Trying to get support, which is, I think, silly. to-face interview recently, during which he 1994 about the stock market being overvalued We have always lived in peace and the ques- shared his take on a variety of subjects. In the which led to a crash). In which areas do you think the govern- tion of religion has never risen. fi rst part of the series, KiniBiz focuses on the ment has not been strong? political aspect of the interview. It is not easy to answer. If you have cashed Many. Number one of course is that today,

54 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 55 COVER COVER

Is it because the government doesn’t the direction that you’re going to take and if Rakyat (PKR), yet he wields so much power have a strong mandate that a lot of peo- people think it’s a good direction to take, they and infl uence. He decides what to do and so ple are trying to, say, pander to reli- will support it. far, the president and the rest are keeping qui- gious and racial sentiments? We’re talking politics and not business now et. They’re elected fellows (laughs). Maybe. But when you say a strong mandate, (laughing) I’m not a politician (anymore). Anwar wants to be in the limelight all the Cameron (United Kingdom prime minister) time. Whether good news, bad news, it doesn’t doesn’t have a strong mandate. And Austral- In this country it’s very interrelated isn’t it. I matter for him, as long as he’s in the news ia, Gillard (former Australian prime minister) think in many countries it is (related) but in (laughing). That’s Anwar lah. And you all have didn’t have a strong mandate. In the end it’s Malaysia in particular it is much more related. given so much space to him – that’s what he about leadership and your policies. That’s It’s again a perception. When Margaret loves. It doesn’t matter, even if you criticise more important. In this country people always Thatcher was prime minister, her son was do- him also it’s news. You praise him also it’s want peace and stability. ing business and she took him everywhere. news. If there are those who are out there to cre- I’m told now that even Obama’s family are But this (Kajang move) is rubbish, wasting ate problems, you must nip them in the bud. doing business. I’m not sure how true it is, it’s public funds. And now Khalid said (reported- There are enough laws to handle this. But if what people tell me. ly) that he’s not going to resign (from the Men- you delay, procrastinate, then people will take tri Besar post). advantage. That’s where the danger is. What Rafi zi Ramli (strategic director, PKR) says is that they decided on this in response to, apparently, a conspiracy to take down Najib. They are apparently preparing for a change in Umno (United Malays National Organisation) ‘No fallout with Dr Mahathir’ leadership. Changing? Before this they were going to Daim Zainuddin denies any fallout with former Prime Minister Dr Mahathir Mohamad ‘‘I’m told now that have emergency in Selangor (laughs). in relation to his second exit from the cabinet in 2001. even Obama’s family doing business. I’m not Is there a plan to replace Najib? I don’t know, I mean I’m not active anymore sure how true it is, it’s so I don’t know. what people tell me” ormer Finance Minister Daim Here are excerpts of the interview. Zainuddin denied that he There is some talk of Dr Mahathir not being had any fallout with former You mentioned (in yesterday’s piece) happy with Najib as prime minister. Prime Minister Dr Mahathir that you write a lot of letters to people. I mean, Najib is still prime minister, he’s F Mohamad when he left the Do you also write to Dr Mahathir these president of Umno. How do you topple him cabinet as fi nance minister in days? unless Umno itself wants to do it? How are 2001 in an interview with KiniBiz. No, I see him. Sometimes when I have no they going to do it? I don’t know. time to see then I write. This one you’re talking about both sides Daim Zainuddin resigned again from the lah? So the question is does Umno want to Finance Ministry portfolio in 2001 after only Was there really a fallout between the both of Yeah, both sides. topple Najib? three years back in cabinet. Speculation was you? The press reported widely in late 2000 I think, if you ask me and if I go to the rife that his exit was due to a fallout with Ma- that there was. You had been talking about leadership ground, people come and see me… as I said, hathir with whom he has enjoyed close associ- That’s a perception. You see, in this country as well as policies, so what is your as- what they want is strong leadership. They ation for decades. nobody retires (laughs) and if you retire then sessment of Najib in that capacity? want him to change. Not to change him (smil- it means there must be some kind of fallout. Not me, this is what people tell me about While we’re on the subject of ing). “That’s a perception,” said Daim when Kin- Everybody thinks the job is for life. him since sometimes I go to the ground. They politics... They want him to change his policies, to iBiz broached the subject, adding that the Dr But I made it very clear when I came in (it want him to be fi rm and decisive. (Starts laughing) You’re business Kini (con- show that he is decisive, wields power, con- speculation perhaps rose from the rarity of Mahathir was) just to handle the economy that once it’s See, we are a multi-racial, multi-religious, tinues laughing) trols cabinet, controls the country. That is resignations from high public offi ces. back on track, I would leave. multi-cultural society. So there are so many what people want to see. Decisive, fi rm – I sensitivities. …we have heard about the Kajang think that’s what they want Najib to be. Daim also criticised the government’s take- So there was no fallout? You must know how to handle that. You move, so to speak. Anwar is going to over of groups such as Renong/United Engi- No. As far as I know, there was no fallout need a good team to advise you on how to han- contest there. What’s your take on the Have you told this to Najib directly? neers and TRI/Celcom and Malaysia Airlines (with Mahathir). dle these issues, you cannot do it alone. whole Anwar, Khalid and Azmin is- I won’t tell you (laughing). Let’s put it this from Daim proteges such as Halim Saad and Among others Daim also commented on So you need a strong cabinet and people sue? way: I’m in touch with him. I love to write so I Tajudin Ramli. government involvement in business, the Na- What was your opinion about the way who understand the history of the country, Anwar has never been able to solve any write a lot of letters to people, not only to Na- tional Economic Policy (NEP) as well as bumi- the government took over stakes held who can anticipate problems, not to react. problem (laughing). Again, the weak leader- jib. I always get my two cents’ worth of opinion “I think that was a silly move,” said Daim. “The putera rights, advising bumiputeras to get up by people who were considered your You must plan so that people know this is ship. He’s not even elected in Parti KeAdilan in – nothing better to do. rest were given time and they all recovered.” early and work hard to get on in life. proteges in companies then? Was there

56 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 57 COVER COVER

some other way by which this could make sense at all, but people believe in these And sleep late? have been avoided? things because these reporters write and say Get up early and work hard. Najib should not be Finance Minister My view is this: the government must not they’ve done research about it. get involved in business in the fi rst place. That means bangun Subuh (for prayers) Daim Zainuddin gives his opinion on Putrajaya’s fi nancial management and why The private sector should be the engine of Couldn’t you have gone to Dr M and lah? Prime Minister Najib Abdul Razak should not be fi nance minister. growth, not the government. So when the gov- said, give them more time at that point? Bangun Subuh, yes. Bangun Subuh, work ernment took back (the stakes), I thought it By that time I have left (the cabinet) and hard. was a mistake. (The government) should have went off to Cambridge University. So I didn’t allowed another private sector (entity to do want to get involved. Because (then) people It’s 2014 now. Since the New Econom- ajib Abdul Razak should not big and important ministry. It is too much for But after the fi nancial crisis everyone suf- so). Or the bank can take over and auction. (would) say I interfere in policies. ic Policy (NEP) and the years since, do hold both the prime minis- PM to handle both, not fair to him. This is my fered, leaving I think only Petronas and me Even now I don’t get involved, they do what we have enough successful Malay busi- ter position and the Finance point of view. and probably a few logging companies. Of But could somebody have taken it over they like. But only thing I do is write (about is- nessmen now compared to then? N Ministry portfolio at the same course now everybody is in Africa – America at that point of time? sues) – I think this is wrong, I don’t think that is There are many who are not in the lime- time, said former Finance It was reported that you have been has gone back, the French are back, the Chi- You never tried, so you’ll never know the right policy. But up to them (the government). light, but are making money quietly. Es- Minister Daim Zainuddin. winding down your interests in ICB. nese of course huge, huge in investment. And (chuckles). If you never try, you’ll never know. pecially in oil and gas, I think, there are so Why? even the Indians are there. I think we have Until today I think it’s wrong for the gov- What about your take on bumiputera many of them. They’re doing well but people Saying this burden would be too heavy, I’m old already (laughing). I off ered ICB to been left out. ernment to nationalise. Get somebody else rights etc? A majority of the population don’t know about them. And of course (there Daim told KiniBiz in an exclusive interview local banks, but they’re not interested. And But I suppose this depends on government who can handle (it), doesn’t matter who, be- probably accepts that bumiputeras must are also those) in property and other busi- that managing both would be unfair for Najib Africa is too far, probably too wild (chuckling). policy, if the government of the day thinks the cause (otherwise) then you go against your be helped but a lot of people are not so nesses. given the importance of the fi nance ministry. private sector should go in then the private policy of privatisation. happy with the way they are helped, es- You’ll be surprised at the numbers. sector will invest there. pecially given the same people are get- I suppose that if the government has time In addition, Daim shed further light on why People sometimes forget that for a whole What would you say were the lessons of ting helped over and over again. can call them up… you see there are so many he is paring down his interests in global bank- decade I was not Minister of Finance that era? These people were billionaires You see in the end it’s (about) implementa- agencies trying to help bumiputeras but I think ing chain ICB Financial Holdings AG as between my fi rst and second stint. I and suddenly we see them fall. tion. People object to the implementation. the government should bring in those who are well as why he delisted the bank from got licence in 1994. Robert Tan You must remember that when the crisis People want to help the poor, the less for- really in business to speak to the bumiputeras, London’s Alternative Investment was the shareholder but sold came, many did not expect it. We were lucky Market (AIM) in 2012. out later. we were not in places like Thailand or Korea. We were lucky because our foreign borrowings “The stock market crashed and the currency As for the property market, What were the rea- were very low. devalued (sharply). Under those circumstances, (no Daim opined that current sons behind ICB But the stock market crashed and the cur- matter) how brilliant you are (chuckling) you cannot prices are “ridiculous”, add- ‘‘We must Banking Group’s rency devalued (sharply). Under those cir- ing that the developers must privatisation and save your companies if you were borrowing.” accept cumstances, (no matter) how brilliant you are not “be greedy at the ex- constructive delisting from the (chuckling) you cannot save your companies if pense of the nation”. London stock ex- you were borrowing. So the government had criticisms. It change? What was to understand this in approaching the issue. tunate. Nobody objects to it. But it must not because you need (the track record). “The nation must come means we want the purpose of the What they needed was time. But the govern- be only Malays. The thing is, the majority are The Malaccan empire was thriving and they fi rst,” said Daim to KiniBiz. the government unsecured loan ment was impatient because there was pres- Malays. There are also Chinese poor, Indian were all Malays. On this side and the oth- to do well and (RM24.11 million) sure from overseas investors, who invested poor, Iban poor, Kadazan poor, Orang Asli er side were Kedah and Kelantan. So to say Here are excerpts of the extended by ICB to and lost. So they wanted to see blood in the poor — you have to help everybody that is that Malays cannot do business, it’s really not interview. succeed.” you before the priva- streets (laughs). poor. about culture. tisation? But you don’t make it sound as if you’re only (It’s just that) the experience (in business) was What are your thoughts on As part of the listing Yes, there was that. helping the Malays. The truth is majority (of not there for a long time. They were farmers, Putrajaya’s fi nancial manage- exercise done in 2007, my I think that was a silly move. The rest were those needing help) are Malays. fi sherman… school was only up to standard four. ment and the way 1MDB (1Ma- shareholding in ICB Senegal given time and they all recovered. And then Everybody needs help. The poor needs help. (With today’s access to education) everyone laysia Development Bhd) is oper- (the Bank) was to be transferred to of course fellows started writing and said we So your policy must be to help everybody can succeed, provided as I said bangun pagi ated? ICBFGH (ICB Financial Group Hold- bailed out Halim (Saad of Renong) and Taju- which the government has been doing, except lah (laughs). This is a sensitive question. Some don’t ings) (the holding company) in return for din (Ramli of TRI, Celcom and Malaysia Air- it doesn’t know how to communicate this. like people to comment. Some take criticism shares in the holding company. However, the lines). What’s your take on Syed Mokhtar? as opposing. I think there should be space for central bank of Senegal did not accept this as But these people don’t understand the You said you wanted to go into busi- I won’t comment on others. I used to know all. We must accept constructive criticisms. It I think – my own view lah – the next con- the holding company was not a “regulated fi - meaning of bailout. ness to prove that Malays can succeed his father-in-law, Syed Kechik (Syed Kechik means we want the government to do well and tinent is going to be Africa. During Dr Ma- nancial institution”. Bailout means you give them the money in business. If, say, a business entre- Syed Mohamed Al-Bukhary), well. You should succeed. Having said that, I think the govern- hathir’s term as prime minister he was very Therefore the shares remained in my name and they stay. Yet here they are suing the gov- preneur comes up to you and asks how do a study on Syed Kechik. I used to know ment has a weak economic team. PM is very aggressive about Africa and Malaysia was and I was to hold it in trust for the holding ernment now (laughs). They wrote and said, to be successful, what would you say to Syed Kechik very well. He was at that time was busy running the country. A full Minister of well-known in Africa. Before the crisis a lot of company until the holding company could oh Halim was bailed out, Tajudin was bailed that person? very successful. It’s worth looking at Syed Ke- Finance should manage this portfolio. It is a Malaysian companies were there. qualify as a regulated fi nancial institution. out. What nonsense are they talking? Doesn’t Get up early (laughing). chik, it’s worth writing on Syed Kechik.

58 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 59 COVER COVER

More than that? sponding to this. The average Malaysian especially After such a long career in politics and In 2010, the Bank required an increase in (Chuckling) I’ve given away most anyway… the young ones can’t aff ord (to buy properties). business, do you have any regrets, look- capital but I did not want to take up this in- it all goes to charity. If I still have (any), also ing back now? crease in capital. The holding company pro- all would go to charity. Do you think there’s a property bubble? What’s there to regret? Nothing. Alhamdu- vided a shareholder’s loan to me for this pur- I don’t want to make predictions but I think lillah (praise God). pose, i.e. to increase share capital of the Bank. So what do you think about Malaysian there will be a slowdown. And the government And I will hold the shares on behalf of ICB- properties? There is talk of a bubble should monitor this very closely because an- Was there anything that you would have FGH, until ICBFGH is able to hold the shares coming, but then again some say there’s ything that happens to the property market liked to do diff erently if you could? in its name. no bubble. is going to aff ect the economy, especially the Of course in life, you look back, there are A shareholder’s loan agreement was signed There are always two points of view. But I banks. That’s what happened in Japan, in Tai- (always) one or two things you want to do dif- between the parties and approved by the think, to put it this way: Malaysians cannot wan, in America, in Spain. You can see this ferently, but… board of directors. All this is documented in aff ord to buy. kind of thing. the board minutes of the company and in the If you look around, I think we probably Anything in particular? accounts. have the most number of developers in the Just hypothethically, if you were in cab- No, I mean I can’t think of anything in par- Once the sale of shares in the bank is com- world. Everybody wants to go into property inet today… ticular at present. But alhamdulillah, God has pleted (expected in mid-March 2014) I would development and everybody there (in that sec- (Quickly countering) I’m not (laughs). given me His blessing. So what’s there to com- receive the proceeds of the sale, less the tor) makes a lot of money. Very rarely you get plain (about)? Nothing to complain about. amount of the shareholder’s loan. a developer that goes bankrupt. (When that …if you were in position today to do I wanted to sell. It was better to delist so happens) that’s because I think they miscal- something about the property market, So if you could go back to the 1980s you that the market does not have to react. culate and they borrow too much, and then what would you do? would not do anything diff erently? they’ve got to be rescued. We used to have this problem and I used to I wouldn’t. I mean, I worked hard, I made a There is some kind of talk in the market But you see the mistake was to remove the call up all the developers. I said look, I know lot of sacrifi ces. There was a mission in life to that you are positioning yourself for a property gains tax. I think the government what you’re doing. I said I know what sort of prove that bumiputeras can succeed in busi- big return in Malaysia. didn’t really study why there was RPGT. That profi t you are making. I said I won’t take ac- ness. And probably very few have succeeded No, I am not (laughing). I’m too old already, (tax) was to avoid speculation. I think some- tion against you but you go back and think se- the way I have succeeded both in business and too old already. That should be the next gen- body must have advised the government and riously before I do anything. politics. eration. said that it (RPGT) doesn’t matter, let the price Because, I mean, you must not really be go up and we make more in stamp duty (fees) greedy at the expense of the nation. The nation Were your appointments as fi nance Some names that have been linked to until such time that Malaysians can’t aff ord. must come fi rst. minister both in 1984 and 1998 related you in the past are also seen to be liqui- And you can’t compare (our property mar- to the fact that there were fi nancial cri- dating some of their holdings. ket) with Singapore and Hong Kong. They So that’s property. What about the stock ses ongoing then (1980s recession and They run their own businesses. You ask don’t have land (laughs) and their per capita market, your thoughts? 1998 Asian Financial Crisis)? them. income is much higher, so you can’t be com- I think they’re (foreigners) leaving now. In 1984, Musa (Hitam, then deputy prime

Do you have any knowledge of their plans? No, I have not seen them for a long time. They do their own business and they decide in which direction they want to take the business. I travel a lot and so am not here most of interested in the two sectors that I do, one is Property, I’ve always been investing all over ‘‘The government the time. banking, and the other one of course is prop- the world. has a weak erty. Do your associates like Halim (Saad) Any locations in particular? economic team.” still call you for advice these days? Do you still have banking interests? I won’t tell you (laughs)… you can go (ﬁ nd They don’t ask for advice. I mean they’re I have sold most of them except Laos, Alba- out) (still laughing). not young anymore, they have plenty of expe- nia and Bangladesh. In Indonesia I’ve sold a rience and are probably better than me (now). bit but the rules there are quite complicated. I What would be the value of your hold- wouldn’t say they keep changing the rules, but ings all over the world? (laughing) they will adjust things accordingly. I don’t know, I bought them when they were What are the businesses that you are in- paring (to them). They’re taking out the money and everybody is minister) was not happy if Tengku Razaleigh cheap (laughing). I bought them during reces- volved in now? It’s ridiculous that prices of property go up going back to America (chuckles). And I think continued as Minister of Finance. So I was Bangladesh would be ICB Islamic Bank? sion in those countries. Nothing much. to RM3,000 per square feet (psf), it doesn’t also that for the time being, a bit is going back brought in. In 1998 it was the financial cri- Yes, that’s correct. I was invited by the gov- make sense. At Jalan Ampang now it’s to Europe. sis. I was already the executive director of ernment to go and save the bank, but govern- Would it be true to say that you are So apart from ICB, what else have you RM2,000 psf so half an acre becomes what, But now that the currency (ringgit) is weak, NEAC (National Economic Action Council). ments keep changing (smiling). worth a few billion ringgit now? been doing in terms of business? RM40 million? (That space is) just one house some will come back (smiles). But last year We came up with the action plan to revive What about property? No. In terms of business? I have always been only. So it doesn’t make sense. and the beginning of this year, there was a lot the economy and PM wanted me to imple- And I think the government was a bit slow in re- of outﬂ ow. ment it.

60 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 61 COVER COVER

I am not funding Barisan It was actually Tengku Razaleigh that rec- my money here? (laughs) So you’re getting into cash at this point ommended that I be senator, not Mahathir. of time. You’re saying it’s not an attempt With Daim Zainuddin’s recent divestments of his banking interests, is there a I think the argument is that you can to return in a big way to Malaysia? possibility that the money will go towards keeping Barisan Nasional (BN) in So when did you get close to Dr Ma- use your money to keep BN in power, No, not interested. Yes cash for charity. I’m power amid increased competition from Pakatan Rakyat (PR)? hathir? to help the economy, the stock market, old already. Well we were from the same village. My even for funding if necessary for politi- brother and his brother-in-law are very close cal purposes. You said you’re liquidating to donate to (Mohd Senawi, who has passed away, as has No, no. I don’t have that kind of money. And charity. What about your children and don’t have that kind of money,” Some quarters call you “the godfather ment Authority). UDA was established to help Dr Mahathir’s brother-in-law). I got close to I don’t waste money like that, you know me, your proteges? responded Daim to KiniBiz. of corporate Malaysia” given your vast bumiputeras get into urban areas. I thought Dr Mahathir after he became deputy prime I never waste. I don’t believe in using money. My children have had an education and they “And I don’t waste money like infl uence. What would be your re- they weren’t doing a good job so I might as minister. do what they want. “I that.” sponse to such a title? well go and study urban planning. And that’s In politics, you mean? My parents gave me an education and if I They call me that, that title should go to my why when I came back in 1979 I became chair- When he became prime minister, didn’t In politics – I don’t believe in using money. succeeded, thank God. I’ve given them (Daim’s Reiterating that his divest- friend Robert Kuok. man of Peremba. he straightaway invite you to become I never spent one cent. In the end it’s (about) children) the best education. ments are meant for charity, Daim also thinks Umno treasurer? your policy and how you handle things. That’s that BN may not be overthrown in the next What led to you leaving legal practice to They say you were off ered to be chair- No. When he became prime minister then important. So you being cash-rich at the moment is general elections provided that the ruling co- venture into business? man of UDA in the fi rst place but de- he gave me a choice: become president of the You have to make people comfortable with not to look out for investing opportuni- alition maintains “good and correct policies”. By the time I went into business, I had prac- clined. chamber of commerce or bank bumiputera. you, make them happy and trust you. That’s ties also? tised law over 10 years both in government I don’t remember but I think so. I said no I chose Fleet (Umno’s investment arm Fleet all. No, no. It’s up to trustees what they want to However he also cautions that BN would service and private practices. The money was (to the UDA chairman post) and I suggested Holdings Sdn Bhd). do, I’m not involved. face problems if promises to the people are good but opportunities in business to my that we form Peremba. not kept and if the leaders are arrogant. mind were better and there were hardly any Manan (Abdul Manan Othman), the min- Why Fleet? It was the most political How much have you given to charity Malays in business and if there were, people ister for public enterprises then, was a good among the three. and which are the charities that you Among others, in this part of the interview hardly know. friend of mine. Many people think it was It was a question of infl uence. “I never spent have set-up? Daim also explains why it took him nearly two I wanted to prove that Malays can succeed (only) Dr Mahathir but no, I’m (also) a good But why are you writing on me this time? one cent. In the I’m getting old. The banks are all over the weeks to respond after the Bernama interview and it was tough. Malays need role models. friend of Manan, a good friend of Tengku end it’s (about) world and therefore involves a lot of travelling. with him, which was run by The Star in Jan- They wanted someone successful. Razaleigh, of Hussein Onn — we were all con- Basically we hear that you are coming your policy and My older children are not interested and are uary 1994, crashed the Kuala Lumpur Stock temporaries. back in a big way into the country and how you handle busy with their own things. Exchange (KLSE) by nearly 30% within two What was the big break for you in busi- you are raising cash by divesting your things. That’s My younger children are still studying. days. ness? overseas holdings and bringing back What I have will go to charity. My parents It was property, when Harun sold me the the money here, apparently to invest important.” gave me a good education and thank God I Daim also responds to questions on his link land (in 1973). I fi rst retired in 1977. here at the right time. And also some succeeded I believe that the greatest gift I‘ve to former Selangor Mentri Besar Harun Idris of your associates are doing the same given to my children is the best education and former Prime Minister Dr Mahathir Mo- There are allegations that your venture thing, it appears. money can buy. I’m also a great believer in hamad, whom Daim said gave him a choice into property in 1973 was made pos- I don’t think they’re following me, no. If what Warren Buff ett said that you give your when becoming prime minister in 1981. sible due to your close association to I have money overseas, why should I bring children enough to do something with their then-Selangor Mentri Besar Harun back? I might as well keep it overseas. A lot of people give you credit for re- lives but not enough for them to do nothing Here are excerpts of the interview: Idris. Is that true? gaining Kedah for instance, due to at all. Yes, I know Harun. I am not the Some people have linked this to, say, your infl uence. As for the charity, in Islam it is said that in After the 1994 crash, there were accu- only one who got land from Harun. I a possible return of Anwar (Ibrahim), No, we won this time because PAS (Parti giving charity, what the right hand gives the sations revolving around the length paid for that land but it was a mining and are saying that perhaps the next Se-Islam Malaysia) messed things up (laugh- left hand should not know. I don’t believe of time you took to comment on the land, so basically I got big ponds. round Barisan Nasional (BN) might ing). that when you give, you should announce to Star report (a Bernama interview with Many applied for the same land, but lose. Do you think BN losinglos is a realis- So that’s why I said BN must not mess the world and stand up there with big mock Daim) that caused the Kuala Lumpur Harun said mine was the best. tic scenario? things up, otherwise people will reject you. cheques and make all the recipients wait in Stock Exchange (KLSE) to plunge. Harun and I had a mission, to show It’s up to voters to decide, alalthough if poli- You have to make clear policies so that people line for hours. Can you comment on why your re- Malays can succeed in business. cies arere good and correct, if peoppeople are happy, understand what you’re going to do for them. I have two foundations here and one over- sponse did not come immediately after Don’t think we disappointed anybody I don’t think people will want chanchange. You plan it for them and say trust me, I will seas. We donate both here and particularly The Star ran the story? or ourselves. But you see under Dr Mahathir – we were deliver. in Africa, Indonesia, Sri Lanka, Pakistan, I was not asked to respond. I also waited there through fi ve elections – people can criti- When I fi rst came in (as fi nance minister), Thailand and the United Kingdom. We give to see how MOF (Minister of Finance) Anwar And then you went to Berke- cise Dr Mahathir but they were happy with the nobody trusted me. I said give me 18 months, loans and scholarships. Loans, most people Former (Ibrahim) would respond. Obviously Anwar ley University (University Finance policies. And always we get two-thirdswo-thirds major- if I don’t deliver I’ll quit. I had no experience don’t pay back! We do water and wells, mass was at a loss. I don’t think he knows the stock of California Berkeley)? Minister Daim ity. running a fi nance ministry. But in the end housing for the poor, and build schools and market. Can’t blame him as he did not have Berkeley, yes. The reason Zainuddin When you don’t keep to yourr promisepromises, are people must have faith in you. hostels. any work experience other than Abim (Angka- I went to Berkeley was arrogant and ignore the wish of the votvoters, They mustust see thattha you are serious that you We also do collaborations with interna- tan Belia Islam Malaysia). UDA (Urban Develop- then you are going to face problems.ms. If I thinkthi meanean business, that promisesp are kept, that tional organisations in respect of further Anwar is going to win, why should I bring back policies are great. education.

62 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 63 China’s WORLD WORLD balancing act By Adair Turner volume of non-performing loans, the gov- undermine growth – even if banks are not it supply and imposing market discipline Project Syndicate ernment could repeat what it did in the late allowed to fail. A balance-sheet recession could be a recipe for disaster. Instead, Chi- 1990s, absorbing bad debt and recapital- does not require a fi nancial crisis. na should use direct fi scal stimulus to off set ising banks, rather than allowing defaults the defl ationary eff ect of declining credit and bank failures to shock the economy The more China achieves its stated ob- growth and deleveraging. And it should NEW YORK – China’s slowdown is the biggest short-term threat to global growth. Industrial value into recession. jective of “a decisive role for the market,” clean up its banks’ balance sheets through added fell in August, credit growth has slowed dramatically, and housing prices are falling, with sales the less the “China is diff erent” argument debt write-downs and recapitalisation be- down 20% year on year. Given stagnation in the eurozone and Japan’s uncertain prospects, a Chinese But, though China enjoys more room for applies. Interest-rate liberalisation would fore undertaking full fi nancial liberalisa- hard landing would be a big hit to global demand. manoeuvre than other countries facing sim- increase borrowing costs for many over-in- tion. ilar credit booms, the risks remain serious. debted borrowers. A no-bailout rule for The bad-loan problem may be most severe shadow banking entities would produce China undoubtedly needs to rebalance its among SOEs, but slightly more than half of losses that hit confi dence. The more the economy and introduce more market disci- new business loans since 2010 have been to capital account is opened, the more China’s pline in its fi nancial system. Demography the private sector, which plays a major role huge debts will be held by banks and other will give a helping hand with the former in the troubled property market. And when institutional investors around the world. challenge. But without careful policy design uch attention is focused crisis and recession. fl ect a subtle shift in emphasis about the property booms head south, eff orts by com- In an economy with inherited debts equal and sequencing, there could be major set- on likely GDP growth this This year has been one of seesawing pol- most crucial objective. Recent speeches panies and households to deleverage can to 250% of GDP, simply tightening cred- backs along the way. year relative to the gov- icy responses. The discipline of default has by both Li and policy experts have down- M ernment’s 7.5% tar get. been much discussed, but never quite ap- played the importance of a specifi c growth But the bigger issue is plied. Despite a signifi cant slowdown, the target, focusing instead on job creation and whether China can rebal- People’s Bank of China has resisted across- low unemployment. ance its economy over the next two to three the-board cuts in interest rates or reserve years without suff ering a fi nancial crisis requirements. But, in the second quarter Fortunately, demographic changes are and/or a dramatic economic slowdown. about to make it easier to rebalance the Some factors specifi c to China make this economy and boost employment enough The intellectual battle outcome more likely, but success is by no to avoid social tension. The Chinese work- means certain. ing-age population is now slowly shrink- ing. More dramatically, the number of 15 against ISIS Faced with the 2008 fi nancial crisis, Chi- to 30-year-olds will fall 25% from 2015 to na unleashed a credit boom to maintain 2025. The rural workforce is still above 300 By Sheikh Mohammed bin Rashid Al Maktoum output and employment growth. Credit ‘‘China is now struggling million, implying that large numbers could Project Syndicate soared from 150% of GDP in 2008 to 250% with a dilemma common still migrate to urban areas. But as the rural by mid-2014. Multiple forms of shadow to all advanced credit workforce ages, the pace of migration will bank credit supplemented rapid growth in slow. bank loans. booms. The longer the boom runs, the greater As a result, China’s labour market will DUBAI – The global fi nancial crisis taught the world how profoundly interdependent our The strategy worked, and China contin- the danger of wasted tighten more rapidly than many expect. economies have become. In today’s crisis of extremism, we must recognise that we are just as interdependent for our security, as is clear in the current struggle to defeat ISIS. ued to create 12 million to 13 million new investment.” Rising real wages will support the shift to urban jobs per year. But with investment a more consumption-driven economy, and rising from 40% to 47% of GDP, growth be- declining worries about unemployment will came dangerously unbalanced and heavily reduce reliance on credit-fuelled construc- dependent on infrastructure construction tion to soak up labour supply. But the huge f we are to prevent ISIS ing peace requires three other ingredients: It represents neither Islam nor humani- and real-estate development. Narrowly debts created by the credit boom remain a from teaching us this les- winning the battle of ideas; upgrading weak ty’s most basic values. Nonetheless, it has defi ned, these activities account for 12% major problem. No other economy has ever son the hard way, we must governance; and supporting grassroots hu- emerged, spread, and resisted those who of Chinese value added. In fact, recent re- of the year, Premier Li Keqiang reiterated experienced such a boom and avoided a fi - I acknowledge that we can- man development. oppose it. What we are fi ghting is not just a search shows that 33% of China’s econom- the 7.5% growth target, which was then un- nancial crisis or major growth setback. Op- not extinguish the fi res of terrorist organisation, but the embodiment ic activity relies on the real-estate sector’s derpinned by several “targeted” stimulus timists often stress two ways in which “Chi- fanaticism by force alone. Such a solution must begin with concert- of a malicious ideology that must be defeat- continued health. measures – mainly new lending focused na is diff erent.” First, many debts involve The world must unite behind a holistic drive ed international political will. Not a single ed intellectually. on railways, smaller banks, agriculture, diff erent arms of the Chinese state – owed, to discredit the ideology that gives extrem- politician in North America, Europe, Afri- China is now struggling with a dilemma and small businesses. Constraints on the say, by state-owned enterprises (SOEs) and ists their power, and to restore hope and ca, or Asia can aff ord to ignore events in the I consider this ideology to be the greatest common to all advanced credit booms. The property market, such as limiting multiple local governments to state-owned banks. dignity to those whom they would recruit. Middle East. A globalised threat requires a danger that the world will face in the next longer the boom runs, the greater the dan- purchases or highly leveraged investments, globalised response. Everyone will feel the decade. Its seeds are growing in Europe, the ger of wasted investment, huge bad debts, have been tightened and then relaxed. Second, China’s central government has ISIS certainly can – and will – be defeat- heat, because such fl ames know no borders; United States, Asia, and elsewhere. With its and a major fi nancial crisis. But simply At least for now, the arguments for con- low debt – only 22% of GDP at the end of ed militarily by the international coalition indeed, ISIS has recruited members of at twisted religious overtones, this pre-pack- constraining new credit supply and allow- straint and market discipline appear to 2013 – and thus signifi cant fi scal fi repow- that is now assembling and which the UAE least 80 nationalities. aged franchise of hate is available for any ing bad loans to default can itself provoke have won the debate. That may partly re- er. With the fi nancial sector facing a large is actively supporting. But military con- terrorist group to adopt. It carries the power tainment is only a partial solution. Last- ISIS is a barbaric and brutal organisation. to mobilise thousands of desperate, vindic-

64 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 65 WORLD Paying for WORLD productivity By Laura Tyson Project Syndicate

BERKELEY – One of the United States’ defi ning, and disheartening, economic trends over the last 40 years has been real-wage stagnation for most workers. According to a recent US Census report, the median full-time male worker earned US$50,033 (RM163,109) in 2013, barely distinguishable from the comparable (infl ation-adjusted) fi gure of US$49,678 in 1973.

ecause most households thrive for long while their communities lan- real wages should track productivity. As earn the bulk of their in- guish,” they cautioned. Unless corporations Lawrence Mishel of the Economic Policy come from their labour, step up to the plate, “American business Institute has documented, this was the case B the absence of real-wage will suff er from an inadequate workforce, from 1948 until about 1973. Since then, growth is a major factor a population of depleted consumers, and real wages for the typical worker have fl at- behind the stagnation of large blocs of anti-business voters.” lined, while productivity has continued to family incomes. The average family income climb. Mishel calculates that productivity tive, or angry young people and use them to Only one thing can stop a suicidal youth because providing grassroots opportunity of the bottom 90% of households has been Porter and Rivkin are not calling on busi- increased 80.4% from 1948 to 2011, while strike at the foundations of civilisation. who is ready to die for ISIS: a stronger ide- and a better quality of life for the people of fl at since about 1980. Real family income nesses simply to pay their workers more. median real wages rose only 39% – almost ology that guides him onto the right path this region is guaranteed to ameliorate our for the median household in 2013 was 8% Instead, they are urging businesses to en- none of the wage growth occurred during The ideology fuelling ISIS has much in and convinces him that God created us to shared problems of instability and confl ict. below its 2007 level and nearly 9% below gage in a “strategic, collaborative” push to the last four decades. common with that of Al–Qaeda and its affi l- improve our world, not to destroy it. We We have a critical need for long-term pro- its 1999 peak. improve education and training to raise the iates in Nigeria, Pakistan, Afghanistan, So- can look to our neighbours in Saudi Arabia jects and initiatives to eliminate poverty, skill levels of their workers. True, highly skilled workers, especially malia, Yemen, North Africa, and the Arabi- for their great successes in de-radicalising improve education and health, build infra- Stagnating middle-class wages and fami- those with sought-after technology skills an Peninsula. What most worries me is that many young people through counselling structure, and create economic opportuni- ly incomes are a major factor behind the US That is a laudable goal. But, as Porter and and postgraduate degrees, have fared much a decade ago, such an ideology was all that centres and programmes. In this battle ties. Sustainable development is the most economy’s slow recovery from the 2007- Rivkin fi nd in their survey of business lead- better. But that prosperity has reached only Al–Qaeda needed to destabilise the world, of minds, it is thinkers and scientists of sustainable answer to terrorism. 2009 recession, and pose a serious threat ers, companies often discourage investment a small elite. even from a primitive base in the caves of spiritual and intellectual stature among to long-term growth and competitiveness. in skills by their reluctance to hire full-time Afghanistan. Today, under ISIS, adherents Muslims who are best placed to lead the Our region is home to more than 200 Household consumption accounts for more workers. Nearly half of the respondents in- From 1979 to 2012, the real median have access to technology, fi nance, a huge charge. million young people. We have the oppor- than two-thirds of aggregate demand, and dicated that, when possible, they prefer to wage increased by only 5%. But real wages land base, and an international jihadist net- tunity to inspire them with hope and to di- consumption growth depends on income invest in technology or outsource to third climbed 154% for the top 1% of wage earn- work. Far from being defeated, their ideol- The second component is support for rect their energies toward improving their growth for the bottom 90%. parties and hire part-time workers. ers and 39% for the top 5%, while real wag- ogy of rage and hate has become stricter, governments’ eff orts to create stable insti- lives and the lives of those around them. If es stagnated for the bottom 20th percentile more pernicious, and more widespread. tutions that can deliver real services to their we fail, we will abandon them to emptiness, Many infl uential economists are now There is also a disturbing implication of workers and fell for the bottom 10th. people. It should be clear to everyone that unemployment, and the malicious ideolo- worried that the US faces anaemic growth in the Porter-Rivkin survey that workers Indeed, inequality in labour compensation The destruction of terrorist groups is not the rapid growth of ISIS was fuelled by the gies of terrorism. and “secular stagnation,” owing to a per- themselves, along with America’s schools, has been the largest driver of yawning in- enough to bring lasting peace. We must also Syrian and Iraqi governments’ failings: the sistent gap between aggregate demand and are to blame for wage stagnation: If only come inequality, except at the very top of strike at the root to deprive their dangerous former made war on its own people, and the Every day that we take a step toward de- full employment. Stagnant middle-class workers were not so poor in math and sci- the income distribution, where capital in- ideology of the power to rise again among latter promoted sectarian division. When livering economic development, creating incomes imply weak aggregate demand, ence, so ill-equipped for the modern world, come has been more important. people left vulnerable by an environment of governments fail to address instability, jobs, and raising standards of living, we un- which in turn means slack labour markets and so unproductive, they would earn high- hopelessness and desperation. And, on this legitimate grievances, and persistent seri- dermine the ideologies of fear and hate that and stagnant wages for most workers. In er incomes. Meanwhile, corporate profi ts have note, let us be positive. ous challenges, they create an ideal envi- feed on hopelessness. We starve terrorist the absence of aggressive monetary and soared. The GDP share of after-tax corpo- ronment for hateful ideologies to incubate organisations of their reason to exist. fi scal policies to support aggregate demand The reality is diff erent. US productivity rate profi ts is at a record high, whereas la- The solution has three components. The – and for terrorist organisations to fi ll the at full-employment levels, the result is a vi- has been growing at a respectable pace for bour compensation has plunged to its low- fi rst is to counter malignant ideas with vacuum of legitimacy. I am optimistic, because I know that the cious slow-growth cycle. two decades. The problem is that produc- est share since 1950. enlightened thinking, open minds, and an people of the Middle East possess a power tivity gains have not translated into com- attitude of tolerance and acceptance. This The fi nal component is to address ur- of hope and a desire for stability and pros- Two competitiveness gurus, Michael mensurate wage increases for the typical Strong productivity growth is an im- approach arises from our Islamic religion, gently the black holes in human develop- perity stronger and more enduring than Porter and Jan Rivkin of Harvard Busi- worker or income growth for the typical portant policy goal. But it is not enough which calls for peace, honours life, values ment that affl ict many areas of the Middle opportunistic and destructive ideas. There ness School, recently warned that stagnant family. to increase most workers’ wages or most dignity, promotes human development, East. This is not only an Arab responsibili- is no power stronger than that of hope for middle-class incomes undermine US com- families’ incomes. Reconnecting produc- and directs us to do good to others. ty, but also an international responsibility, a better life. panies in several ways. “Businesses cannot According to standard economic theory, tivity gains and wage gains requires both

66 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 67 WORLD WORLD

policy actions, such as an increase in the ine existing studies on the link between have been CEOs and top managers, a sig- company’s previous success to recognise the to use Windows Phone exclusively. Given suit their current business model, major minimum wage with a link to productiv- profi t-sharing and productivity. The over- nifi cant fraction of whose pay is tied to pro- change that was needed to sustain its com- that Google gives away its Android software, fi rms should work with inventive startups ity growth, and changes in corporate hu- whelming majority of the studies found a ductivity, as refl ected in profi ts and stock petitiveness. it could not match this off er. But Microsoft’s with disruptive potential. man-resources practices, such as broader strong positive eff ect. Shared Capitalism performance. Such incentive pay schemes The company also embarked on a desper- money could not save Nokia; it is not pos- reliance on profi t-sharing programmes. at Work, a recent book edited by Douglas have driven the outsize increases in com- ate cost-cutting programe, which included sible to build an industrial ecosystem with Finally, though successful companies Kruse, Richard Freeman, and Joseph Blasi, pensation for the top 1% of the wage and the elimination of thousands of jobs. This money alone. must constantly innovate, they should not Such programmes have intuitive ap- confi rms this conclusion with more recent salary distribution. contributed to the deterioration of the com- be afraid to imitate. If Nokia had immedi- peal. Employees who have a direct stake evidence. pany’s once-spirited culture, which had mo- Elop’s previous experience at Microsoft ately begun to develop products modelled in a company’s profi tability are likely to be America’s long-run living standards and tivated employees to take risks and make was undoubtedly also a factor. After all, in after the iPhone, while addressing related more motivated and engaged, and turnover Various forms of profi t-sharing – includ- economic competitiveness depend not just miracles. Good leaders left the company, diffi cult situations, people often turn to what patent issues eff ectively, the mobile-device is likely to be lower. This intuition is con- ing grants of options and restricted stock, on productivity growth, but also on how taking Nokia’s sense of vision and direction is familiar. In Elop’s case, the familiar just business would look very diff erent today. fi rmed by empirical research. annual profi t-based bonuses, and employee that growth is shared. More equitable shar- with them. Not surprising, much of Nokia’s happened to be another sinking company. stock ownership plans – have been growing ing of profi ts with America’s workers and most valuable design and programming tal- After hearing that Nokia had chosen Win- Nokia’s experience also carries an impor- Some 20 years ago, Alan Blinder of as a share of labour compensation since the their families would do much to address the ent left as well. dows, Google director Vic Gundotra tweeted: tant lesson for regulators, particularly in Princeton University corralled a number 1960s. But most workers are not covered worrisome stagnation of wages and mid- “Two turkeys do not make an eagle”. the European Union. Attempting to quell of economists, including me, to exam- by such plans, and the biggest benefi ciaries dle-class incomes in recent decades. But the largest impediment to Nokia’s Apple and Google should not rest easy. disruptive technologies and protect exist- ability to create the kind of intuitive, us- Like Nokia in the mobile-phone industry ing companies through, for example, an-

Who killed the Nokia phone?

By Pekka Nykänen and Merina Salminen Project Syndicate

HELSINKI – It seems to be a law in the technology industry that leading companies eventually lose their positions – often quickly and brutally. Mobile-phone champion Nokia, one of Europe’s biggest technology success stories, was no exception, losing its market share in the space of just a few years. Can the industry’s new champions, Apple and Google – not to mention titans in other tech sectors – avoid Nokia’s fate?

er-friendly smartphone experiences that – not to mention Microsoft and IBM in the titrust crusades, is not an option. Indeed, iPhones and Android devices off ered was its computing industry – one day they will lose that approach would ultimately hurt the refusal to move beyond the solutions that their leading position. But there are steps consumer, both by impeding technological n 2007, Nokia account- decisions made by Stephen Elop in his posi- ing a fi ery death or an uncertain leap into had driven its past success. For example, they can take to prolong their success. progress and eliminating price competition ed for more than 40% of tion as CEO, which he assumed in October the frigid sea. He was right that business as Nokia initially claimed that it could not use – like that from Samsung’s Android devices, mobile-phone sales world- 2010. Each day that Elop spent at Nokia’s usual meant certain death for Nokia; he was the Android operating system without in- First, companies must continue to inno- which forced Apple to lower iPhone prices. I wide. But consumers’ helm, the company’s market value declined wrong to choose Microsoft as the company’s cluding Google applications on its phones. vate, in order to improve the chances that preferences were already by 18 million euro (RM74.8 million) – mak- life raft. But, just before its takeover by Microsoft, disruptive technologies emerge from with- Herein lies the most important lesson in shifting toward touch- ing him, by the numbers, one of the worst Nokia actually built a line of Android-based in. If market leaders implement a system for Nokia’s fall. Technology companies cannot screen smartphones. With the introduction CEOs in history. But Elop was not the only person at fault. phones called Nokia X, which did not in- discovering and nurturing new ideas – and achieve success simply by pleasing their of Apple’s iPhone in the middle of that year, Nokia’s board resisted change, making it clude Google apps, but instead used Nokia create a culture in which employees are not board of directors or even striking mul- Nokia’s market share shrunk rapidly and rev- Elop’s biggest mistake was choosing Mi- impossible for the company to adapt to maps and Microsoft search. afraid to make mistakes – they can remain ti-million-dollar deals with partners. Which- enue plummeted. By the end of 2013, Nokia crosoft’s Windows Phone as the only plat- rapid shifts in the industry. Most notably, on their industry’s cutting edge. ever company makes the consumer happy had sold its phone business to Microsoft. form for Nokia’s smartphones. In his “burn- Jorma Ollila, who had led Nokia’s transition Why didn’t Nokia choose Android earli- Second, major fi rms should keep track of – whether a well-established multinational ing platform” memo, Elop compared Nokia from an industrial conglomerate to a tech- er? The short answer is money. Microsoft emerging innovators. Instead of forming or a dynamic startup – will win. Companies What sealed Nokia’s fate was a series of to a man on a burning off shore oilrig, fac- nology giant, was too enamoured with the promised to pay billions of dollars for Nokia partnerships with smaller companies that that lose sight of that are doomed.

68 KINIBIZ | March 03-15, 2015 March 03-15, 2015 | KINIBIZ 69 Why the Fed BUILDING FIRST-WORLD MINDSETS WORLD BFM89.9, THE BUSINESS STATION will go faster BFM is Malaysia's only independent radio station, focused on business news and current affairs. Our By Martin Feldstein purpose is to build a better Malaysia by championing inclusiveness, rational discourse, and good Project Syndicate governance. We are available 24 hours in Wilayah Persekutuan, Selangor, and parts of Negeri Sembilan & Malacca. BFM is also available online at www.bfm.my

CAMBRIDGE – The US Federal Reserve has emphasised that its monetary policy will be determined by what economic indicators show. But it would require some extremely unlikely data to change the Fed’s implicit plan to end its purchases of long-term assets (so-called quantitative easing) in October 2014 and to start raising the federal funds rate from its current ATTENTION, NOT REACH, IS THE RIGHT METRIC near-zero level sometime in the ﬁ rst half of 2015.

BFM’s well-planned and expertly produced programming has engendered strong listener attention for its informative and influential program belts – The Morning Run, Enterprise, The Bigger Picture, The Evening Edition & The Weekend Edition.

he fi nancial markets are expenditure. Its relaxed attitude about in- ther reduction in the current unemploy- OVER 10 MILLION PODCAST Note: obsessed with anticipat- fl ation refl ects its focus on the longer-term ment rate would boost the infl ation rate. An DOWNLOADS ANNUALY Number of ing whether rates will past, with PCE infl ation at just 1.5% for the important study co-authored by Alan Krue- listeners T rise in March or June. Al- 12 months to August of this year, the same ger of Princeton University, who served as are based on 434,802 though my own best guess as the “core” PCE infl ation rate, which ex- chairman of President Obama’s Council of 30,000 DAILY DOWNLOADS is that the Fed will start cludes food and energy. But PCE infl ation Economic Advisers until last year, showed unique to raise rates in March, the starting date is has also been rising, with the most recent that the infl ation rate refl ects the level of visitors to OVER 350,000 OVER 68,000 OVER 22,000 bfm.my less important than the pace of the rate in- quarterly value at 2.3% year on year in the short-term unemployment (lasting less #1 iTUNES STORE MALAYSIA (Nov 2013 - crease and where the rate will be by the end April-June period. than six months), rather than the overall LISTENERS FOLLOWERS FB PAGE LIKES (BUSINESS CATEGORY) Oct 2014). of 2015. unemployment rate. Longer-term unem- So if price stability were the Fed’s only ployment implies a waste of potential out- There is a substantial range of views goal, the federal funds rate should now be put and a source of personal suff ering, but among the members of the rate-setting close to 4%. The Fed’s rationale for continu- it does not have an impact on the rate of Federal Open Market Committee (FOMC). ing its ultra-easy monetary policy is that its infl ation. MARKETER’S #1 CHOICE The midpoint of the opinions recorded at “dual mandate” requires it to be concerned most recent FOMC meeting implies a fed- with employment as well. Its monthly state- Krueger’s analysis indicates that the rate BFM’s independent commentary, high profile interviews and business news eral funds rate of 1.25%-1.5% at the end of ments emphasise that there is still “a signif- of infl ation begins to increase when the 2015. Even by the end of 2016, the midpoint icant underutilisation of labour resources,” short-term unemployment rate falls to 4%- have achieved cult-like following among professionals, business owners, and of the range is less than 3%. In my judge- refl ecting not only the 6.1% unemployment 4.5%. With short-term unemployment cur- the intellectual elite. BFM’s mission is to educate, entertain, and enlighten whilst ment, such rates would be too low. At a rate, but also the millions of part-time em- rently at 4.2%, the infl ation rate is indeed raising the bar of discourse in Malaysia. Some of the biggest names in business, time when infl ation is already close to 2% ployees seeking a full-time job and those rising, and Krueger’s research suggests that finance and activism have been interviewed by BFM. or higher, depending on how it is measured, who are not offi cially counted as unem- it will increase further in the months ahead. the real federal funds rate would be at zero ployed because they are not actively looking Similar studies by Robert Gordon of #1 RADIO #1 RADIO #1 RADIO STATION #1 RADIO #1 RADIO at the end of 2015. Instead of ensuring price for work. Northwestern University and by Glenn *BFM was voted by stability, monetary policy would be feeding Rudebusch and John Wiliams of the San STATION STATION TO TO CONNECT WITH STATION TO STATION TO marketers as the #1 TO REACH INFLUENCE HIGH INSURANCE AND COMMUNICATE ADVERTISE radio station for their a further increase in the infl ation rate. The Fed is certainly correct that current Francisco Federal Reserve Bank point to advertising needs labour-market conditions imply signifi cant the same conclusion about the role of short- MDS AND NET WORTH INVESTMENT WITH PROPERTY TO BUSINESS (Advertising + Marketing Malaysia Although it is possible to argue about the economic waste and personal hardship. term unemployment and the irrelevance of CEOS INDIVIDUALS BUYERS BUYERS TRAVELLERS magazine readers’ precise appropriate level of the fed funds But economists debate the extent to which long-term unemployment in the infl ation survey 2012). rate, the Fed’s own analysis points to a these conditions refl ect a cyclical demand process. While not all researchers agree long-term rate of about 4% when the long- shortfall or more structural problems that a with this analysis, I think the evidence is term infl ation rate is 2%. The most recent monetary stimulus cannot remedy. A recent strong enough to represent a warning to the value of the Consumer Price Index was up study by a team of Fed economists conclud- Fed and to market participants. LISTENER PROFILE 1.7% year on year, and the 12-month fi g- ed that nearly all of the current decline in Listeners profile from BFM’s online survey drawn from a sample of ure would have been even higher but for the labour-force participation rate refl ects Indeed, I would not be surprised by a 600 respondents. (Nielsen’s home-based listenership survey for the Klang Valley is based on a similar sample size). have a personal income of over the anomalous decline in the most recent the ageing of the population and other continued rise in the infl ation rate in 2015. 46% month. In the second quarter of this year, structural causes. In that case, the Fed is likely to raise the RM5,000 per month the annualised infl ation rate was 4%. federal funds rate more rapidly and to a live in households with a combined The Fed prefers to measure infl ation by Recent research also indicates that in- higher year-end level than its recent state- 45% income of over RM10,000 per month the price index for personal consumption creases in demand that would cause a fur- ments imply. BFM is the #1 radio 77% of BFM listeners have at least RM100,000 in station among key 33% are in the prime of investments (excluding their own home) opinion leaders their life*

*21 - 45 years 70 KINIBIZ | March 03-15, 2015 and inﬂuencers 21% are business owners

To advertise on BFM89.9, contact [email protected] Oil prices drop, but transport fares up. How? By P Gunasegaram [email protected]

It must be an April fool’s joke. Oil prices have fallen by about a half but bus and taxi fares are going up by a ﬁ fth. And its got nothing to do with the goods and services tax either.

e all know that the oil price calculate the new rates to 100m, base. Then When the oil price is down, what justifi cation has fallen precipitously it comes up to 12.5 sen now and 8.7 sen be- is there to increase rates by so much? Have from over US$100 to about fore for every 100m. That’s a massive 44% maintenance costs gone up by a quarter? W US$50-60 now. That’s about increase. Oh, but the fl ag-down rate remains Surely not. Even if they have, there is still no a halving of oil prices. Petrol unchanged. justifi cation for that kind of fare increase be- and diesel prices have fallen cause maintenance is only a part of the total too – mostly but there was inexplicable rise costs. from March 1 though. Perhaps there are other factors at play Let’s just take RON95 as an indicator, here. SPAD, more than anyone else should diesel pretty much tracks it too and is know that taxi licences are given out as now the same price. On Jan 1 this patronage. Taxi drivers have to recov- year, RON95 fell 35 sen to 191 er this rental charge they pay for the sen and a further 21 sen on Feb licence, around RM55 a day taxi 1 to 170 sen a litre, a total fall of drivers tell me, before they can put more than a quarter. money in their pockets.

And then, inexplicably, the Remove this and give the li- price went up 25 sen to 195 sen cence directly to taxi drivers and per litre when crude prices had you can probably lower taxi fares only recovered less than a fi fth by 25%. And if you allow more tax- of their fall and were still 40% is on the streets and police them lower than their price late last properly, competition will drive year. prices even further down. Ditto for express buses. But even so, when compared to prices as at Dec 1, the price of RON95 was still And the government can play its part by 16 sen or 7.5% lower. So why should taxi and passing on all falls in oil prices truly and with- express fares rise come April 1? Surely that’s a out any room for doubt to the fi nal prices of joke? But then our government departments fuel at the pump and elsewhere. How do you are more known for their gaff es than their explain the RON95 price falling a mere 7.5% jokes. Humour is scant but incompetence is, So let’s calculate the rate for a 5-km trip. at the the pumps from December when crude let’s say, not uncommon. Usage rate under new charges will be RM6.25, oil prices have fallen 40%? plus fl ag-down will be RM9.25. Under old rate Let’s take taxi fares fi rst. According to the it is RM7.35 (4.35+3). That’s an increase of…a Does not make sense, right? Take away the Land Public Transport Commission (SPAD) whopping 26% still. The longer your journey subsidies by all means but when the price although fl ag-down rates for budget taxis na- the closer it approaches a 44% increase. moves in our favour give the savings to us. tionwide remains unchanged at RM3, the fare Otherwise it’s cheating! has been revised to 25 sen every 200m, up Express buses will see current fares in- from 10 sen every 115m. crease a hefty 23% from 9.3 sen per km to 11.4 Note: Bernama corrected its earlier report sen per km. to say that the fare increase is on May 15, How smart, or rather cunning, that is. not April 1. It’s still a joke but not an April Change the base so that it becomes a bit more Now, we all know that the main operat- fool’s joke. diffi cult to calculate the increase! But let’s ing expense for all transport vehicles is fuel.

72 KINIBIZ | March 03-15, 2015