Old vultures circle over GLC deals
16 min read

Old vultures circle over GLC deals

Felda, LTAT seek to restructure their investment vehicles, but risk interference from politically-exposed corporates.

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Mandatory takeover offers, privatisations and corporate shakeups in government-linked corporations (GLCs) are the buzz these days. But who stands to gain?

The Federal Land Development Authority (Felda) wants to increase its shareholding in FGV Holdings Bhd and be in a position to dictate the latter’s affairs. The agency, however, is cash strapped.

I also revisit Lembaga Tabung Angkatan Tentera’s (LTAT) offer to privatise its major investment vehicle Boustead Holdings Bhd. Sorely in need of dividends, the armed forces’ fund and the diversified conglomerate are back in Umno’s hands, especially those aligned to former prime minister Najib Razak.

Prasarana Malaysia Bhd has suspended its president and group chief executive, the second time within the span of a year. Lost in the jostling for contracts (and power) at the national public transport operator is the social thrust of keeping Malaysia connected.

Finally, is “bottom-up” politics a myth? Analyst Wong Chin Huat helps me break it down.


Monopoly man on the prowl

Tycoon Syed Mokhtar Albukhary is expected to benefit from this one.

The Federal Land Development Authority (Felda) is planning to raise its stake in FGV Holdings Bhd and trigger a mandatory takeover offer (MO) in the process.

Maybank Investment Bank Bhd (Maybank IB), acting on behalf of Felda, said in a Tuesday press notice that the agency would be buying over stakes held by civil servants’ pension fund Kumpulan Wang Persaraan Diperbadankan (KWAP) and Finance Ministry-owned Urusharta Jamaah Sdn Bhd for RM658 million cash.

This will effectively raise Felda’s stake in FGV to 35.12%. But, the agency claims that, together with parties acting in concert (PACs), it will hold more than 50% in the listed planter, triggering an MO. Maybank IB did not state who the PACs were.

Minority shareholders will then have the option of receiving RM1.30 per share should they agree to Felda’s offer, which is a 2.36% premium or three sen from the RM1.27 per share on the MO announcement day.

The proposed share purchase, according to Maybank IB, is part of Felda’s plan to transform and restructure itself and strengthen its core business in plantations. This could involve, subject to discussions, terminating its land lease agreement (LLA) with FGV and taking over related palm oil mills.

Still early days, so details are coming in piecemeal. But some questions need to be answered, such as the conditions of the share purchase agreements, the compensation that Felda will need to cough out if the LLA is terminated and whether FGV will continued to be listed.

Now, the LLA required Felda to surrender the management of 355,000ha of plantations in return for a fixed payment of RM248 million a year regardless of crude palm oil (CPO) prices, and a 15% share of profits from the leased acreage.

This was a poorly designed deal as it was based on the assumption that CPO prices were at RM2,800 per metric tonne or greater from the point of listing in 2012. That never happened, leading FGV to not fulfilling its end of the bargain, that is contributing at least RM800 million a year, and was subsequently blamed for Felda’s financial difficulties.

Terminating the LLA, however, will require Felda to cough out at least RM3 billion since compensation is based on a certain formula.

The agency has weak cash flow and RM10.6 billion debt. Funds for restructuring will come from Felda’s issuance of an RM9.9 billion sukuk. Further, Prime Minister Muhyiddin Yassin's cabinet has agreed to the termination of the LLA.

The rush to dominate FGV is a sign of tensions between the agency, the listed planter and settlers. Aside from the blame game between Felda and FGV over fulfilling the terms of the LLA, there have been a few noteworthy flashpoints such as when shareholders, which include the Felda cooperative, shot down the directors’ fee last year.

So having more control of FGV would help Felda get rid of these tensions. But because the government is cash-strapped, a corporate insider familiar with Felda’s business believes that Syed Mokhtar and businessman Johari Abdul Ghani may be summoned to help.

Johari and current Felda chairman Idris Jusoh share one thing in common: both are Umno members. Idris is also Besut MP.

“That’s what I think. If they are able to take FGV private, it might be sold to Syed Mokhtar and Felda goes back to black. The other option is selling FGV’s stake in MSM to the tycoon.”

Syed Mokhtar has been eyeing FGV and its sugar refining subsidiary MSM Malaysia Holdings Bhd for some time. Together with Johari, the tycoon had been lobbying to take over both entities even during the previous Pakatan Harapan (PH) government.

People familiar with this episode told me Syed Mokhtar actually made some inroads in taking over FGV until the change of government in late February this year.

He didn’t stop there. In an Oct 13 bourse filing, FGV said it received an expression of interest from Syed Mokhtar’s Perspective Lane (M) Sdn Bhd “to participate in FGV via an injection of plantation assets into FGV, for share consideration. (After which) PLSB would potentially become the single largest shareholder of FGV.”

If the government accepted the deal, Syed Mokhtar would be the single largest shareholder in FGV with a more than 51% stake. The tycoon would also be in control of MSM, therefore creating a monopoly, a pet business model, as he would consolidate Central Sugars Refinery Sdn Bhd and MSM.

After Perikatan Nasional (PN) took over Putrajaya, the Muhyiddin government deemed the proposal disadvantageous with Idris writing to each FGV board member, urging them to reject the deal.

It is understood that Syed Mokhtar is still on the prowl, targeting FGV as well as MSM. What might work in his favour, a source said, is the PN government’s stress on Bumiputera empowerment.

“At the end of the day, if the government were to go through this route, there are only a handful of Malay tycoons close enough to the corridors of power to wrangle such a deal.”

But even if Syed Mokhtar and other Bumiputera businessmen come to the rescue, will Felda have the best interests of its settlers as well as shareholders and taxpayers?

Governance has always been a problem at Felda. Its white paper details this shopping spree where it bought six companies well above the market price. Financially, by the end of 2014, FGV had only RM446 million left from proceeds of almost RM4.5 billion.

Regardless of the RM1.30 per share offer, investors who bought into FGV at the issue price of RM4.55 each during the time of listing on June 12, 2012, will have to settle with a loss of more than 70% of their money.

FGV’s listing prospectus said then that some 200 million shares from the initial public offer went to settlers, most of whom were given loans to purchase their stakes; 72 million shares to the Malaysian public, 287 million to institutions, and 420 million to Bumiputera institutions.

So much for the world’s second-largest listing that year, behind tech giant Facebook. It was a political tool for then prime minister Najib Razak and remains to be so for whoever is in power, if more “cheque” than balance reigns in any Felda corporate exercise.


Boustead at the seams

There may not be any material development yet but the possible privatisation of Boustead Holdings Bhd by its controlling shareholder Lembaga Tabung Angkatan Tentera (LTAT), the armed forces pensions fund, is still on the table.

LTAT expressed interest to take Boustead private at an indicative price of 80 sen per share on May 28, and received the greenlight from Bank Negara Malaysia on Aug 27 to embark on that exercise.

The timeline of this is interesting. When privatisation was mooted, the LTAT chief executive was Nik Amlizan Mohamed.

She was appointed under the PH government and stepped down on Oct 2 this year after completing a two-year stint at the fund, only to return to KWAP as chief executive. LTAT's top post remains vacant at the time of writing.

But here's how patronage is expected to work: LTAT, as it is the armed forces’ fund, falls under the oversight of the Defence Ministry, led by Ismail Sabri Yaakob. He is believed to be building a war chest and is eyeing the Umno presidency, according to party insiders.

During his time in government, especially rural and regional development minister from 2015 to 2018, Ismail Sabri was able to build a sizeable grassroots base. So, he can galvanise support.

Additionally, as defence minister, he oversees or signs off on billion-ringgit contracts, especially those involving LTAT and Boustead, and also has the potential to influence a crucial voter base – the army.

Then there is the vacant LTAT post. The frontrunner to replace Nik Amlizan is Amrin Awaluddin, former Boustead managing director and chief executive. But sources close to him said that he had turned down the job once before.

“This is a poisoned chalice. As far as I know, he was never keen on the role. And this government would probably want someone to sweep certain things under the rug. LTAT and Boustead are problematic. Boustead, especially, being a concentration risk,” a market participant said.

The local scuttlebutt also has it that Amrin might be heading to UEM Sunrise Bhd, another listed GLC, which is in the midst of merger talks with fellow peer Eco World Development Group Bhd.

Now we arrive at Boustead proper and here the politically exposed “corporates” are in full swing. The chairman is Umno strongman and former Johor menteri besar Mohamed Khaled Nordin.

Newly appointed group MD and CEO Mohammed Shazalli Ramly, who double-hatted as Najib’s branding guru while being Telekom Malaysia Bhd chief. He was instrumental in putting together a video of GLC heads to perform the song Hebat Negaraku, which was Barisan Nasional’s election slogan.

“Given Shazalli’s history, he comes off as a willing party to any instruction from the top. Certainly not someone who will rock the boat or transform Boustead,” a source said.

Aside from Khaled and Shazalli, other Umno-Najib links come by way of independent non-executive director Abdul Hamid Mohamed and non-independent non-executive director Zurainah Musa.

Abdul Hamid is executive director of Symphony House Sdn Bhd, which is founded by Mohamed Azman Yahya. On September 25, 2013, Azman refuted reports pinning him to Angsana Tiara Sdn Bhd, which operates the controversial Automated Enforcement System (AES) project.

Zurainah, on the other hand, holds directorships in Berjaya Corporation Bhd, Uzma Bhd and Tioman Island Resort Bhd. She is also Cheras Wanita Umno chief.

What will a Boustead privatisation mean in this environment? LTAT depends on it for dividends but the diversified company’s shareholding structure across diverse business interests comes at the expense of higher concentration risk.

The group’s financial results aren’t pretty, too. Its losses for the cumulative period ended September 30 widened to RM198.6 million from last year’s RM153 million. Total liabilities stood at RM11.1 billion against total assets of RM16.58 billion but its cash and cash equivalents dropped to RM516 million from RM1.12 billion.

It certainly has valuable assets, from land to hotels to petrol-pump stations. Some of its listed holdings sit on potentially lucrative contracts with recurring income, such as Boustead Heavy Industries Corporation Bhd’s littoral combat ships project, which is behind schedule and the subject of investigations.

Going private will definitely allow LTAT to restructure Boustead quickly, without the hassle of complying with listing requirements. But that also means a world with little to no transparency.

Welcome to the rail world

Prasarana Nasional Bhd president and group chief executive (PGCE) Muhammad Nizam Alias has been suspended with chief operations officer Norlia Noah serving in the interim. More changes at the senior level are expected to follow soon.

The reason behind the suspensions remain unknown but when I wrote this story, industry sources raised concerns over heavier political interference in the national public transport operator.

Its chairman is Pasir Salak MP Tajuddin Abdul Rahman, who is also Umno’s elections director. He also has business interests and is either a shareholder or director of a slew of companies.

This is the second time in a year that Prasarana, a Finance Ministry-owned company but governed by the Transport Ministry, has suspended its chief.

Nizam’s predecessor, Mohamed Hazlan Mohamed Hussain, received the same treatment on December 24 last year on the back of public dissatisfaction over the group’s light rail transit (LRT) services. Nizam, the then COO, filled in, and was later promoted to PGCE.

Lost in this debacle is Prasarana’s social thrust – to provide commuters with first-class transportation.

The company maintains and operates the country’s two LRT networks, namely the Kelana Jaya line and Ampang-Sri Petaling line, as well as the KL Monorail, bus rapid transit Sunway line, and bus services in Kuala Lumpur, Penang, Kuantan and Kamunting. It is also the operator of the mass rapid transit service in the Klang Valley.

The group has been loss-making since 2014. According to its latest financial results ended December 31 last year, Prasarana registered a loss of RM3.61 billion on the back of RM842.09 million in revenue. Its total liabilities for the year stood at RM35 billion compared to total assets of RM1.29 billion.

External auditor Ernst & Young PLT, in Prasarana’s 2019 annual report, said as liabilities exceeded assets, “these conditions indicate the existence of material uncertainties that may cast significant doubt on the group’s and the company’s ability to continue as a going concern and, therefore, the group and the company may be unable to realise their assets and discharge their liabilities in the normal course of business”.

Running a public transport service is no easy feat and consensus has it that such an endeavour is inherently loss-making globally as affordability concerns do not permit operators to charge fares that enable cost recovery. This is where public subsidies come in to keep the system functional, more so during a pandemic.

But the other dimension to this is that public transport operators dole out packages when expanding a certain line or route and also sit on significant parcels of valuable land that can be commercially exploited in the name of benefiting operations.

Prasarana has been exploring this route through the transit-oriented development (TOD) model, which means building mixed-development near a transit station preferably within a 400m radius, a concept popular in Japan and Hong Kong.

It already has eight TODs in the pipeline and Tajuddin seemed bullish when he talked about this during a June 12 press conference, saying he expects the projects to generate an estimated gross development value of between RM600 million and up to RM3.5 billion.


In search for political accountability models

Is it possible for politicians to be accountable? Or are we doomed to be at the mercy of elites and their horsetrading, with no say as to the political trajectory of the country?

Helping me make sense of the complexities of a “bottom-up” approach to politics is analyst and academic Wong Chin Huat.

EMMANUEL: How feasible is it for politics to be bottom up, meaning policies and manoeuvrings dictated by the electorate and not entirely by the political elite?

CHIN HUAT: Political parties and elites exist to represent segments of society, to aggregate their preferences and to formulate coherent policies. They make compromises to build a coalition until it is big enough to attain their goal, whether it is winning a legislative seat, forming a government or passing a bill or budget.

Political parties and elites compete and win by enhancing these differences and making compromises. Most people often see this contemptuously as opportunism. But division and compromises are what make multiparty democracy possible and viable.

Without division, we would not have rigorous competition and contrasting choices. Without compromises, parties will stand stubbornly on their pedestals and no collective decisions may be achievable.

The problem with political parties and elites is not that they divide and compromise, but they do all these while being overtly driven by career ambition. In other words, they may excessively divide society or excessively compromise, more than what is necessary, against the electorate’s best interests.

It is possible for politics to be turned upside down for the electorate – more accurately, people who are not career politicians – to produce division and compromises. As a matter of fact, society is normally differentiated and divided into different segments.

Whether you are aware or not, many interest groups – commercial chambers, professional associations, trade unions, ethno-religious associations, environmental groups, women groups and many others – are articulating their interests and formulating demands.

What non-politicians lack is often the skill to make coalition and compromise. Often, different interest groups talk to the same groups of politicians (normally the government) instead of talking to each other.

Sometimes, different interest groups talk to different groups of politicians who then negotiate on their behalf for some solutions. When social groups are not talking to each other, parties are needed as middlemen.

To minimise the roles of politicians and political parties as middlemen, social groups must talk to each other. They have to look for some points of convergence to achieve some consensus, instead of trying to convert other groups into supporting everything they do.

When social groups can build consensus, such consensus would likely become reality, whether or not politicians have the “political will”, ie determination to bulldoze dissenting opinions to do the unpopular but right things. However, coalition- and consensus-building requires compromises or horsetrading. To amalgamate into a large group, small groups need to compromise to accommodate each other.

Ironically, compromises – often derided as “opportunistic”, “unprincipled” and “betraying” – is exactly why so many non-politicians hate politics and politicians. Too often issue champions speak on behalf of the people as if people who hold different views do not belong to people. Making compromises and building coalitions necessitate reducing self-righteousness and regard other stakeholders as legitimate rivals in the policy space.

Bottom-up politics is therefore possible only if non-politicians representing different groups engage with each other to seek temporary or partial solutions, to separate tradeable periphery interests from unalienable core interests, and to make compromises when possible and desirable. In short, to resemble politicians except having no career ambition for public offices. Are non-politicians happy to acquire this skill of coalition-building and deal-making?

EMMANUEL: If we ever want to begin talking about holding politicians accountable, where do we start in our current environment?

CHIN HUAT: The short answer is to give voters the power to recall politicians when they fail us. Early termination of a contract is common in normal work contracts – both employer or employee can fire each other with a notice before a stipulated period.

In Malaysian politics, however, only elected representatives can quit before the contract is up individually by resignation, or collectively when the government opts for early dissolution. This frustrates voters, and unsurprisingly, the cynical ones would then say, “Democracy exists only in two weeks of campaign period, four or five years once.”

In the most common form, a recall election is an election to decide specifically whether an incumbent representative should be recalled. If so decided, then a by-election will be held to fill the vacancy.

The recall normally has three thresholds to meet: (a) what qualifies a petition; (b) what warrants a recall election to be held; (c) what effects a recall.

In Taiwan, where a mayor was successfully recalled in June for running for presidency soon after winning his mayoral job, it takes the signature of 1% of registered voters to qualify a petition. Signatures of further 10% voters would be needed before the Election Commission conducts a recall election.

Finally, a recall petition is passed only if (a) more voters voted for “yes” than “no”; and (b) “yes” votes exceed ¼ of all registered voters. This can be a good reference if we want to introduce recall elections in Malaysia, except that the last threshold in Taiwan may be a bit low.

I would suggest revising it to either one vote higher than 50% of voters (so more people wanting the incumbent to be fired than otherwise) or one vote than the votes last won by the incumbent (so more people wanting the incumbent fired than those who initially hired him/her).

Recall elections can be introduced at the state level to deter party-hopping or coalition-hopping, even if no constitutional amendment or law is passed in the Federal Parliament to circumvent the 1992 Supreme Court’s verdict on Negeri Kelantan v Nordin Salleh which renders all anti-hopping law – federal or state – unconstitutional and void.

How? Recall election is the result of voters exercising their choice to sack, which can be part of the state's power to disqualify its lawmakers, and not the automatic result of lawmakers crossing the floor.

If a lawmaker joins another party with the blessing of his/her constituents, a recall petition may not pass or even cause a recall election even if attempted.

Meanwhile, the law may provide for grounds other than party-hopping, such as conviction for a criminal offence (even when the judge gives a lenient sentence below a year of imprisonment or RM 2000 in fine) or long absence in legislative seating (even when the speaker let off with approval of leave).

Other than circumventing the constitutional barrier, recall elections have two advantages over anti-hopping law.

First, anti-hopping law can only govern party-hopping but not coalition realignment. Had we had anti-hopping law during the Sheraton move, while Azmin Ali’s gang can lose their seats, Bersatu that left PH would not lose their seats, but Mahathir’s gang who left Bersatu would.Recall elections which leave the trigger to voters can avoid such complications. If voters are unhappy, even coalition realignment may be punished by voters.

Second, anti-hopping allows party leaders to command greater compliance than even now from lawmakers and make legislatures a worse rubber stamp when the government controls a solid majority.

Why so? To be effective, anti-hopping laws must punish not only lawmakers who voluntarily leave their parties, but also those who are sacked by their parties. When party leaders act against voters’ interest, a lawmaker may be sacked from the party and lose his/her legislative seat for standing up for voters. Recall elections leave the choice to voters on who to support, if a lawmaker defies his/her party and gets sacked.

However, neither anti-hopping law nor recall election can deter party-hopping if party-hoppers are supported by voters. In Sabah’s recently concluded state election in September, 17 incumbents who changed their party affiliation after GE14 re-contested in their constituencies, and 11 of them, nearly won two-thirds.

Voters don’t care if lawmakers change their parties. Why? When our state legislatures met between seven and 17 days a year (2019) and had hardly influences on policy formulation, non-executive state lawmakers have only two real functions: (a) as members of the electoral college for the chief Minister; (b) dispense constituency service and funding to constituents.

These two functions are interconnected because if your candidate gets to be the chief minister, you get more constituency funding than those support the lost candidates. Hence, when policy competition was almost non-consistent, voters in most constituencies in Sabah were perhaps choosing between two clientelism machines, one from the federal ruling parties, and the other from the state ruling parties.

But the long answer for political accountability has to go beyond ensuring lawmakers stick to the same party symbols and means building political parties as meaningful choices in offering different products in the policy market.

For parties to function as policy machines, we need both fundamental reforms – (a) introducing party-list proportional representation into our electoral system so that parties take issue representation and policy formulation more seriously to have product differentiation; (b) make lawmakers a full time job with a lot of select committees for them to develop expertise and work even when the house is in recess.

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