Employees Provident Fund Dominate Most of the Daily Bursa Malaysia Volume
Do You Known Employees Provident Fund(EPF) presently dominates local equity and bond markets with up to 50 percent of daily Bursa Malaysia volume represented by EPF related trades!
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This is NOT HEALTHY as EPF cannot liquidate easily and unable to practice optimum Investment Strategy.
For Bursa Malaysia, It is very difficult to attract foreigner funds by having one particular type of investor dominating the whole Bursa Malaysia market.
Ideally, any Stock Exchange must be able to provide ample free float and liquidity in the market.
All these are important in order to to attract a diverse set of local and foreigner investors into our market for sustainable growth.
It good that Prime Minister Datuk Seri Najib Razak at Invest Malaysia, said the EPF would be allowed to invest more assets overseas, both diversifying its portfolio and creating more room domestically for new participants.
I hope with the better, flexible and diversify investment option, EPF would be able to declared a higher dividend in year to come!
Last year, EPF declared a dividend of 5.65%
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PM’s keynote address at Invest Malaysia
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KEYNOTE ADDRESS BY
THE HON. DATO’ SRI MOHD NAJIB TUN RAZAK
PRIME MINISTER OF MALAYSIA
AT
INVEST MALAYSIA 2010
ON 30TH MARCH 2010, AT 8.15 AM
SHANGRI LA HOTEL, KUALA LUMPUR
——————————————-
Bismillahirrahmanirrahim.
Assalamualaikum Warahmatullahi Wabarakatuh.
Good Morning, Salam 1Malaysia,
INTRODUCTION
1. Thank you for that very kind introduction. I want to say how delighted I am to be here with you today. Business leaders and investors are crucial to the health of Malaysia’s economy – and our society. I want to thank you for the work you do, the contribution you make, and your involvement in the important discussions being held here over the coming days.
2. The theme of Invest Malaysia 2010, ‘Powering Global Excellence’, is a fitting one given the forward looking nature of Bursa Malaysia and the aspirations we share for our nation and our businesses. It is also precisely what I want to talk about with you today. In a new year, in a new context, in a world emerging from recession, we are focused on:
– How to ensure a sustainable and robust recovery in the short and medium term
– Enhancing Malaysia’s competitiveness
– Sparking private investments and growth
– Putting the country on a trajectory to achieve high income levels
– Building an innovative economy and
– Bold transformation and economic reforms to modernize our economic model for the future.
3. Such an ambitious agenda may have seemed rather idealistic 12 months ago. When we gathered here last year, the economic context was very different. The world was in the depths of the first truly global recession. Over twenty million jobs were lost. Trillions of dollars of wealth evaporated. Economies around the world faced GDP contraction. Industrial production and capital investment fell dramatically.
4. We were all happy to welcome 2010. But, while Malaysia felt the impact of this recession, I believe we weathered the storm and made progress against the odds. We refused to be passive bystanders as the downturn swept across Asia, and instead acted decisively and swiftly.
5. We injected RM67 billion of stimulus funding, and found the balance in our budget between investments our nation needs and belt-tightening required to reduce our deficit. We introduced a range of incentives and service-sector liberalisation initiatives that are opening Malaysia to high quality investment opportunities in key economic sectors.
6. We are now beginning to see the results of these actions. Fourth quarter 2009 GDP figures indicated growth of a higher-than-expected 4.5 percent. Stimulus packages are driving hundreds of job-creating infrastructure projects. Exports have rebounded, and quality foreign investments are flowing into Malaysia. The fiscal deficit is forecast to fall from 7 percent to 5.6 percent in 2010. The Industrial Production Index rebounded strongly to a 12.7 percent growth in January 2010. Total exports rose 37 percent to RM52 billion and imports increased by 31 percent to RM40 billion.
7. Positive private sector activity is also a deeply encouraging sign of recovery. Coca-Cola has announced a 1 billion Ringgit investment that could create up to 2,000 to 3,000 jobs in Malaysia. Maxis’ multi-billion dollar IPO is the largest ever in Southeast Asia and represents the sort of entrepreneurial vision that I see every day in our Malaysian companies. JCY Berhad is also a proud example of a positive private sector activity that started small and now produces 25 percent of the world hard disc drives. Moving forward there will be more divestment of government holdings, capital can be raised, innovation can flourish, and wealth can be created in ways that benefit the wider Malaysian economy.
8. The global economy has not fully rebounded from the shockwaves of the past two years. No country – including ours – can be immune from the effects. But I can tell you today that Malaysia’s economic recovery is on track. The decisions of this government – and the vision of a dynamic private sector – have helped lay a foundation for the next stage of Malaysia’s economic development.
Ladies and gentlemen,
CHALLENGES WE FACE
9. But, we have so much farther to travel on our national journey. As a government – and as Prime Minister – our aspirations for Malaysia and the Malaysian people go far beyond guiding our nation through a recovery. Indeed, the work we have done over the past year will be wasted if we simply retreat back to the status quo. That is unacceptable to me. I pledge this: we will work tirelessly to develop and implement the economic reforms that our nation needs to grow, our businesses need to succeed and above all, for our people to prosper.
10. The world economy – both before and especially since the financial crisis – has changed significantly. Policies which in the past led to high levels of growth and helped reduce hard core poverty will no longer be enough to raise income levels and create the high-value economy we want to see. We cannot depend solely on new capital to fuel growth. Rather we must use it more effectively to increase productivity, stimulate innovation and enhance the skills of the Malaysian workforce. We risk losing our competitive edge altogether if we do not act quickly to address structural barriers to growth that stand in the way of an effective response to the changing economic environment.
11. We can no longer rely on just a few sectors of the economy to drive our growth. We must diversify and provide incentives in new strategic industries where our nation has expertise, strength and potential for even greater success. As we expand into these areas, we should also consider the value that we can gain from the competencies of the Malaysian workforce – those living here and Malaysians abroad. They – with the support of foreign talent where appropriate – can provide the brainpower, the intellectual capital and skills to help us realize our goals more meaningfully. I invite Malaysians who have left our shores to look home once again and to participate in this transformation process to realize Malaysia’s full potential.
12. Our education system must continue to be re-evaluated and improved to create the workforce of the future, with a commitment to merit-based programmes. These will reward excellence and nurture talented graduates who excel in strategic and creative thinking, and entrepreneurial and leadership skills that will drive success in the decades ahead.
13. We need a government that enables and empowers the private sector. This means re-shaping and energizing the public sector to be more responsive and accountable to the needs of private citizens and businesses.
14. We must also recognize that some policies, which served a purpose in a previous era, may now be impediments to success, distorting the market and putting us at a competitive disadvantage. For instance, the government is consulting on a series of fiscal reforms that will reassess the subsidy system that exists in Malaysia and broaden our revenue-raising base through the proposed introduction of a goods and services tax. They will bring Malaysia in line with international norms and reduce an unsustainable reliance on a small number of industries, businesses and taxpayers. These are essential, common sense reforms that will allow us to move forward together as a nation, while ensuring that we enhance and strengthen safety net programs that support the welfare of Malaysia’s most vulnerable citizens.
15. Cumulatively, these deficiencies go a long way in explaining why Malaysia’s private investment has not recovered to pre-Asian crisis levels and – as you know – pose a threat to our long-term position as a home for international and domestic investment.
16. Addressing these issues is not just about having a clear vision and the right policies. It’s also about having a determined political will, effective execution and the full support of the Rakyat. Do we have the courage and boldness to rise out of the middle income trap? I believe we need to build a national consensus on this issue. Because growth is beginning to revive, some are questioning the need for urgency to break the habits of the past. There are now calls to protect the status quo. Do not be fooled. We need a new way of doing things. While the recovery has begun, we must act now to position Malaysia for the future. And this is the choice we now face: To rise out of the “middle-income” trap that will be a precarious position for any nation in the new global economy; or to stick to what we know, and what is comfortable, by hoping the world will adapt to us. Our choice, and the job of the government, is to pursue economic policies that succeed in the knowledge industries of the future, with high-wage jobs and prosperity that can be shared by all.
Ladies and gentlemen,
NEAC REPORT
17. Today, we take an important next step in that journey. The backbone of our long-term policy agenda will be a new economic model – which will be integrated into the 10th Malaysia Plan and with a longer-term vision that will be delivered through the 11th Malaysia Plan. These can transform the Malaysian economy to become one with high incomes and quality growth over the next decade.
18. The New Economic Model is a vital part of the Malaysia we are building, the structure that will serve our people for the future. As a metaphor, think of a house under the Malaysian sun. We need a roof – an overarching philosophy that encompasses all parts of the building. In our case, 1Malaysia is the roof that we gather under. The Government Transformation Program – a programme of delivery on six key areas – is one pillar of this home. A second pillar is the Economic Transformation Plan that will deliver the New Economic Model. And the floor, the basis where all Malaysians will move forward are the 10th and 11th Malaysian Plans..
19. In the months after I became Prime Minister, I set up an independent National Economic Advisory Council, and tasked it with a thorough review of Malaysia’s economy. I asked it to make bold, yet practical, recommendations for a new economic model to transform the Malaysian economy. And I can announce today that I have received the NEAC report.
20. The Report details in a frank manner, the state of the nation’s economy – its strengths and its shortcomings – and assesses the current policies and potential areas of future focus for Malaysia. It is a comprehensive and insightful analysis. I want to take this opportunity to publicly thank the Chairman of the National Economic Advisory Council, Senator Tan Sri Amirsham A Aziz, the members of the NEAC and the Secretariat team. Their work and service to the nation deserves not only our recognition, but our appreciation.
21. Today, I and the cabinet – with the counsel of NEAC – will begin our detailed deliberations on how we move forward from here, particularly as we move from this report to a roadmap for the future. But this cannot be an old-style political debate. The new economic model has wide-ranging implications for the people of Malaysia, and we cannot afford to bypass their views on this matter. Like investors, this government accords high marks for transparency. Whether in the budget or the recent Government Transformation Programme, where thousands of public citizens were involved in the process, I have instructed that this report be published and made available to the general public to gather their input and provide them with an opportunity to be part of the decision-making process over the coming months. It is only through consultation with the Rakyat and all the other stakeholders that we can achieve a strong, convincing and effective plan to implement our New Economic Model.
22. I have made clear on many previous occasions that the era of “government knows best” is over. The Rakyat – and groups such as business leaders and investors – want and deserve input into the policy making process. We must develop a more consultative approach to engaging our most important stakeholders. Only through such a process can we broaden our viewpoints, challenge conventional wisdom, and help build transparent and open consensus for the right way forward. This is the path we will follow. People will come first.
Ladies and gentlemen,
NEM PRINCIPLES
23. As this consultation moves forward, I want to set out three principles that I believe should guide our nation’s thinking and the development of a New Economic Model. I want – as Tan Sri Amirsham has outlined – for all of us to visualize the impact of the NEM by standing in the future and envisioning what the NEM should mean to each of us as an individual and as a business.
24. Three principles emerged clearly from the NEAC report – firstly, high income, secondly, sustainability and thirdly, inclusiveness. These three principles will drive our economic progress for us to become a fully developed nation; a competitive economy strategically positioned in the regional and global economic landscape, environmentally sustainable and a quality of life that is all inclusive and encompassing..
25. We should ask ourselves this fundamental question: Will the New Economic Model create High Income jobs where the Rakyat benefit from a competitive economy, and a better way of life? This is the raison d’être of the New Economic Model. We want to see a Malaysia that makes a quantum leap from the current 7,000 U.S. dollars per capita annual income to 15,000 U.S. dollars in ten years as stated in the NEAC Report. The new economic model must be built from here. It will be no easy task, but the rewards will be great if we make this transformation . The challenge is how will we do it. This means building upon existing sectors and maximizing the potential of new ones through innovation.
26. Creating a high income nation will mean higher wages throughout the economy as growth is derived not only from capital, but from greater productivity through the use of skills and innovation, improved coordination, stronger branding and compliance with international standards and Intellectual Property Rights. In a knowledge economy, investment in new technology, multi skills, innovation and creativity, and increased competency are the drivers of public and private sector performance. We expect investment and competition for the best talent through paying higher wages. Even wages for blue collar workers will be based on them acquiring higher competencies, with their performance more readily benchmarked against international competitors. With more skills, comes greater responsibility, and better, higher paying jobs.
27. Among other findings, the NEAC Report highlights that today 80 percent of the workforce have education only up to SPM qualifications, Malaysia’s equivalent to the O-levels. This is not in line with a high income economy that we aspire to be., We need continuous education ,on-the-job training and re-skilling to benefit from new technologies. And by building a highly skilled workforce where productivity and competitiveness drive growth, the costs of doing business will still be competitive as capital is used more efficiently and with emphasis on quality of workers. This means a reduced dependency on unskilled foreign labour, and greater attention to multi-skilling of employees who can increase productivity. This change will also require that government raise the quality and productivity of its own workforce. I believe we have begun along this path with the Government Transformation Program, amongst others, which will enhance the nation’s infrastructure and improve access to quality education.
28. Second, the New Economic Model must include a commitment to Sustainability, not only in our economic activities, but in considering the impact of economic development on our environment and precious natural resources. There is little value in pursuing a future based entirely on wealth creation , Pursuing growth that deplete resources and displace communities will have dire consequences for future generations. This is a false and futile choice. We can have a powerful and dynamic economic approach, but one that protects the nation we love for future generations. High and sustained growth and environmental stewardship can and must go hand-in-hand. As I stated when setting up the NEAC, simply being richer falls far short of my expectations. Not only do I want the Rakyat to earn better but they must also live better. Raising the quality of life must be an integral part of the New Economic Model.
29. Finally, is the New Economic Model Inclusive? We must recognize the imperative that we harness the potential of all Malaysians, and that all share in the proceeds of increased national prosperity.
30. Inclusiveness is a key prerequisite for fostering a sense of belonging and engagement in the NEM. I want to take a moment here to touch on this issue of an inclusive New Economic Model that will ensure that no one is left out in contributing to and sharing in the creation of wealth as we progress. While perfect equality is in reality impossible to achieve in an open, global economy,an inclusive society will ensure that we can narrow inequalities in our nation, help those who need help most and engage all of Malaysia’s talents in our effort to build a competitive economic workforce.
31. Reforming our approach to fully meet these new challenges will require a change in our national mindset. In the short-term, there will be entrenched opposition. Some economic sectors may experience adverse effects. The process of change is never easy, and there will be painful moments. But for the long-term strength of our nation, we cannot afford to duck these issues any longer. If we are to truly tackle inequality and become a beacon of progress in our region, we must bring a sense of urgency to reform.
Ladies and gentlemen,
AFFIRMATIVE ACTION AS PART OF INCLUSIVENESS
32. The New Economy Policy launched about forty years ago with its affirmative action policy has served the nation well , balancing the economic growth strategies of our nation with the need to address structural inequalities and promote social harmony. Poverty has been drastically cut, standing today at around 3.7 percent. As a nation we should be proud of this achievement. It is one that many other multi-racial nations would like to emulate. However, we still have an unacceptably large segment of low-income households in Malaysia. We the Government are now dealing with 21st century problems that require fresh 21st century approaches.
33. The NEAC report sets out an approach to tackling poverty and renewing our affirmative action policies for a new and more competitive economic context. This will be part of the public consultation, but the government feels there is merit in much of this proposal and I want to set out the broad parameters here.
34. Our first priority must be to eradicate poverty, irrespective of race. We cannot have the high income, sustainable and inclusive economy we seek when disparities in income are not addressed.
35. So there will be a renewed affirmative action policy in the New Economic Model, with a focus on raising income levels of all disadvantaged groups. It will focus on the needs of all our people – those living in the long houses in Sabah and Sarawak and poor rural households in Semenanjung Malaysia (Peninsular Malaysia), who often feel disconnected from the mainstream economic activity. Fishermen. petty traders.and small farmers also fall under this category . Not forgetting the Orang Asli and low income urban dwellers, eeking out a livelihood in tough economic circumstances. The proposal in the NEAC report suggests a focus on the bottom 40 percent of Malaysia’s income strata – both individually and regionally. These are the disadvantaged groups where special attention is still required.
36. The ultimate goal – in time – is that no Malaysian lives in poverty, that all get the chance to succeed and share in prosperity. While there are those who struggle on low-incomes and in harsh conditions, we will always provide special support to help lift them out of the poverty trap.
37. The New Economic Policy has been a milestone of our society for decades, a policy I have fully supported and admired. Its original objectives are still relevant, but it is time to review its implementation. We will chase the same goals, but transform the way we do things. Our renewed affirmative action policy, therefore, will be built on four principles:
– it must be market friendly,
– it must be merit based,
– it must be transparent and
– it must be needs based.
38. For instance, one important consideration will be developing a competitive and transparent tender process, with set and clear rules for the whole Bumiputera community, made of both Malay and other indigenous groups. This is set out as a common-sense enhancement of our policies for a new economic reality and where Inclusiveness is a key component in our new economic model. In practice, this approach will mean greater support for the Bumiputera, a greater support based on needs, not race. The Bumiputera segment still forms the majority in the vulnerable groups by any measure, and while our new approach will help those on low-incomes from any group, it will still largely benefit the Bumiputera community and at same time provide for the disadvantaged of other communities.
39. In assessing the results, fair distribution must encompass the whole spectrum of measuring wealth such as equity ownership, other financial and non-financial assets, and access to wealth creating opportunities such as long-term concessions and contracts. Even in measuring ownership, it should go beyond equity to include other properties, business assets such as retail, landed properties, commercial building, intellectual property and other services as well as managerial positions. A valuable example would be the redevelopment of Kampung Baru, a holistic opportunity of wealth creation and value enhancement that goes deeper and well beyond equity ownership. I have instructed the NEAC to develop a detailed framework to operationalise this new model of affirmative action based on a transparent and market based mechanism to achieve fair distribution of the benefits of a high-income economy.
40. The NEAC report sets out its view that the previous mechanism that concentrated on target setting should now focus on structured and dedicated capacity building investment that allows the Bumiputera to take advantage of new opportunities in the economy. In addition, fair access and opportunities to retraining, upgrading of skills and ability to gain employment will also be emphasized for all Malaysians.
41. This approach builds on our experience in implementing the affirmative action policy over many years. When they are implemented in a transparent, fair and empowering way they will yield better results. But for too long, the implementation of our affirmative action policies has not reached those who needed them the most. There is a perception that the non Bumiputera have not benefitted from the progress made to date although facts and figures show otherwise. Therefore with the new principles of affirmative action stated earlier, we need to change this perception. We can no longer tolerate practices that support the behavior of rent-seeking and patronage, which have long tarnished the altruistic aims of the New Economic Policy. Inclusiveness, where all Malaysians contribute and benefit from economic growth – must be a fundamental element of any new economic approach.
42. These are the principles I want to see guide this next phase of consultation. Can we build a new model that creates a high wage, sustainable and inclusive economy where together we prosper? I believe we are within striking distance. I believe there is widespread support for it across Malaysia. And I believe – knowing the ingenuity and creativity of the Malaysian people and Malaysian businesses – we can and will make such aspirations our national economic reality.
Ladies and gentlemen,
FROM PRINCIPLES TO A PLAN
43. The question then becomes: how do we get there? The work of the government and the NEAC is far from over with this initial report. This is a two stage approach. We must now ensure a robust and thorough consultation and then the development of a detailed blueprint or roadmap on how the New Economic Model and accompanying economic reforms are to be implemented. For instance, working groups akin to the labs that drive development of the NKRA Government Transformation Program will be held, made up of participants from both the public and private sectors to drive the strategies behind the new economic model, culminating in a second report that is a detailed transformation roadmap. We will, in effect, develop an Economic Transformation Program to deliver on this new economic model.
44. To achieve this transformation, the NEAC has set out a series of strategic reform initiatives.
45. The eight Strategic Reform Initiatives focus on:-
1) Re-energising the private sector to lead growth;
2) Developing a quality workforce and reducing dependency on foreign labour;
3) Creating a competitive domestic economy;
4) Strengthening the public sector;
5) Putting in place transparent and market friendly affirmative action;
6) Building knowledge base infrastructure;
7) Enhancing the sources of growth; and
8) Ensuring sustainability of growth.
46. All eight initiatives are complementary and cross cutting in their impact over all sectors of the economy. All three goals of the NEM require that we achieve significantly higher growth rates in GDP in the next decade. As such, several of the policies we must pursue relate to the foundational issues, to enable accelerating the growth momentum through a holistic approach to remove all barriers. They emphasize the need for capacity building rather than just nation building as the sustainable way forward.
47. Adding to the NEAC report, what I would like to suggest is to focus our efforts effectively by targeting specific key sectors, or what I would call the National Key Economic Activities (NKEAs). These are the areas where our economy has the potential to thrive as we move into the high income bracket. In the past, the government has played a paternalistic role in recommending and promoting the sources of growth that should be undertaken by the private sector. Yes we need to provide some guidance, but we are aware that the government should not be making investment decisions for the private-sector.
48. Based on the NEAC new approach that the private sector should drive growth, the government needs to enhance its role as the facilitator for industries to flourish. The majority of the initiatives that have been set out deal with all that is imperative to set the economy right – to remove distortions, barriers and impediments that hinder our economy from progressing up the value chain and to promote healthy competition. Implementing these policies is a pre-condition to successfully tapping new sources of growth. As long as these barriers remain, the growth opportunities in all sectors will not be realized.
49. The NEAC – with the input from across the private sector – has identified key sectors that can be leaders in generating high growth rates. Sectors where our nation is competitive, has a wealth of expertise, the opportunity to leverage specialisation and has gained first mover advantages, as well the traditional comparative advantages. There is much work to be done, but the potential upside requires us to place a focus on these key sectors.
Ladies and gentlemen,
50. Mirroring the process we followed for the Government Transformation Program and its National Key Results Areas, I am committed to undertake a thorough consultation process with all the stakeholders, and ensure the National Key Economic Activities will be selected with the sole criteria of Malaysia’s best interest. The NEAC will work with PEMANDU to develop the NKEAs. They will consult the Rakyat and all other stakeholders and, when the 10th Malaysia Plan will be unveiled together with the NKEAs, a special Economic Delivery Unit will be established to spearhead the reform process and finalise and implement the NKEAs. There is still a lot of work to be done to identify a successful strategy for execution and the NKEAs to focus on, but, as a mere indication of what may come in the future, let me give you a few examples of the possibilities we are looking at:
51. In the Electrical and Electronic sector, Malaysia can leverage its early mover advantage. Building on a strong foundation, Malaysia’s future in this sector must be focused not only in manufacturing but in research and development and design, where Malaysian companies are driving innovation rather than simply importing it. Among the measures we must consider incentives for high-value research and support for SMEs supplying larger firms on a larger scale basis.
52. Resource based industries in the palm oil and oil and gas sector continue to be emphasized. In the palm oil sector, strengthening research initiatives should lead to indigenous technology that better meets market demand, such as healthy fats and oils, biofuel from biomass, cosmetics and bio-degradable plastics.
53. In oil and gas, we have one of our nation’s most visible and valued champions in Petronas. It has built a strong brand internationally, and I believe now we must also help drive growth here in Malaysia with even greater support for local suppliers as it grows. Beyond the core oil and gas sector, however, Malaysia’s international energy expertise can help companies in this industry and beyond expand internationally by sharing its know-how, partnering on international bids and offering support on a truly global scale. The strength of having a well-developed pool of local talent and companies which are able to compete globally gives us a lead advantage.
54. In services, the tourism sector has not been exploited to its potential. More can be done to attract new markets from Europe and the Americas to complement the markets from the United Kingdom and Asia. We have some of the oldest forests in the world, rich with flora and fauna and diving experiences acclaimed to be unforgettable. Malaysia can lead in providing environmentally sustainable eco-tourism adventures that are much sought after by the advanced markets. We should aim to provide services which will attract high-end tourists who seek exclusiveness and high value services. We must also be creative as we consider new areas of tourism. From medical tourism – a high-potential growth sector – to eco-tourism, luxury market tourism and visitors related to our growth as a regional education hub. Malaysia’s tourism future is bright if we have the vision and creativity to support its diverse growth potential.
55. As an agriculture producing nation that is also heavily reliant on imports of food, there is a strategic need to focus on expansion of the high value agriculture sector. There is potential to create value in rural space through large-scale agriculture, higher yield methods, new technologies, better linkages to the marketplace that will result in greater production and income. We must also promote agro businesses through integrated and modern agriculture practices.. Given that the Bumiputera community is large in rural areas in both Peninsular Malaysia and Sabah and Sarawak, an intensified expansion of modernised agriculture activities can contribute both to higher incomes and to the reduction in income inequality. And to compete globally, we must commit Malaysia’s agricultural sector to cultivation and processes that meet, and exceed international standards and best practices, as well as marketing on an international scale.
56. Malaysia also has the potential to embrace a leadership role in green technology and develop a niche in high value green industries and services. We have on the ground expertise in complex manufacturing, and are early movers in the region’s solar and alternative energy sectors. And with recent success in commercialization of natural bio-diversity into high value products which are gaining traction among environmentally conscious consumers, Malaysia can become a green hub all the way along the business development continuum – from research to design to manufacturing to commercialization, we have the skills and the public sector’s support.
57. There are many areas that Malaysia can explore to expand the sources of growth. I would like to mention another example–the financial services industry, which is both a growth sector as well as an enabler to growth of other sectors. Its growth potential is seen in Islamic financial services, as well as in the derivatives for risk management by local and regional players. Malaysia is now a world leader in Islamic finance, capital market and the takaful industries. We see the potential to become a hub for integrated Islamic financial services. For instance, Bank Negara Malaysia is currently finalizing the establishment of a physical Islamic financial centre and the imminent approval of two mega Islamic banks licences.
58. Competition is no longer only between nations but also between cities. For Malaysia to move into a higher income economy, we must exploit higher returns by adopting strategies to build density, develop clusters and specialize in high value sectors. Recognising this role, cites such as Kuala Lumpur and Johore Baru which includes Iskandar Malaysia must be developed to be more livable and be able to attract talent and be part and parcel of a more comprehensive and integrated urban-rural planning. We must develop stronger clusters that serve as incubators for start up companies, ensure shared services and develop more businesses and university linkages. Evidence shows that development of cities helped raise incomes of surrounding rural areas especially when they are integrated into the supply chain network.
59. There are many more sectors of strategic growth where Malaysia has the potential to flourish. We have strengths in the IT industry. The creative industries – our music, film, arts and cultural expertise – can be an important sector in Malaysia’s future. And with a strong base of medical, scientific and manufacturing expertise, we can be a regional home for the fast-growing biotechnology and life sciences sectors.
60. So I call on Malaysian companies, investors and entrepreneurs – to seize the opportunities before us and become regional and even global champions. We must have concerted policy intervention to turn this into reality. Companies that show innovation and foresight to reshape and revitalize their activities would have unprecedented prospects to be world leaders in the future.
Ladies and gentlemen,
PUBLIC-PRIVATE COOPERATION
61. If Malaysia is to achieve its goals, we must build a strong, solid and strategically demand driven market that connects sectors of growth to the ambitious goals I have set out for our New Economic Model. I have already touched on many of the strategies I believe we will require, including modernization of our education system to build a world-class workforce; prudent fiscal reforms that bring greater balance to our revenue and expenditure framework; and market-friendly affirmative action designed to ensure that all Malaysians benefit from this new approach.
62. But underlying all of these strategies must be a new and clear understanding of the respective roles of business and the government. The government is an enabler of wealth-creation. Our role is to ensure stability, openness and fairness in a secure environment that facilitates, rather than distorts or hinders, growth. Competition should be promoted to allow dynamic and efficient markets, and where appropriate, public sector support is needed, we should be there to help. We have also seen in the past 18 months – more clearly than ever – the need for governments to be vigilant in safeguarding economic stability when markets fail.
63. I look around this room today and I see some of the finest private sector talent in the world. You are the torchbearers of wealth creation and growth. We will be active in protecting the interests of the Malaysian economy and the Malaysian people, but we want private sector expertise and investment to flourish. Again, to succeed in a different economic context, we need to look at doing things differently.
64. One of these changes must be a new approach that expands the role of capital markets under our new economic model. Malaysia will not be successful – even in our key sectors – if we simply maintain the status quo. Sparking growth means cultivating innovation, risk-taking and creativity in development of new products or services.
65. Hence, in order to facilitate Malaysia’s new economic model, support private sector innovation and to stimulate financing in the higher-risk services and knowledge driven sectors that are critical to Malaysia’s future, I would like to see an expanded role for our capital markets, evolving from a primarily fundraising model to a liquidity-driven and risk-diversification model that encourages entrepreneurs and investors to be part of Malaysia’s exciting economic future.
66. The development of our capital markets will be further strengthened in the Second Capital Market Master Plan currently being formulated by the Securities Commission, but I also see the acceleration of capital market industries such as the fund management, venture capital and private equity sectors as a crucial part of our drive to create the high wage, high skill economy of Malaysia’s future.
67. Related to this issue, the Employees Provident Fund presently dominates local equity and bond markets with up to 50 percent of daily Bursa volume represented by EPF related trades, a situation that is not healthy for the market or for the EPF. Today I can announce that the EPF will be allowed to invest more assets overseas, both diversifying its portfolio and creating more room domestically for new participants. EPF presently has about 6 percent of assets invested offshore and this will increase significantly. EPF will also increase its direct investments in the real economy of Malaysia, as an alternative to market investments – taking positions in healthcare, commodities, property and other long-term investments that match EPF’s requirements to protect the real rate of return on its assets.
68. On the institutional front, the Malaysian Industrial Development Authority (MIDA) is the principal Government agency responsible for the promotion and facilitation of investments in the manufacturing and services sectors in Malaysia. MIDA has been instrumental in the nation’s transformation under different phases of industrial development over the last four decades and has emerged as a well recognised institution among both foreign and domestic investors. However, the time has come for key changes in MIDA in order to make it a more effective investment promotion agency.
69. I am pleased to announce that MIDA will be corporatized to give it the necessary organisational flexibility to attract and retain the manpower and talents it needs in order to be an internationally competitive national investment promotion agency. The Government has also agreed to empower MIDA with the necessary authority to negotiate directly with investors for targeted projects. In addition, MIDA will also be designated as the central investment promotion agency for the manufacturing and services sectors, excluding utilities and financial services, to enhance the coordination and cohesion among the various investment promotion bodies in the country. These changes will enable MIDA to approve incentives in real time and act swiftly to engage investors more effectively. Finally, MIDA will be renamed as the Malaysian Investment Development Authority while maintaining its acronym, MIDA, which is a well known brand name.
70. In addition to this important institutional reform, I believe that we need to look anew at ensuring an appropriate balance between government, GLCs and the private sector in our economy as part of this new economic model. In the years prior to the Asian financial crisis, the private sector contribution to GDP far outstripped that of the public sector, but in the first decade of the new century, the statistics have been reversed. What started as a cyclical necessity of fiscal pump priming has hardened into a dependency and an unsustainable structural condition.
71. I have touched on many of the key principles that will underpin this recalibration of the public-private sector relationship: government reforms to reduce bureaucracy and focus on creating a growth-enabling environment; encouragement and incentives to spur private sector innovation and productivity; a focus on strategic knowledge sectors of long-term growth; and a recognition of the crucial importance that pursuing opportunities in regional and global markets will play in Malaysia’s growth.
Ladies and gentlemen,
72. At this venue last year, I outlined a strategy that would see GLCs proceed to dispose of non-core assets; to catalyse and develop the eco-systems of their core sectors; and, to compete on a level playing field with the private sector. Building upon the third principle, I mentioned that Government Linked Investment Companies (GLICs) should be allowed to divest non-core and/or non-competitive assets.
73. Today I want to announce further steps that will enhance private sector opportunities and appropriately recalibrate the relationship between the public and private sectors.
74. Going forward, I would like to see GLCs and Government holding agencies pursuing strategic collaborations with private sources of capital in Malaysia in order to provide prospective investors with exposure to the government order book and build national competencies. These coalitions will not only drive the regionalization strategy of Malaysian companies which is vital given the size of the domestic market, but also ensure ready pools of capital are in place and available for quick deployment. In addition, the opportunity to form partnerships with a wider range of co-investors including retail investors, local and foreign mutual funds remains open. If successfully implemented on a large scale, these catalytic coalitions could become a unique form of Public Private Partnership. We already have initiatives moving in this direction. Examples include the upcoming privatisation of Astro and the partnership between Malakoff and Tenaga Nasional on a utilities project in Saudi Arabia.
75. We have made progress in the area of divesting non-core assets and Khazanah alone has over the course of the last nine months divested significant stakes in Tenaga Nasional, Malaysia Airports and PLUS for the purpose of increasing the liquidity of these counters. But more such progress in this area must be made.
76. We will be pursuing further such divestments of non-core and non competitive assets that operate in areas where new strategic shareholders have the potential to enhance the creation of value, as compared to them being left within the government stable. Of course, we must ensure that any such divestments stand up to rigorous checks to ensure that they are in the public interest.
77. A transparent process will be implemented to ensure that potential private sector bidders meet a minimum set of criteria, including financial standing, track record in business expansion and management excellence, and that their proposals help grow the Bumiputera and 1Malaysia causes. The bidders will have to demonstrate delivery against set benchmarks of innovation and value creation, and support the goals of the New Economic Model – high wages, inclusiveness and sustainability. To develop these processes, I propose evaluation panels consisting of financial professionals, international industry experts and senior Government officials be appointed to assess private sector bids for GLC-related assets.
78. And because it is so important that public and private sector performance are each enhanced, we will be vigilant in ensuring that transfer of GLC assets into the private sector does not compromise our goals for public sector reform and delivery, or lead to asset stripping that runs counter to the public interest. For a predetermined period of time, this may include the retention of key management and the prevention of involuntary staff layoffs. Equally, I recognize the importance of reviewing existing tariffs and incentives available to GLCs if we are to attract private sector investment, and I propose that any such reviews are taken up at the Cabinet.
79. With clear guidelines and strategic principles in place, I can say that the journey on GLC transformation continues to maintain its momentum, and I can go further today with the announcement that Khazanah has resolved to divest its controlling 32 percent stake in POS Malaysia through a two-stage strategic divestment process. In the first stage, that begins immediately, proper corporate governance and regulatory processes will be adhered to. A full consultation with the various stakeholders will be undertaken. POS Malaysia will be prepared for the strategic divestment by addressing various aspects of its business environment including its regulatory structure, usage of government controlled land and the position and welfare of its employees. The long outstanding matter of low income of some of the staff including postmen will be reviewed. To ensure both public and commercial interests are balanced, the government will undertake a comprehensive review and update the regulatory framework of the postal system.In stage two, Khazanah will draw up a bidding and evaluation process to select a new and entreprenuerial shareholder to further modernize POS Malaysia. Further details of this exercise will be announced later.
80. To promote higher levels of economic investment, expansion and growth, several parcels of land in Jalan Stonor, Jalan Ampang, Jalan Lidcol, Kuala Lumpur have been identified to be tendered out and developed by the private sector. This asset, if not developed will be wasteful and the Government will incur cost of maintaining it. This initiative will be a good kick-off for more outright sale and joint ventures between the public and private sectors in land development. In this regard, I would like to inform you that Government of Malaysia and the EPF will form a joint-venture to promote the development of 3,000 acres of land in Sungei Buloh into a new hub for the Klang Valley. This will lead to over RM5 billion of new investments being made that will have an immediate effect on domestic growth, with an enormous potential for the private sector to participate in prominently.
81. I can also share with you today that we will gradually reduce public sector involvement in activities that compete directly with the private sector. We have begun a review of a number of companies under Minister of Finance Incorporated and other agencies, and I can inform you that we are considering privatization measures related to, Percetakan Nasional Malaysia Berhad, CTRM Aero Composites Sdn Bhd, Nine Bio Sdn Bhd and Innobio Sdn Bhd with more under consideration
82. In addition, Petronas has already identified two sizable subsidiaries with good track records to be listed this year. These initiatives have the goal to reduce the Government’s presence directly or indirectly in business activities that are best carried out by the private sector and are a clear signal of our commitment to promoting competition in the economy, risk taking and long-term economic growth that benefits all Malaysians.
83. As I have stressed today, we cannot afford to slip back to the status quo. The challenge that stands before us requires an urgent need to review the way things are being done. Institutions, approaches and systems that have worked well in the past may need to be altered to suit the changing global landscape.
84. The announcements I have made today – on new divestments, public and private partnerships, and a renewal of government processes to spark growth – are a sign of our commitment to reform and position our country, our workforce, our companies and our future generations for the challenges of a competitive global economy.
Ladies and gentlemen,
CLOSING
85. In my first days as Prime Minister, I said that Malaysia must be open to change. We have no alternative but to move forward and become a high income country with sustainable and inclusive growth. Change can be painful and short-cuts will be tempting. But we cannot seek only the quick wins. This will be a journey that may cause some short-term pain, but will pay off in a stronger Malaysian future. We need to have a sustained and consistent ‘big push’ if the reforms set out today are to gain momentum and help achieve our goals.
86. In this regard, this is a defining moment for Malaysia. As we emerge from a global recession, will we have the courage and the vision to pursue an ambitious agenda for change that can seem daunting, but is essential for our nation’s future? Our answer is to create high wage jobs, give our children the best educational opportunities, and attract the high quality investment that is the driving theme of this important gathering.
87. At this critical juncture, where we balance our nation’s history with its future, I believe we do have the courage to meet Malaysia’s hopes and ambitions.
88. But this is about far more than the economic goals of our nation. This is about the life chances open to future generations. This is about raising the sights of low-income families to help them out of poverty. This is about the very fabric of our society where we each have opportunities and responsibilities. It’s about placing Malaysia at the forefront of a high-income economy so that we can stand shoulder to shoulder with other fully developed nations. I am confident – with your support – we will choose the right path, move forward, not back, and build a fairer, stronger and dynamic Malaysia for many decades to come. I call upon you to join me in this momentous journey to build a truly prosperous and a new future for 1Malaysia.
Thank You.
Wabillahittaufik walhidayah,
Wassalamualaikum warahmatullahi wabarakatuh.
fr:theedgemalaysia.com/highlights/162624-flash-pms-keynote-address-at-invest-malaysia.html
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Fund managers echo PM view on EPF trades
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Fund managers agree that it is unhealthy for the Employees Provident Fund (EPF) to dominate 50% of the daily trading on Bursa Malaysia.
During his speech at Invest Malaysia 2010 last Tuesday, Prime Minister Datuk Seri Najib Razak had said the EPF’s dominance of the local equity market, with up to 50% of daily trading volume, was “not healthy” for the market or for the pension fund.
“It is no use being the biggest fish in a small pond where you can be attacked by everyone,” said a research head of a local firm.
“When this happens, your strategy is very limited and you cannot liquidate easily. It is difficult to get out, as you always need to be holding the baby. The result is sub-par performance.
“That is why it is very important for the Government to sell down its stakes in the government-linked companies (GLCs) to boost liquidity in the market,” he said.
He cited the example of Lembaga Tabung Haji, which at RM23bil, was less than a 10th the EPF’s size, and was thus nimbler and able to exit stocks easier.
Currently, the EPF has a total fund size of RM370bil and about a quarter of this is invested in the local stock market.
Meanwhile, Bursa Malaysia chief executive officer Datuk Yusli Mohamed Yusoff said he was well aware of the challenges facing the market and was continually working with the authorities, index providers and market participants on improving free float and liquidity in the market.
“Having said that, we agree that having one particular type of investor dominating the market is not healthy for the market over the long term.
“We want to attract a diverse set of investors into our market for sustainable growth. Therefore, our current initiatives are addressing the needs and demands of a wide spectrum of investors,” Yusli said.
He said investors should also shift their mindset and look at investing in as many Bursa-listed companies as possible.
“True to the wise saying of not putting all the eggs in one basket, investors should diversify their investment strategy and not concentrate on one or a small number of stocks as this scenario is hampering liquidity,” Yusli said.
At Invest Malaysia, Najib also said the EPF would be allowed to invest more assets overseas, both diversifying its portfolio and creating more room domestically for new participants.
EPF chief executive officer Tan Sri Azlan Zainol said the pension fund planned to increase its overseas investments to 10% of the fund size over the next one or two years.
EPF declared a dividend of 5.65% for last year. This was on the back of an improved total net income of RM19.63bil, up 34.82% from RM14.26bil in 2008.
It could possibly have declared better dividends had it invested more abroad, as that would have given it more flexibility in its movements.
“It is a good thing that the EPF is going abroad. I don’t really think there is a problem of risk as the overseas exposure is small relative to its fund size and present exposure,” said a head of fixed income from an insurance fund. “Going from 6% to 10% isn’t much. So it is not increasing risk, rather a diversification and reduction of risk.”
While certain quarters said EPF was seen as the buyer of last resort for the Government’s equity stakes in GLCs, the fund manager disagreed.
“The EPF is on the ball. They know what they are doing. They will not simply take something without evaluating it first,” he said.
EPF public relations general manager Nik Affendi Jaafar said the EPF competed against other funds whenever a block of shares was offered to the market.
“In most cases, the EPF is not able to purchase shares in the quantities that we desire,” he said.
fr:biz.thestar.com.my/news/story.asp?file=/2010/4/6/business/5997347&sec=business
EPF looks abroad to optimise returns
KUALA LUMPUR: The Employees Provident Fund (EPF) plans to increase its overseas investments to diversify its investment portfolio to optimise returns and improve its risk-return profile, says chairman Tan Sri Samsudin Osman.
“With the increasing size of EPF funds vis-a-vis the constraints in the domestic market and our risk appetite, it will not be easy to sustain the current level of dividend rate going forward. Hence, diversification abroad is the possible answer to meet our needs even though it is not without its challenges,” he said yesterday at the External Portfolio Managers Awards Ceremony for 2009.
Samsudin said the EPF had to date invested about US$6bil (RM19.35bil) in overseas equities. With the inclusion of the sum invested in global fixed income after receiving the go-ahead from the Finance Ministry last year, the total funds approved so far for both overseas equities and global fixed income amounted to more than US$10bil (RM32.25bil), he said.
“This year will also witness the completion of the EPF’s approved investment under the Malaysian International Islamic Financial Centre programme of US$2bil (RM6.45bil) for overseas equity and global sukuk mandates,” he said.
He said these new mandates were in line with EPF’s diversification strategy and were expected to contribute to the development of the industry and players that had demonstrated commitment, resources and capabilities to manage different types of investment mandates.
He added that EPF would be outsourcing US$690mil (RM2.23bil) to nine managers for the global Islamic equity mandates and US$600mil (RM1.94bil) to four managers for the global sukuk mandates in 2010.
Samsudin also reminded external portfolio managers that they had been entrusted to manage the retirement funds of EPF members and they must therefore do so with efficiency and integrity.
“While the EPF realises there are cost-income issues in growing business and capabilities, we will not allow for performance to ever be compromised,” he said.
At the ceremony, awards in five categories were presented to top performing external portfolio managers.
HwangDBS Investment Management Bhd was named 2009’s “Best Overall Equity Portfolio Manager”, an award based on a three-year rolling financial performance and quality of service measures.
Nomura Asset Management Malaysia Sdn Bhd and CIMB-Principal Asset Management Bhd were the first and second runner-up winners respectively.
HwangDBS also picked up the “Best Three-year Realised Return Equity Manager” award while the “Best Risk-Return Equity Portfolio Manager” award, which is based on the overall total fund three-year performance as measured by the Information Ratio, was bagged by Nomura Asset.
In the “Fixed Income” category, AmInvestment Management Sdn Bhd was named “Best Overall Fixed Income Portfolio Manager” and the “Best Three-Year Realised Return Fixed Income Manager”.
fr:biz.thestar.com.my/news/story.asp?file=/2010/4/22/business/6105305&sec=business
EPF to put out quarterly list of equity holdings
KUALA LUMPUR: The Employees Provident Fund (EPF) will publish its Top 30 equity investments in companies listed on Bursa Malaysia on a quarterly basis.
In a statement yesterday, chief executive officer Tan Sri Azlan Zainol said the quarterly disclosure of its equity investments through its website was in line with its corporate governance stance, where members could see in which companies their savings were invested.
“Besides, by periodically disclosing its investment performance, it will help to reassure members that investment decisions undertaken are in the best interest of growing their retirement savings and in accordance with best practices in investment and governance,” he said.
Azlan said the move was just a first step towards enhancing EPF’s transparency and it would review periodically if there was any further information on its investment that could be disclosed without jeopardising its investment strategy.
He cautioned that “not everything regarding EPF’s investments could be revealed”.
The investment highlights can be viewed at
kwsp.gov.my.
The website includes media releases on quarterly financial performance, a compilation of annual reports, advertorials on annual reports and dividend rates.
As of March 31, the EPF’s top three shareholdings were 67.33% stake in Malaysian Building Society Bhd, 56.14% of RHB Capital Bhd and 41.54% of Malaysian Resources Corp Bhd.
fr:biz.thestar.com.my/news/story.asp?file=/2010/6/10/business/6436566&sec=business
EPF income up 70% in first quarter
PETALING JAYA: The Employees Provident Fund (EPF) recorded a 70.3% increase in investment income to RM5.55bil for the first quarter of the year amid firmer market conditions.
The earnings, which compares with the RM3.26bil posted in the corresponding quarter of last year, were achieved on the back of a recovering global economy, EPF chief executive officer Tan Sri Azlan Zainol said in a statement yesterday.
“Significant improvement in the year-on-year investment performance was a reflection of a more buoyant and favourable economic environment as Malaysia steers into making a full recovery from the global economic and financial crisis.
However, he cautioned that while market conditions had improved compared with a year earlier, the environment remained volatile.
Azlan said the EPF was cautious as the recovery of economies around the world was expected to take place at an uneven rate.
“This to a certain extent has had some impact on the overall performance of EPF’s investment returns in Q1 this year,” he said.
Azlan added that investment income for the quarter was led significantly by equities, which contributed RM2.79bil.
fr:biz.thestar.com.my/news/story.asp?file=/2010/6/22/business/6517398&sec=business
EPF to reduce stake in RHB Cap by mid-2011
KUALA LUMPUR: The Employees Provident Fund (EPF) will pare down its stake in RHB Capital Bhd to 40% by mid-2011, said chief executive officer Tan Sri Azlan Zainol.
“We have to sell down to 40% by the middle of next year,” he said on the sidelines of Securities Commission-Bursa Malaysia Corporate Governance Week here yesterday.
He said the state pension fund had not identified potential buyers for its 57% stake in the country’s fourth-biggest bank by assets.
Meanwhile, Azlan said EPF aimed to grow its overseas investment to between 10% and 15% next year from only 7% now. “We want to look at bond papers as well as properties,” he said.
fr:biz.thestar.com.my/news/story.asp?file=/2010/6/29/business/6566145&sec=business
EPF to sell a further 17% in RHB Cap to boost stock’s liquidity
By YAP LENG KUEN
PETALING JAYA: The Employees Provident Fund (EPF), which owns 57% of RHB Capital Bhd (RHB Cap), is likely to hive off another 17% in a manner that can help improve the liquidity of RHB Cap shares.
Sources indicated that the lack of liquidity in the trading of RHB Cap shares was a cause of concern. “Largely due to the lack of liquidity, it is trading at a discount to its peers,’’ said the source.
The EPF, together with its strategic partner Abu Dhabi Commercial Bank (ADCB), own 81% of the shares in RHB Cap.
At this juncture, the details for the transaction have yet to be worked out but the aim of the exercise would be to find ‘‘the best solution that would have a positive impact on the value of RHB Cap.’’
Some analysts said the EPF was likely to release small blocks to fund managers in an effort to increase liquidity for the stock.
“After the placement of a 25% block for RM3.9bil or RM7.20 per share to ADCB, the EPF will probably not hive off another big block to another strategic investor and possibly ‘offend’ ADCB,’’ the analyst said. “Also, a strategic stake may not be easy to sell, especially with the stock trading at the RM6 level, when the first tranche was done at RM7.20 to ADCB.’’
Noting that there had been buying interest in the stock, the analyst cautioned there could be more downside in the market.
Early this week, EPF CEO Tan Sri Azlan Zainol said the fund would pare down its stake in RHB Cap to 40% by 2011.
“By the middle of next year, one may not be surprised if they ask for another extension as market conditions may not be conducive early next year,’’ said the analyst.
Another analyst viewed that the timeframe for disposal might be achievable, depending on market conditions.
“This is quite a substantial stake and should not be given to short-term investors although some may be interested,’’ the analyst cautioned.
In 2007, the RHB banking group underwent a restructuring exercise which saw the EPF making a general offer for the shares it did not own in RHB Bhd and RHB Cap.
That resulted in the EPF owning 82% in RHB Cap. Besides ADCB which put down its commitment in 2008, the Sumitomo Mitsui banking group of Japan was also reported to be eyeing a smaller stake in the banking group.
Two weeks ago, Sumitomo Mitsui Banking Corp was mentioned as one of the five foreign banks that were awarded commercial banking licences in Malaysia.
The rest are BNP Paribas SA, Mizuho Corporate Bank, PT Bank Mandiri and the National Bank of Abu Dhabi.
fr:biz.thestar.com.my/news/story.asp?file=/2010/7/1/business/6584495&sec=business
EPF raises stake in Hong Leong Bank
KUALA LUMPUR: The Employee Provident Fund (EPF) has raised its stake in Hong Leong Bank Bhd to 13.41%.
In a filing with Bursa Malaysia yesterday, Hong Leong Bank said the provident had a direct stake of 12.71% and an indirect stake of 0.7% in the bank.
The EPF has acquired 224, 600 and 830,000 shares of Hong Leong Bank on July 5 and July 6 respectively from the open market.
fr:biz.thestar.com.my/news/story.asp?file=/2010/7/13/business/6654298&sec=business
Strong ringgit, attractive UK properties lure EPF and other Malaysians
By ANGIE NG
PETALING JAYA: The ringgit’s strength and generally lower property valuations in the UK are drawing more Malaysian investors, both retail and institutional, to London and the latest to make the move is the Employees Provident Fund (EPF).
The pension fund has allocated a war chest of £1bil (RM4.88bil) to invest in properties in the UK and has appointed ING Real Estate Investment and Deutsche Bank’s property investment arm RREEF to manage the investment. They will each invest £500mil in European property markets, focusing on the UK.
n a statement on Monday, the EPF said the investments would be for long term with expected annual yields of 6% to 7%.
Property consultants lauded the fund’s move as being prudent and far-sighted as the diversification of its property investment portfolio would ensure a more balanced portfolio and spread the risks to more developed markets outside Malaysia.
Henry Butcher Malaysia president Lim Eng Chong said London was a very active international real estate market where income asset class was a major sector of the financial market.
“Since last year, there has been an influx of foreign funds from Russia, the Middle East and the Far East, including China, into London to take advantage of the positive environment,” Lim told StarBizWeek.
“There’s much more depth and breadth in the UK market. Very often, its economy moves in different direction from Malaysia’s, thus affording a more balanced and resilient portfolio. Presently, the UK is only (barely) coming out of a recession and, although the market has started to move, there is still some way to go.”
London is also the financial capital of Europe and it is the de-facto choice capital in the EU for foreign companies.
“It is a very opportune time to invest in the UK property market now. The ringgit is at record high against the pound sterling while the historic low interest rates in the UK (interbank rate is only 0.5%) make yields attractive,” Lim pointed out.
He said commercial properties with strong convenants for at least seven years offered potential for upsides upon market recovery and there were deals which were bankable to capitalise on the low interest rates now.
Malaysia Property Inc chief executive officer Kumar Tharmalingam, who was in London when contacted, said the EPF was a well-regarded pension fund internationally with a reputation for prudent investments.
“London is no more a rock-bottom country but you have to have a permanent presence here to take advantage of investment opportunities. Using the old-boy network in the city of London that the EPF is doing is the right strategy. It has appointed probably the best property advisers and managers in Europe and I believe they will guide the fund to the right quality investments,” he said in an e-mail response.
Kumar said as the EPF had to guarantee a dividend on all contributions, “it will be looking to buy completed assets which have been tenanted and have a structured and forecast return that is tangible.”
He said at the height of the downturn in early 2009, yields of London assets went up as high as 8% but they had since gone back to their normal base of 5%.
“But with the pound sterling and the euro at historical lows since the mid-90s, this may be a good time to buy well-positioned assets where there is an opportunity for rent values and currency appreciation in the medium term,” Kumar said.
It has attracted many institutional funds, including South Korea’s National Pension Fund which purchased a building in Canary Wharf and also took a stake in Gatwick Airport in February.
Kumar, who made a quick check with some of the major property agents in London, said he was told an Asian sovereign fund had made bids for a business park near Heathrow Airport.
Ireka Development Management Sdn Bhd chief executive officer Lai Voon Hon, who was also responding from London, said with Europe heading towards a double-dip recession, a number of prime commercial properties with blue-chip tenants in the UK would be available to investors at very attractive yields.
“The advantage of UK commercial properties is that the lease is normally very long term so the income is fairly stable. As such, commercial properties with blue-chip tenants at high rental yields will be ideal for the EPF. The strong ringgit vis-a-vis the pound sterling is certainly to the EPF’s advantage,” he added.
According to CB Richard Ellis executive director Paul Khong, with the strengthening of the ringgit, investors are now able to buy more with the same ringgit compared with a year ago.
“The top favourite destinations for both institutional and individual investors are still the UK, Australia and Singapore markets,” he said.
fr:biz.thestar.com.my/news/story.asp?file=/2010/9/4/business/6979147&sec=business
Should EPF house our money in real estate abroad?
Sideways by ANITA GABRIEL
IT’S as predictable as clockwork.
Any move by the Employees Provident Fund (EPF), unless it’s glaringly positive, tends to set off warning sirens. Much of it has to do with the fact that the employed, 12.4 million of them, have no choice but to channel part of their hard-earned savings to the fund, hence the perceived-right to voice dissent or concern.
There’s also the “legacy stigma” that now and then rears its suspicious head, that the EPF, with its bursting wallet, may be acting in ways that are not in sync with the pillar on which it was set up almost two decades ago – to safeguard the people’s retirement monies.
So, when it was recently revealed that EPF plans to tuck some £1bil (or 1.2% of its total investable sum) primarily into commercial properties in UK, the vibes were multi-pitch.
Interestingly, the revelation was not voluntary. It was issued only after a press report by UK’s The Independent that EPF had awarded two global fund managers a mandate in relation to its plans to invest in UK’s real estate. No great strides there for EPF in terms of high disclosure standards.
Following a query by StarBiz, the EPF said it made the decision as it views the UK property market as “stable and highly liquid” and one of the world’s largest property markets backed by strong laws protecting landlords.
Still, concerns abound. Given the threat of a double dip recession in the UK, could this be a risky venture? And given the structural shift in economic power to the East, shouldn’t it be steering its money bag towards these markets? Armed with adequate foresight, perhaps it should consider investing in other growth industries instead?
In the first place, should the EPF house our retirement savings in real estate, local or abroad?
Because retirement plans are long-term investments by nature, it’s hard to get much more long term than real estate which generally displays better than average income characteristics. We could throw bonds into the same bucket of investment horizon but it has an expiry date and reaps relatively lower returns.
Truth is, pit against other pension funds world over, EPF’s move to invest abroad and more specifically in property is hardly a mould-breaking strategy. Only, it’s a mould that the fund has yet to get a big foot into – just yet, that is.
Major pension funds around the world are already in the act of diversifying their investments abroad while many are raising the sums invested in their overseas portfolios, be it in real estate, stocks or bonds. Some 7% of China’s national pension fund, which has about US$130bil in its pension pool, is locked up in overseas investments, which includes stocks, bonds and property. In fact, it is allowed to crank it up to 20%.
South Korea’s national pension service, with US$250bil, has been on a buying spree, investing in real estate from Australia to the UK to diversify from domestic fixed-income holdings. It expects to boost its overseas investments to at least 20% of its portfolio by 2015 from 11% now.
UK life and pension funds are estimated to have US$123bil, or some 7% of their total assets, invested in real estate. The pension funds in Finland and Switzerland are allowed to invest a greater percentage of their assets in real estate than in stocks.
As the country’s single largest institutional investor, with over RM400bil (and fast ballooning), the EPF is clearly at an investment crossroads – what else to buy and how to raise yields; how to tweak its traditional bond/stock/loans/property asset mix to improve returns.
It has done this to some extent. The fund has been steadily cutting back its investments in MGS over the years; from 41% back in 1995 and 35% in 2006, it now makes up 24% of its asset allocation.
To address this dilemma, non-domestic investments such as property as an alternative investment class is hard to snub, especially since property investments represent a meagre 0.4% of EPF’s total portfolio, way below the allowed ceiling of 5%.
Still, EPF needs to walk the thin rope of capital preservation and capital uplift.
Real estate pundits in UK opine that the recent “mini recovery” in UK’s property prices in the past year after a difficult two years, thanks to a weak pound and cheap credit, may be waning while they expect the underlying fundamentals of the wider economy to reassert themselves.
The prediction is for a choppy recovery in UK economy given the rising jobless data, fiscal tightening, higher taxes and credit squeeze, which in turn could stunt a recovery in UK’s property sector.
EPF plans to invest in commercial properties, which means it is targeting rental yields but the lack of clarity of a sustainable growth could keep businesses in the sidelines. In other words, they won’t be looking for more office space.
On the other hand, proponents of investing in UK’s real estate point out that the income return from such investments over the past 10 years has averaged 6.7% – no doubt, a sweet temptation for pension funds, like EPF, who are on the prowl.
There’s more sugar where that comes from – UK’s well-followed Property Forum has forecast an income return of 7% for the next five years to 2014 from this investment class as it deems property values are still 36% below their peak.
In short, there may still be bargains left for new investors like EPF. So, would you bet your retirement savings on that?
>i>Business editor Anita Gabriel believes in the “Law of Attraction” where thoughts influence reality. She’s thinking of including spectacular future dividends from EPF on her “Vision Board”!
fr:biz.thestar.com.my/news/story.asp?file=/2010/9/4/business/6962937&sec=business
Some thoughts behind EPF’s move
Comment by THEAN LEE CHENG
SINCE the beginning of 2009, many individual investors have purchased properties in Britain. The fact that the Employees’ Provident Fund is going into Britain as well poses some interesting questions.
This is the first time the pension fund is going abroad to diversify its holdings which to date amounts to more than RM400bil. Its property investments is small compared to its investments in equities and bonds.
Secondly, this is also the first time it is putting so much money into properties. Different parties have called on the pension fund to be circumspect. There is no doubt that it will be so.
But considering that it is making such a significant move, it does seem odd that it is issuing just a statement that it will be investing £1bil (RM4.88bil) in British properties.
Considering that the pension fund has 12.35 million contributors as of December last year, it would seem appropriate that the EPF issue more than just a statement.
For many, their EPF contributions are their only source of income and they would want to know how the guardian of their monies will go about diversifying their portfolio in order to provide better yield.
According to the statement, EPF is looking for yield of between 6% and 7%.
This shows that EPF is very circumspect in its decision. It is not aggressive as some investors would want to have yields of 13% and above.
Nevertheless, there remain some pertinent questions:
> How is EPF going to invest this money? Why UK?
> Will it be buying tangible buildings and take 100% control as landlord?
> Or will it be buying real estate investment trusts (REITs)?
> Will this £1bil be increased later on?
> Is there a duration how this money – and additional investment – will be spent?
> Will it be limited to UK? These are the broad macro questions.
On a micro level, other questions include the following:
> If EPF is looking for office buildings, what sort of size, and where are these buildings located? London is huge, there is the financial district, known simply as “The City”.
> Will it be core prime London or Greater London? What is the size of these buildings and who are the tenants?
Contributors will also want to know the credentials of two parties appointed, ING Real Estate Investment and Deutsche Bank’s property investment arm, who will be managing the investment.
Besides the questions on the how and what, contributors will also want to know what is the situation of the UK office market today.
Incidentally, we already know the ‘Why?’ – to get better yield because the local property market has become too small for EPF. Besides, there is nothing to buy in the local market for an investment of that size and considering where the stock market is going, it is only wise to diversify to other markets and other asset class.
Already, EPF is the main driver of Bursa Malaysia. That in itself poses a certain amount of risk. We certainly don’t want EPF to be the main landlord of Malaysian market as well.
In fact, many may be welcoming EPF’s pro-active move to seek out “greener” pastures abroad as the British pound has depreciated considerably since the fall of Lehman Brothers in September 2008. Some may even ask, why now?
One of the largest investors in London market is the Middle East market, the Qataris, Saudi and UAE. South Korean pension funds have also invested in the London market. So EPF is not alone. London is a very cosmopolitan city and because our history is linked to theirs, that would seem a clear choice over and above markets like Australia.
At its peak, the pound was hovering around RM7 to £1 then. Today, it is RM4.80 to a £1. That’s a discount of 30% on the currency.
At its peak, London’s financial district office market was about £700 psf. It is about £600 psf today. There are some buildings that are between £800 and £900 psf.
Prime rents appear to have stabilised and this year is expected to see a sharp recovery in the leasing markets, driven by a shortage of Grade A supply, rather than a boom in demand.
Investor demand for London offices is expected to remain strong this year. More assets are expected to enter the market, but not significant enough to stop prime yields from falling.
Most of us would have known about the recession in Britain from the media and the possibility of Ireland going under. The fact that part of our nest egg will be going there puts a different perspective on the picture as we have an interest there now, far beyond a cursory one. So we would like some answers.
>Assistant news editor Thean Lee Cheng wants EPF to give lots of answers, and contributors to take an interest in where their money is going because this is what financial responsibility is all about.
fr:biz.thestar.com.my/news/story.asp?file=/2010/9/4/business/6979065&sec=business
RHB Cap shares surge on merger speculation, but EPF denies report on merger talks
By ELAINE ANG
PETALING JAYA: Merger speculation lifted interest in RHB Capital Bhd (RHB Cap) shares as reports over the weekend said major shareholder, the Employees Provident Fund (EPF), was open to merger talks.
RHB Cap shares rose to a 13-year high yesterday on speculation that it might merge with a local lender.
The potential suitors cited were AmBank Group, Malayan Banking Bhd and CIMB Group Holdings Bhd. RHB Cap shares jumped 29 sen to close at RM7.13 with 3.8 million shares traded yesterday.
However, the EPF has denied any merger talks. “There is no truth in the report,” EPF spokesman Nik Affendi Jaafar told Bloomberg by telephone yesterday.
The country’s largest pension fund had been struggling to pare down its high shareholding in the banking group to 35% in line with banking and financial institution regulations.
After the EPF’s takeover of RHB Cap in March 2007 at RM4.80 a share, it had until June 2008 to reduce its holdings to 35% from 82%.
The EPF then sold a 25% stake in RHB Cap to Abu Dhabi Commercial Bank (ADCB) at RM7.20 per share in May 2008, reducing its stake to some 57%.
Subsequently, the EPF has been disposing of its RHB Cap shares on the open market, paring its stake to the current 55%. After several extensions, the EPF has until June next year to reduce its interest in RHB Capital to 40% or less.
However, analysts said they would not be surprised if the EPF asked for another extension by mid-2011 if it was unable to pare down its stake.
“I doubt they can sell a big block at anything below RM7.20 per share and risk offending ADCB. Nevertheless, RHB Cap shares have been on an uptrend lately after trading at around RM5 for most of the year. So, there is hope yet,” an analyst said.
The analyst said it might be possible for the EPF to attract another foreign strategic investor for RHB Cap as the banking group’s return on equity was improving after several strong quarterly earnings.
For the first half year ended June 30, RHB Cap’s net profit rose 29.9% to RM688.76mil from RM530.17mil, while revenue increased by 5.87% to RM2.85bil from RM2.69bil.
An analyst with a local stockbroking firm said one of the ways for the EPF to reduce its stake in RHB Cap could be to release small blocks to smaller investors such as fund managers.
“This will also help to increase the liquidity of the stock,” she said.
fr:biz.thestar.com.my/news/story.asp?file=/2010/9/7/business/6990598&sec=business
EPF investment income rises to RM5.9bil in Q2
KUALA LUMPUR: The Employees Provident Fund (EPF) announced a 23.47% increase in investment income to RM5.93bil for the second quarter of 2010 from RM4.8bil in the corresponding quarter of 2009.
“This increase in performance was primarily encouraged by improvements in both domestic and global equity markets and supported by higher interest rates compared to the previous corresponding period,” chief executive officer Tan Sri Azlan Zainol said in a statement yesterday.
As of the second quarter ended June 30, EPF’s total investments in Malaysian Government Securities, loans and bonds, equities, money market instruments and properties totalled RM406.55bil compared with RM353.93bil in the same period last year.
Loans and bonds made up the bulk of investments, with a 37.28% weightage. This was followed by equities at 32.21%.
Investment income for the period under review was led significantly by equities, which contributed RM2.72bil, or 56.55% increase in returns compared with RM1.74bil recorded in the corresponding period in 2009.
From its equities portion, 38.84% was allocated to the trade and services sector. Financial equities made up 31.71%.
Loans and bonds was the second largest contributor to the EPF’s investment income at RM1.9bil. This represented a 4.72% increase over the RM1.81bil recorded in the same period a year ago.
The improved performance was due to new additional investments being made as well as increase in interest rates during the period under review.
Investments in Malaysian Government Securities contributed RM1.1bil in the second quarter, declining 1.02% compared with RM1.11bil recorded in the corresponding quarter last year.
Investment income from money market instruments increased significantly to RM183.1mil, or 94.23%, compared with RM94.27mil posted in the second quarter of 2009.
This was due to the higher asset holdings and the raising of interest rates. EPF’s income from properties rose 9.37% to RM22.76mil.
fr:biz.thestar.com.my/news/story.asp?file=/2010/9/8/business/6996518&sec=business
Proposal for EPF members to invest in private pension funds
KUALA LUMPUR: Employees who have more than RM1mil in their Employees Provident Fund (EPF) accounts should be encouraged to invest in private pension funds, according to a proposal under the financial services national key economic area (NKEA).
To induce investments into these funds, it was proposed that the returns for this group of EPF members be on a tiered basis.
Employers’ contributions exceeding 12% should also be channelled towards the private pension funds, as a further step to boost the private pension industry.
It was noted that about two million self employed people were not covered by EPF while most retirees exhausted their lump sums in three to five years.
An employee insurance scheme has been mooted, with low premiums based on their age band and administered by a consortium of insurers.
Data showed that life insurance penetration at 2.8%, was below the world average, while only 40% of the population with disposable income of RM3,000 can afford life insurance.
The financial services NKEA is targeted to raise total gross national income by RM121bil to RM180bil by 2020.
To accelerate wealth management services, the approval process for retail mass affluent products should be streamlined, more wealth management companies should be encouraged to be set up and specialised licences should be given for such firms to operate in Malaysia.
Malaysians’ wealthy assets were estimated at US$194.3bil, with 13% parked offshore and 87% onshore.
The asset management industry is also projected to receive a major boost; in Singapore, the assets under management are 10 times (RM27 trillion) the size of those in Malaysia (RM270bil).
It was proposed that government-linked investment companies (GLICs) outsourcing mandate be increased from 5% (RM50bil) to an average of 15%.
To stimulate the retail market, EPF members should be allowed to withdraw up to 50% of Account One if the total amount in this account exceeds RM120,000.
The equity market should also be revitalised to increase its market capitalisation from RM960bil in 2009 to RM3.9 trillion by 2020.
Strategies proposed include integration with leading exchanges, increase in GLCs free float, creation of GLC flagbearers, listing of exchange traded funds, setting up of real estate investment trusts of select GLIC/GLC property assets as well as expansion of derivates and commodities.
The stockbroking industry should be liberalised in three phases to open up licensing and enable licensing at institutional levels.
The bond market should be further deepened and broadened by encouraging major GLICs and institutional investors to invest in AA rated papers.
There should be measures to attract niche investors and foreign issuers especially on non-ringgit sukuk as well as to develop the retail fixed income market.
The mandates for development financial institutions (DFIs) should be revisited so as to refocus on their original development objectives. Creation of shared services and development of customer capabilities should be emphasised by DFIs.
To create more regional banking champions, the government to government lobby should be stepped up to relax host country restrictions. The feasibility of mergers among top financial institutions in the country and region should be explored.
fr:biz.thestar.com.my/news/story.asp?file=/2010/9/22/business/7079468&sec=business
EPF may buy Visa’s HQ in UK
By ANGIE NG
PETALING JAYA: The Employees Provident Fund (EPF) is believed to be the frontrunner for the purchase of Visa’s 1 Sheldon Square headquarters in Paddington, the United Kingdom, for around £150mil.
The investment may offer an annual yield of around 5.75% to the fund.
According to PropertyWeek.com, a London-based weekly property magazine, if the deal goes through, it will be EPF’s debut in property deal in that country.
“The 193,000-sq-ft building is owned by Aviva Investors, Invista Real Estate Management, Henderson Global Investors and Liquid Realty Partners.
“It has been on the market through CB Richard Ellis,” it said in a posting yesterday.
If everything goes as planned, the deal is expected to be signed by the year-end.
Late last month, EPF said it had allocated £1bil (RM4.88bil) to invest in properties in the United Kingdom. It has appointed ING Real Estate Investment and Deutsche Bank’s property investment arm RREEF as managers. They will each invest £500mil in European property markets, focusing on the United Kingdom.
The fund said the investments would be for long term, with expected annual yields of 6% to 7%.
Property consultants said the diversification of the fund’s property investment would ensure a more balanced portfolio and spread the risks to more developed markets outside Malaysia.
“The advantage of UK commercial properties is that the lease is normally very long term, so the income is fairly stable. Commercial properties with blue-chip tenants at high rental yields will be ideal for EPF,” they said.
fr:biz.thestar.com.my/news/story.asp?file=/2010/9/24/business/7093524&sec=business
EPF still keen on winding up Transmile which owes RM500mil
By RISEN JAYASEELAN
Transmile now owes more than RM500mil to creditors in the form of convertible bonds and medium-term notes.
PETALING JAYA: The Employees Provident Fund (EPF) is pursuing its plan to wind up Transmile Group Bhd’s wholly owned unit, Transmile Air Services Sdn Bhd (TAS), as the latter has yet to come up with a workable regularisation plan.
Transmile had received a restraining order in July, staving off the winding up petition by the EPF, but the order expires some time in October.
“The EPF is actively pursuing the winding up petition and is awaiting a court date for the matter. The pension fund has yet to see any concrete restructuring plans from Transmile,” said a source familiar with the situation.
The EPF and other creditors grouped with it are looking to recover about RM100mil owed to them by Transmile. Led by the EPF, this group had sought to wind up TAS in early June this year.
The EPF’s aggressive move is said to be on the basis that the pension fund does not see any improvement in the financial condition of Transmile. It also believes that it has a strong case for having priority over sums recovered if Transmile is wound up.
Previously, a “common terms” agreement initially conceptualised by the new management team at Transmile to restructure the huge debts had failed to come to fruition, it is understood.
In mid-July, Transmile had obtained a restraining order from the court for a period of 90 days against actions being taken against it. That order should expire around the middle of this month.
It is understood that the EPF has yet to see a workable restructuring or regularisation plan from Transmile.
This, in turn, has led some analysts to wonder how long more Transmile will be able to fend off the action from its creditors.
In August, liquidators were appointed for TGB Ltd, another wholly owned subsidiary of Transmile. The appointment of the liquidators followed a written request in June from The Hongkong and Shanghai Banking Corp Ltd (HSBC), Corporate Trust and Loan Agency, Hong Kong Office, as trustee for convertible bond holders to initiate a liquidation of TGB.
Transmile officials could not be reached for comment.
To recap, Transmile’s troubles started after an accounting scandal in mid-2007 that resulted in a massive drop in the company’s share price, which was at its highest on Jan 3, 2007 at RM14.40. The counter closed yesterday at ___ sen.
The company now owes more than RM500mil to creditors in the form of convertible bonds and medium-term notes (MTN), which it is unable to repay after freight traffic crashed in late 2008 to early 2009, which also resulted in a sharp fall in freight rates.
The MTN holders are owed RM105mil, with the EPF holding around half of those notes. Other MTN holders are Meridian Asset Management, OSK Group, Agrobank and AmBank Group.
Transmile had fallen into the financially-troubled category of Practice Note 17 (PN17) earlier this year. It has made little progress in restructuring its debt as it has failed to find buyers for its MD-11 aircraft.
The four wide-bodied aircraft carry a fair value of around RM386mil. But despite that, Transmile has said: “The effect of last year’s economic crisis has added to the scarcity of credit for potential buyers, contributing to the delay in the disposal of its wide-bodied aircraft.”
Transmile still had about RM82mil in cash and cash equivalent as at June 30, 2010.
Transmile’s management has been for some time working on a restructuring plan to clear debts to lenders.
Still, the fact remains that despite all the troubles, Transmile has managed to survive and even expanded some of its routes. The company also has been able to retain Pos Malaysia and DHL as business partners.
However, some analysts are still concerned as to whether Transmile will be able to hold on to its lucrative contracts with customers such as DHL and Pos Malaysia.
Earlier this month, four former Transmile directors were fined a total RM1.89mil by Bursa Malaysia for breaching the listing requirements pertaining to timely and accurate disclosure of financial information. The regulator said the breaches were mainly from material transactions undertaken by its subisidiary, TAS.
The four are former CEO Gan Boon Aun, ex-executive director Khiudin Mohb, and former independent non-executive directors Chin Keem Feung and Shukri Sheikh Abdul Tawab. Gan and Khiudin were each fined RM781,500 while Chin and Shukri were fined RM162,000 each.
Bursa’s fine came after a move by the Transmile board to file a civil suit against Gan and former chief financial officer Lo Chok Ping for alleged accounting fraud. The company is claiming RM10.6mil in special damages.
fr:biz.thestar.com.my/news/story.asp?file=/2010/9/29/business/7119313&sec=business
Thumbs up for private pension funds
By LEE KIAN SEONG
Insurance sector offers views to promote the initiative
KUALA LUMPUR: The initiative by the Government to set up private pension funds is expected to promote the private pension industry and retirement planning in Malaysia. However, it needs skilled insurers and fund managers that have long-term views for it to be effective.
Allianz Malaysia Bhd chief financial officer Charles Ong Eng Chow said the company supported the initiative to allow employees with EPF contributions above RM1mil to invest in and employers’ EPF contribution above 12% to be channelled to private pension funds.
“This will help to promote the private pension industry, which is small at present. This may also promote retirement planning as it will help the public to understand the importance of preparing for their retirement days,” he said.
He also welcomed the suggestion of introducing an employee insurance scheme with low premiums based on the employees’ age band and administered by a consortium of insurers.
As insurance products tend to be marketed to middle and high income groups, he said the lower income population would be able to afford some level of insurance protection with the introduction of this low premium scheme.
“This can act as a safety net for the low income group.
“It will also help Malaysia to become a more adequately insured nation,” he said.
He pointed out that these initiatives would give a boost to the insurance industry as it would generate more business and help to stimulate the economy.
“Moreover, Malaysians can have better access to private pension schemes as well as low premium insurance products,” he said.
Great Eastern Life Assurance (M) Bhd senior vice-president and deputy head of finance and corporate affairs Sophia Ch’ng Sok Heang said private pension must be able to meet the objectives, which could differ before and after retirement while life insurer would be the ideal provider for private pension.
“The objective of a private pension fund is to build up sufficient retirement fund at age of retirement with capital safety,” she said.
She said the ideal fund manager for private pension funds should have characteristics like holding a long-term view, capacity to handle ever-increasing fund size and ability to design various solutions to suit different investment objectives at different life stages.
“They need to also provide automatic switch to a less risky investment strategy as retirement year approaches and have the skill of managing downside risk and capitalising on upside,” she said.
Upon retirement, she said the pension fund should be sufficient as a guaranteed income for life, not eroded by inflation and provide capital safety for retirees.
She said life insurers should gear up to provide the financial solutions, leveraging on the proposal from the financial services national key economic area.
According to a proposal under the financial services national key economic area, employees who have more than RM1mil in their EPF accounts should be encouraged to invest in private pension funds.
Employers’ contributions exceeding 12% should also be channelled towards the private pension funds, as a further step to boost the private pension industry.
In addition, an employee insurance scheme has been mooted, with low premiums based on their age band and administered by a consortium of insurers.
It was noted that about two million self employed people were not covered by EPF while most retirees exhausted their lump sums in three to five years.
Manulife and Prudential declined to comment when contacted while no response was received from AIA.
fr:biz.thestar.com.my/news/story.asp?file=/2010/10/4/business/7147802&sec=business
Khazanah, EPF offer RM23b for PLUS
By RISEN JAYASEELAN
PETALING JAYA: The much-anticipated plan to privatise PLUS Expressways Bhd was announced yesterday, with Khazanah Nasional Bhd and the Employees Provident Fund (EPF) offering a cash offer for the assets and liabilities of the highway concessionaire for RM23bil, which works out to RM4.60 per share of the latter.
Using a co-investment vehicle in which Khazanah’s wholly-owned unit, UEM Group, will own 51% and the rest by EPF, the offer is subject to a successful restructuring of the concession agreement on acceptable terms.
The proposed deal is said to be the largest merger and acquisition in Malaysia so far and is tied in with an announcement in Budget 2011 yesterday that the Government will not raise toll rates for PLUS-owned highways for the next five years with immediate effect.
EPF’s deputy chief executive officer (investment) Shahril Ridza Ridzuan said in a statement that the deal offered EPF an opportunity to acquire a “mature, cashflow-generating asset with an attractive risk-return profile, which would provide stable returns for our contributors’ retirement savings.”
He added: “We believe that ownership by EPF and UEM will allow PLUS to improve its financial performance further.”
According to Datuk Izzaddin Idris, chief executive of UEM, “PLUS, which is the fifth largest expressway operator in the world, is a key national asset. Expressway development and management remains one of UEM’s core focus areas and UEM will continue to leverage PLUS’ track record for its international growth plans.”
The deal proposes that PLUS pays out the cash proceeds from the sale to its shareholders via a special dividend and capital reduction.
The EPF already owns 12.3% in PLUS, while Khazanah controls 56% of the highway operator.
As both the EPF and Khazanah will not be voting on the deal, minority shareholders will have to decide on it. As the takeover is via an acquisition of assets route, in accordance with the Companies Act, only a simple majority of PLUS shareholders (other than EPF and Khazanah/UEM) will suffice to get the deal done.
The price of RM4.60, however, represents a mere 3% premium over the last traded market price of PLUS and 1.7% below the average analysts target price of RM4.68, based on Bloomberg data. To be sure, PLUS’ share price has been steadily rising due to speculation of the takeover to reach a high of RM4.46 on Wednesday from a low of RM3.20 on May 27. It was suspended on Thursday morning for two days and will resume trading on Monday.
Some analysts reckon that the offer price is too low and therefore are advising shareholders not to vote for the deal. “The RM4.60 share price is a bit disappointing. It represents a mere 3% above the last traded price of PLUS and 5% below our target price. A price of between RM4.80 and RM5 per share would have been more reasonable,” said OSK analyst Jeremy Goh.
A similar view is shared by Kenanga Investment Bank Bhd research head Yeonzon Yeow, whose target price for PLUS is RM5.08, and therefore, he advised clients not to accept the offer.
After Khazanah and PLUS, the third largest shareholder in PLUS is Kumpulan Wang Persaraan with 5.54%. Other shareholders are mainly institutional funds such as BlackRock Fund Advisory, Vanguard Group, Credit Suisse Asset Management, Fidelity International and CIMB-Principal Asset Management.
PLUS said it would appoint the relevant advisers in due course and deliberate on the terms of the offer and decide on the next course of action. “An announcement will be made once the board has made a decision on the offer,” it said.
Prior to this offer, there were two proposals to take over PLUS, one by MMC Corp Bhd and another by private company Asas Serba Sdn Bhd
fr:biz.thestar.com.my/news/story.asp?file=/2010/10/16/business/7240403&sec=business
EPF to the rescue?
Sideways by ANITA GABRIEL
JUST what if the Employees Provident Fund (EPF) owned fat cats such as the country’s independent power producers (IPPs), which are backed by water-tight lucrative concession agreements signed in the early 90s when the country’s power sector began its journey to privatopia?
Would we still bemoan the fact that the power purchase agreements (PPAs) were unfair and lopsided if the 12 million people whose retirement savings are parked in EPF were able to enjoy much better dividends by virtue of owning these assets which promise robust cash flow and returns?
It’s easy to imagine, if this were really the case, how the loud laments over the years could swiftly turn into sweet accolades.
Why should the people, more specially the EPF contributors, care much about the financial quandary such pacts had placed Tenaga Nasional Bhd (TNB) in, when they stand to enjoy the cream?
Now, imagine further. What if electricity tariffs needed to be raised because fuel prices were skyrocketing or subsidies needed to be cut? Indeed, it would be difficult for TNB to suffer these escalating costs without passing the cost burden to consumers.
As it stands now, the signal from the Government is that it will try to, as much as possible, avoid raising power tariffs given the impact on the people’s cost of living.
That’s loud and clear. For years, the Government has borne hundreds of millions, if not billions, just so to keep a lid on toll rates by compensating highway operators for deferred toll rate revisions. It has done the same for electricity.
The Government knows only too well the extent of public hostility, which can be deafening, when it comes to making them pay more for basic services.
But what if the water-tight PPAs could be tinkered with? That, as we all know, is hard to do for as long as the IPPs have their respective shareholders’ and bondholders’ interests to safeguard.
Moreover, changing the rules of the game midway by clawing back clauses in concession agreements could also sully Malaysia’s reputation in the international investment fraternity.
Wait a minute. Could one solution be to get the EPF to takeover these IPPs to allow for a more friendly (relatively speaking) discussion on revising the terms of the concession agreements so that ultimately electricity tariffs do not need to be raised?
Afterall, these IPP assets boast stable and steady recurring income with a robust cash flow, much in line with EPF’s long-term outlook to invest in assets that reap steady double digit returns and strong dividend.
Isn’t this the same logic behind EPF’s proposed takeover of PLUS Expressways Bhd, which it is undertaking together with Khazanah Nasional Bhd’s wholly-owned UEM Group?
Generating power to the nation is as strategic, if not more, as having highways. Allowing a private rather than a public entity to take over any basic services, as we have learnt, means the rates would have to be that much higher for consumers as they cover more expensive debt.
EPF’s deputy chief executive officer Shahril Ridza Ridzuan describes the “proposed joint acquisition of the PLUS business as an opportunity to acquire a mature, cashflow generating asset with an attractive risk-return profile, which would provide stable returns for our contributors’ retirement savings.”
We all know there are two other reasons behind the exercise – to tweak the toll concession agreements to cut the rate of increase in toll rates (EPF can easily do this given its stature simply by reducing PLUS’ cost of funds) as well as to fend off such a strategic asset from falling in the wrong hands.
PLUS’, well plus points, are aplenty – it’s got steady recurring income (but so do the IPPs). It promises robust dividends (so do the IPPs). It’s a long-term asset (so are the IPPs).
And it’s not a greenfield project (neither are the IPPs). Let’s not forget that IPP concessions are due to expire not too long from now.
If the IPPs are playing hardball with the Government, would “outsourcing” the problem to EPF be one way to go?
EPF’s potential acquisition of PLUS, all in the name of bagging a solid asset and keeping a lid on toll rates, have thrown up so many possibilities. But ultimately, if it means better returns for our compulsory retirement savings and lower bills, hey, why not?
>Business editor Anita Gabriel wonders if basic services ought to be private business or are there exceptions?
fr:biz.thestar.com.my/news/story.asp?file=/2010/10/16/business/7239205&sec=business
EPF can get better returns with new ruling on overseas investment
Stories by STARBIZ TEAM
PETALING JAYA: The move to allow the EPF to increase its overseas investment will allow diversification for better returns but some measures should be put in place before this can be achieved, according to fund managers and financial industry observers.
At the time, some felt that more details are needed to ensure that monies are invested in an effective manner.
The Government has proposed under Budget 2011 that the EPF be allowed to raise its overseas investment from the current 7% to up to 20% of the total assets managed.
HwangDBS Investment Management Bhd head of equities Gan Eng Peng said the potential downside was that the financial markets and assets were now more correlated.
“The recent credit crisis was a good example of all risk assets going down at the same time. So the move to allow EPF to increase its investment overseas may not achieve the desired diversification effects if the overseas investments are correlated to Malaysian asset classes which EPF invests in,’’ he said.
Anandakumar Jegarasasingam, Malaysian Rating Corp Bhd vice-president and head of financial institution ratings, agreed with Gan. He added that a more phased out increase to a lower proportion such as 10% or 12% would have been a desirable option as opposed to a steep increase up to 20% as the move could turn into a risky proposition considering the present state of global financial markets.
Another option, he said was to split the pool of funds of EPF based on the risk appetite of its members. For instance funds (above a certain threshold) of those members who exhibited the required risk appetite may be invested in overseas financial markets, while funds of others could be invested in domestic financial markets.
Meanwhile, EPF chief economist Norasikin Abdul Hamid said the increase in overseas investment would help the pension fund to minimise market concentration risks besides diversifying its investment instruments and income.
Areca Capital Sdn Bhd CEO Danny Wong said that on a positive note, EPF investment could be more diversified in terms of country allocation, sectors and currencies.
But on the flip side, there are potential risks associated to overseas investment such as currencies and sovereign risk.
As to the potential of a double dip recession affecting investments, he said it is up to the appointed fund managers or EPF to take advantage of the current low price in certain market such as in the Europe Union and in US as EPF investments are meant for longer time, and hence make sense to invest during crisis for future recovery.
Wong said more details were needed for EPF’s proposed hike in overseas investments.
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Analysts say EPF has to diversify abroad to obtain better returns
WHEN news broke that the Employees Provident Fund (EPF) was partnering Khazanah Nasional Bhd in the RM23bil takeover of PLUS Expressways Bhd, the deal was more of a surprise on the political front than the economics of the deal.
From the politics angle, the proposed takeover of the assets and liabilities of PLUS is a means to keep a lid on the high toll rates drivers pay for traversing the highways. The purchase would also ensure EPF contributors enjoy a higher rate of return in the future.
EPF deputy chief executive officer (investment) Shahril Ridza Ridzuan said in a statement following the announcement of the joint takeover offer that the deal offered EPF an opportunity to acquire a “mature, cashflow-generating asset with an attractive risk-return profile, which would provide stable returns for our contributors’ retirement savings.”
That financial reasoning of the deal is simple. Much of the money PLUS stands to make is yet to be realised and as a concession matures, so will its cashflow generation capability.
What impact a tweaking on the concession agreement will have on the future income of PLUS is yet to be determined, but analysts expect the final return EPF would get from its acquisition would be much better than what it would otherwise get for its cash in an alternative investment like Malaysian Government securities.
“EPF has a certain return target to meet and that’s in line with beating inflation,” said MIDF Amanah Asset Management Bhd CEO and chief investment officer Scott Lim.
“If fixed income is not offering good yields, then it has to move elsewhere.”
The move into PLUS is also consistent with the direction the EPF has taken in recent years in its investment decisions where it has assumed control of companies on Bursa Malaysia.
Getting involved directly in business was a means of seeking higher returns but the EPF has learnt a bitter lesson if the right conditions and personnel are not there to carry out its plans.
It got its fingers burnt from its ownership of Malaysia Building Society Bhd (MBSB), where it incurred massive losses caused by the Asian financial crisis.
That forced the EPF to swallow a huge loss in that investment and forced the fund to oversee a thorough restructuring of the building society which saw MBSB return to the black.
“It means it (EPF) must have a pool of outside expertise if internally it cannot run it better,” said Philip Capital Management Sdn Bhd chief investment officer Ang Kok Heng on the move by the EPF to take control of companies.
Its desire to control companies did not stop there as EPF won control of RHB Capital Bhd in 2007 after a fight with EON Capital Bhd and Kuwait Finance House Bhd and it later assumed control of Malaysian Resources Corp Bhd (MRCB).
The EPF, through MRCB, is also undertaking a mixed development of the massive tract of land in Sungai Buloh where it will be spending RM10bil until 2025.
The EPF had two main advantages in the ownership of companies, said Ang. Time was the first advantage as being a pension fund it could hold onto its investments for a long time, he said.
“The second is its size. The EPF can diversify its investments and in the long-term have higher and better returns if it holds onto its investments long enough,’’ he said.
The takeover of RHB Capital and MRCB has seen the performance of those companies improve under the tutelage of EPF.
Analysts said the diversification of EPF’s asset allocation strategy into private equity deals or even investing abroad is a way of squeezing higher returns from a pool of funds under management that has grown far too large for an economy like Malaysia.
There are concerns over the size of the EPF in the local stock market where on average, it is the largest trader on Bursa Malaysia on a daily basis.
“There are still opportunities in Malaysia but our stock market is not growing fast enough for it. The EPF has already 32% of its investments in equities,” said Ang.
In 2005, EPF had total investments of RM259bil. As at the end of the second quarter this year, its total investments have soared to RM406.6bil.
Most of its latest investments are in loans and bonds which totalled RM151.6bil or 37.3% of total assets. That is followed by equities at RM130.9bil or 32.2% of total assets, Malaysian Government bonds (RM94.8bil; 23.3%), money market instruments (RM27.6bil; 6.8%) and property (RM1.6bil; 0.4%).
Returns-wise, in terms of size, equities was the largest contributor to investment income with RM2.7bil of the RM5.9bil the EPF earned during the quarter. Returns from equity investments were up 56.6% from the same period a year ago. Next in terms of income contribution was loans and corporate bonds at RM1.9bil followed by returns from government securities at RM1.1bil. Returns from the money market, thanks to rising interest rates, gave the fund RM183mil profit for the quarter while gains from properties was RM22.8mil.
The large size of its funds, of which most is now dedicated for Malaysia, has also led to sub-par dividend returns for contributors this decade where the average dividend rate has been above what risk-free fixed deposits offer but from a historical perspective, they are below the norm.
Last year’s dividend of 5.65% was the second highest this decade but in terms of perspective, the last time returns were that low before this decade was in the 1965-1967 period when the dividend rate was 5.5%.
The best years the EPF had in terms of dividend returns were between 1980 and 1994 where the annual dividend was 8% to 8.5%.
Analysts have maintained that for the EPF to seek better returns in the future without exerting a tremendous influence on the domestic markets means that the EPF would have to diversify abroad and in Budget 2011, that was done when the Government announced that the EPF would be able to invest 20% of its money overseas.
Furthermore, the EPF is said to be getting more involved in private equity and property ownership by buying buildings abroad where rental yields are higher.
Additional money being invested overseas will expose EPF to the vigours of such investments. Private funds that have managed to do so said returns are also about the timing as volatility in the large emerging markets or even developed markets is larger than what is experienced at home.
Also, the EPF will be exposed to currency risk, which could be a double-edged sword for investors when investments sour.
“I believe the EPF would have done its homework when going into property or private equity deals,” said Lim.
“In the pursuit of returns, there is always going to be higher risks.’’
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EPF looks at expanding property investment
KUALA LUMPUR: The Employees Provident Fund (EPF) will evaluate whether to raise its investment in properties, said deputy chief executive officer (investment) Shahril Ridza Ridzuan.
We will look at it from time to time whether the number that we have invested is the right asset allocation at that point of time, he said on the sidelines of Bursa Malaysia’s Business Sustainability Programme yesterday.
Currently, the pension fund has less then 2% of its total accumulated funds invested in properties. However, it has a strategic asset allocation target of 5% for properties.
Shahril Ridza Ridzuan
It (the percentage) will grow over time. As for the timeframe, it depends on the opportunities that arise, Shahril said, adding that it was hard to put a timeframe to the target.
In August, the EPF announced that it would invest 1bil (RM4.88bil) in properties in the United Kingdom.
Meanwhile, Shahril said EPF would wait for the outcome of PLUS Expressway Bhd’s shareholders meeting in December before deciding on its next course of action in relation to the proposed acquisition of PLUS’ assets and liabilities.
He said it also needed to obtain approval from bondholders and the Government. We have to discuss with the Government on the concession agreement, because any changes will require its approval on the concession as well, he said on EPF’s next course of action once it obtained the shareholders’ approval.
PLUS has accepted the revised joint offer from EPF and UEM Group Bhd to take over the company’s assets and liabilities for RM23bil.
The proposed acquisition involves a cash payout of RM11bil to minority shareholders and RM12bil of the amount owing to Khazanah Nasional Bhd, UEM and EPF.
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