Malaysia Khazanah To Split Assets Into 2 Funds As Portfolio Value Erodes

© Nikkei Markets

KUALA LUMPUR (Mar 05) — Khazanah Nasional said Tuesday it will split its assets into two funds after the value of its portfolio eroded in 2018, dragging the investment holding arm of the Malaysian government into its first pre-tax loss in a decade.

The company will separate its investments with CIMB Group and Axiata Group among others in the so-called commercial fund, Managing Director Shahril Ridza Ridzuan said in a media briefing. Holdings such as in Telekom Malaysia and Tenaga Nasional will be placed in “strategic fund,” he said. 

The commercial assets will diversify revenue sources for the country, while the strategic assets are expected to generate long-term economic benefits for Malaysia, he said. “We needed to restructure the assets to better meet our mandate and objectives.”

The company is targeting return of 3% above consumer price index on five-year rolling basis for commercial fund portfolio, Shahril said. The strategic fund, meanwhile will aim for return equivalent to 10-year Malaysian government bond yield on a five-year rolling basis and “measurable economic benefits.”

Since sweeping to power in last year’s shock election outcome in May, Prime Minister Mahathir Mohamad has criticized Khazanah for deviating from its so-called initial goal of supporting local enterprises. He appointed Shahril as the new managing director after Azman Mokhtar resigned in July along with the entire board to help an orderly transition under the new government.

The Mahathir-administration, burdened with massive debt, in part arising from multi-billion dollar scandal at state investment fund 1 Malaysia Development Bhd, is relying on hefty dividend payouts from state-run enterprises such as Khazanah and Petroliam Nasional to help fix the government’s strained finances. 

Last year, Khazanah’s realizable asset value fell 13% to 136 billion ringgit ($33.36 billion). Net worth adjusted, Khazanah’s preferred measure of portfolio value after stripping out liabilities and net transfers to the government, declined 22% to 91 billion ringgit.

Khazanah also suffered pre-tax loss amounting to 6.27 billion ringgit due to fewer divestments, reduced dividend income and higher impairments, amid weak capital market conditions. The company booked 7.3 billion ringgit in impairments and 1.4 billion ringgit divestment gains last year.

Following the change in its entire leadership, Khazanah has reviewed and revalued some of its investments in 2018. “The organizational restructuring we are currently undertaking will enable us to execute and deliver on our role of growing Malaysia’s long-term wealth, beginning from this year,” Shahril said. He is confident of returning to profitability this year as Khazanah sharpens focus on executing its portfolio rebalancing strategy, investing 60% in equities, 30% in private companies and 10% in property investments, while strengthening its financial position. 

Apart from listed entities, Khazanah also owns stakes in a mix of privately-held companies that range from national flag carrier Malaysia Airlines to film studio Pinewood Iskandar. It has also invested in semiconductor manufacturer Silterra and Themed Attractions Resort & Hotels that owns Legoland in Malaysia. 

– By Gan Pei Ling
– Edited By Jason Ng