Khazanah portfolio restructuring should have started five years ago — MD

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KUALA LUMPUR — Given the concentration risk of Khazanah Nasional Bhd’s investments, the restructuring of the sovereign fund’s portfolio should have been done five years ago, managing director Datuk Shahril Ridza Ridzuan told the Public Accounts Committee inquiry in April.

He told the meeting profits had not grown over the past few years because the portfolio was too concentrated on Malaysia, which, coupled with the fact that 80% of its assets are in policy-sensitive industries, made the fund susceptible to sudden events such as changes in policy.

This includes what is now known as its strategic portfolio, comprising, among others, Tenaga Nasional Bhd, Malaysia Airlines Bhd, Malaysia Airports Holdings Bhd and Telekom Malaysia Bhd.

“Profit has not really grown in the last few years because it had been too concentrated on Malaysia and most of the gains from restructuring those companies had already been taken in the early part of the cycle.

“Khazanah really should have four to five years ago started to restructure its portfolio — exit some of the assets and reinvest into other things,” he said, in response to Subang Jaya member of Parliament Wong Chen’s question on the position of Khazanah at the time.

The fund’s strategy of moving towards a more portfolio and asset allocation-based approach improves risk management, Shahril said, and highlighted new investments including in Chinese technology unicorn Ant Financial, the Khazanah-Temasek Holdings joint venture M+S as well as technology outfits Phunware and Farfetch which have since been listed on Nasdaq and the New York Stock Exchange respectively.

He also pointed to the partial sale of Khazanah’s stake in IHH Healthcare Bhd at a 20% premium for RM8 billion.

“As we go through the cycle of trading out the assets and investing in new assets, we will be able to recognise a better profit in 2019. This is why we expect Khazanah to return to profitability this year.”

Khazanah is not in a critical position and its portfolio as a whole is doing “okay”, he said, and would undertake cost-cutting measures over a five-year period to strengthen its financial position.

Plans include cutting overall operation costs by 30%-40% by closing down unnecessary overseas offices, and consolidating its two Kuala Lumpur offices into its Kuala Lumpur Sentral office, which would save about RM20 million per year. The Taman Tugu project has also been scaled back to less than RM100 million from an original RM650 million.

Khazanah is also pursuing greater transparency and will set a dividend policy based on a certain percentage of the profits that it earns, as well as publishing its accounts on its website.

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