What GLICs can learn from James Taylor
An interesting debate has emerged in recent weeks. This came after three corporate deals involving government-linked companies (GLCs) and a government-linked investment company (GLIC).
First it was UEM Land Holdings Bhd taking over Sunrise Bhd, Sime Darby Bhd buying majority stake in Eastern & Oriental Bhd and then Permodalan Nasional Bhd launching a mandatory general offer for SP Setia Bhd.
Although the buyers would have good business reasons for those deals, it did raise questions about whether the government is crowding out the private sector. Are we stifling entrepreneurship? Put it another way, will an aspiring businessman decide not to grow further, if he thinks his company will become a takeover target by a GLC?
The underlying problem to this, as some has rightly pointed out, is that the Malaysian stock market has become too small for GLCs or GLICs that have a lot of money.
GLICs are an interesting feature of Malaysia's economy.
Some cover a broad section of the population, like the Employees Provident Fund (EPF), which helps workers save for retirement. Others are more targeted, like Lembaga Tabung Angkatan Tentera, which manages savings for those in the army. PNB was started to help the Malays have a bigger stake in the economy using the unit trust model. But it has now expanded to include all Malaysians in certain unit trust funds like the Saham Amanah 1Malaysia.
These institutions have grown over the years. The EPF's fund size is about two thirds of the country's economy while PNB has about RM150 billion.
As they seek to grow bigger, GLICs and GLCs will inevitably take over other companies.
What should be the solution to this crowding out issue? The easiest way is for the government to continue reducing its interest in business. This is being done gradually.
The other option is for our GLCs and GLICs to invest more abroad. So far, we have not seen much of this from GLICs like PNB, EPF and LTAT.
My take on this is that they want to do more overseas but are held back by the government's insistence for them to invest more at home. Malaysia has suffered from falling private investments over the years and the government wants the GLCs and GLICs to play a key role in reversing this trend.
The other concern obviously is they need to be extra careful when investing overseas because these are unfamiliar markets. Although higher risks might equal higher returns, they would certainly want to avoid losses. GLICs like PNB for instance, have built expectations that their unit trust funds would always comfortably beat returns from fixed deposits. The EPF must always return at least 2.5 per cent in annual dividends because it is provided in the law.
This means that for a few more years, we will probably see more of such deals like the UEM Land-Sunrise takeover or the PNB-SP Setia offer. But the onus is now on GLICs to convince nervous CEOs that they are not going to be constrained or driven out. They need to be convinced that they will be given all the help that they want to expand the business further.
This is the smart partnership idea. Our private sector leaders can choose to see GLICs not as barbarians at the gate, ready to kick them out of a job, but rather as a ready partner. And what a partner they can be. They bring a ready war chest and a wider network that can be used to find hidden opportunities.
But our GLICs also must learn to give them the space to work.
Our big businessmen need to believe that they have got a friend in GLICs, to paraphrase the fantastic musician Mr James Taylor.
The last big question is, will they do this?