UBS Has a Good Deal!

The demise of banking giant Credit Suisse sent shock waves through financial markets and appears to have dealt a blow to Switzerland's reputation for stability. UBS, Switzerland's largest bank, agreed on Sunday to buy its embattled domestic rival Credit Suisse for 3 billion Swiss francs ($3.2 billion) as part of a government-backed, cut-price deal.

Swiss authorities and regulators helped to negotiate the agreement, which came amid fears of contagion to the global banking system after two smaller U.S. banks collapsed in recent weeks.

Source: https://ms.wikipedia.org

The rescue deal means Switzerland, a country heavily dependent on finance for its economy, is on track to see its two biggest and best-known banks merge into just one financial giant.

Under the terms of the emergency takeover, investors in Credit Suisse's additional tier-one bonds — widely regarded as a relatively risky investment — will see the value of their holdings slashed to zero. It means investments worth roughly 16 billion francs will become worthless. AT1 bonds, also known as contingent convertibles or "CoCos" are a type of debt that is considered part of a bank's regulatory capital. Holders can convert them into equity or write them down in certain situations – for example when a bank's capital ratio falls below a previously agreed threshold. The unconventional move is at odds with the typical practice of prioritizing bondholders over shareholders when a bank fails and prompted turmoil in the market for convertible bank bonds on 20 March 2023.

Saudi National Bank, the largest shareholder of Credit Suisse, has lost around 80 per cent of its investment. Credit Suisse, which failed over the weekend. Riyadh-based Saudi National Bank has a 9.9 per cent stake in the Swiss bank. It invested 1.4 billion Swiss francs ($1.5 billion) in November 2022 at 3.82 francs per piece. 

The Qatar Investment Authority, Credit Suisse’s second-largest investor, holds a 6.8 per cent stake in the bank, but it hasn’t disclosed about its losses. Credit Suisse had been facing a number of problems and was trying to overcome the multi-dollar losses, but failed to win back investors’ confidence.   

In December 2022, Credit Suisse raised $4 billion in funding from investors, including major Gulf banks and sovereign wealth funds like Saudi National Bank, the Qatar Investment Authority and the Saudi Olayan Group.  Norway’s sovereign wealth fund, Norges Bank Investment Management, is also a major shareholder in the embattled bank. 

After years of administration struggles, heavy losses and scandals, Credit Suisse’s recent share price plunge started with the collapse of Silicon Valley Bank and Signature Bank earlier this month.  

It aggravated when the Saudi National Bank on Wednesday said it could not provide any more financial assistance.  This led to a rout in banking stocks, which promoted governments to float rescue plans to keep banks functioning amid market volatility. 

The 167-year-old Swiss bank stands out as the biggest loser from Sunday's rescue deal.

The onetime banking titan has been forced by its own government to accept a takeover bid from its biggest rival, which values it at less than half its market capitalization.

UBS, on the other hand, will see its assets under management swell to just under $2 trillion if it can complete the deal, according to data from S&P Global – which is more than the amounts managed by blue-chip US rivals like Goldman Sachs and Morgan Stanley.

What a tragedy! A once respected institution has fallen from grace! Banks have to remain conservative to survive long periods. The case for us will be Bank Bumiputra. Prudence, circumspect and boring are qualities for commercial banks. If not, you will need rescue from shareholders, a “white” knight or the Government.

References:

‘A financial banana republic’: UBS-Credit Suisse deals put Switerland’s reputation on the line, Sam Meredith, CNBC, 21 Mar 2023

Credit Suisse takeover by UBS: Saudi National Bank loses over $1 bn on its investment, says report, Basudha Das, www.businesstoday.in, updated 21 Mar 2023

Credit Suisse rescue: The biggest winners and losers from UBS’s historic deal, George Glover, Markets Insider, 20 Mar 2023

Of Refugees, Asylum Seekers and Migrants

Many people in the world have had the experience of leaving the place where they grew up. Maybe they will only move as far as the next village or city. But for some people, they will need to leave their country entirely – sometimes for a short time, but sometimes forever.

There are many reasons why people seek to rebuild their lives in a different country. Some people leave home to get a job or an education. Others are forced to flee persecution or human rights violations. Millions flee from armed conflicts or other crises or violence. Some no longer feel safe and might have been targeted just because of who they are or what they do or believe.  

Source: https://en.wikipedia.org

These journeys, can also be full of danger and fear. Some people risk falling prey to human trafficking and other forms of exploitation. Some are detained by the authorities as soon as they arrive in a new country. 

There are many reasons why it might be too difficult or dangerous for people to stay in their own countries. For example, children, woman and men flee from violence, war, hunger, extreme poverty, because of their sexual or gender orientation, or from the consequences of climate change or other natural disasters. Often people will face a combination of these difficult circumstances.

People who leave their countries are not always fleeing danger. They might believe they have a better chance of finding work in another country because they have the education or capital to seek opportunities elsewhere. Others might want to join relatives or friends who are already living abroad. Or they might seek to start or finish their education in another country. There are lots of different reasons for people to start a journey to build a life in a new country.

The terms “refugee”, “asylum seeker” and “migrant” are used to describe people who are on the move.

The terms “migrant” and “refugee” are often used interchangeably but it is important to distinguish between them as there is a legal difference. A refugee is a person who has fled their own country because they are at risk of serious human rights violations and persecution there.  An asylum seeker is a person who has left their country and is seeking protection from persecution and serious human rights violations in another country. They are not legally recognized as a refugee but are waiting to receive a decision on their asylum claim. Seeking asylum is a human right. 

There is no internationally accepted legal definition of a migrant. Some migrants leave their country because they want to work study or join family, for example. Others feel they must leave because of poverty, political unrest, gang violence, natural disasters or other serious circumstances that exist there.

The British Government recently introduced the “Illegal Migration Bill”. The new legislation is to stop asylum seekers, especially those crossing the English Channel. The numbers have increased from the hundreds to 45,755 in 2022. The majority have claimed asylum.

The Home Secretary says there is a 50% chance the Bill may be incompatible with the European Convention on Human Rights. It is also deemed to have breached UN’s 1951 Refugee Convention.

The Bill is political in nature (perhaps all Bills are) but here the Tories are looking at the next general election. But will it “stop the boats”? Not likely. Why? The root cause is those leaving their home countries are impacted by negative forces in their homelands. People coming are from Afghanistan, Syria, Libya, Eritrea, Iraq and many more. 

What do they have in common? Wars started by the U.S. or its allies. When you have done regime change and when you leave a vacuum after your departure, chaos reigns. And so ordinary folks in danger of their lives or livelihood will leave for better places. Hence, we have the flood of people into Europe or the U.S. Border walls and legislation will not keep them out – only peace and prosperity in their homelands will. No one wants to leave their homeland for an unfamiliar foreign land unless there are the “push and pull’ factors.

Then there is the hypocrisy of the rules – if you are a Ukrainian you are welcome but not someone from Syria or Iraq. We (Malaysians) are no better, we don’t mind the Bosnian or the fair-skinned Pakistani but not the Rohingya. A refugee needs help no matter what his skin colour, race or creed.

References:

Refugees, asylum seekers and migrants, www.amnesty.org

The illegal migration bill: seven questions for the government to answer, Rhys Clyne, Sachin Savur, Institute for Government, 10 March 2023

Floods Cost Us RM600mil in 2022!

Floods cost the country a total of RM600mil in losses in 2022, says the Statistics Department of Malaysia (DOSM). Losses to public assets and infrastructure made up 37% of the country's total losses, agriculture and living quarters at 25%, respectively, business premises at 8%, vehicles at 4% and manufacturing at 1%. Terengganu recorded the highest losses in living quarters (RM84.2mil), manufacturing (RM7.1mil) and business premises (RM25.3mil). Vehicles made up 62% of total losses due to floods in Kuala Lumpur while public assets and infrastructure made up 76% of total losses in Selangor.

The study was conducted from Jan 8, 2022 to December 31, 2022 where all states were affected except the Federal Territories of Labuan and Putrajaya. 

The impact of flood losses in 2021 was as follows:

In many parts of the country, floods are man-made. Retention ponds or pools designed with additional storage capacity to attenuate surface runoff during rainfall events are being turned into commercial zones. These permanent pond areas with landscaped banks and surroundings are supposed to provide additional storage capacity during heavy rainfall.

Severe flooding is the consequence of deforestation and changing land use. Trees can help defend against floods and afforestation can minimise floods. This planting of plants on a large area gives the land a specific grip and can prevent soil erosion and landslides. Forests create resistance to the flood water which can prevent harm by the floods. Total stoppage to logging activities in the upstream areas would be ideal measure to stop mud and debris clogging rivers and streams with the flow of excess water to the lower plains.

Structural measures are generally adopted in many countries to minimize the effects of floods. These include building embankments, flood walls, sea walls, dams and reservoirs, natural detention basins, improving channels and drainage to divert flood waters.

So many lives, both humans and animals, are lost every year. Properties are damaged. And the cleaning and restoration of homes and lives may take months only to face another storm that disrupts lives.

When will this end? When we are prepared to face those forces that prevent common sense to prevail. When deforestation is stopped. When we value lives and property of the poor. When people in Government and the MPs put in place the needs of their constituency rather than vested interest groups.

References:

Floods cost Malaysia RM600mil in 2022, says Stats Dept, Mahadhir Monihuldin, The Star, 23/2/23

Press Release: Cost of Losses in Malaysia’s Flood 2021 reach RM6.1 billion, Prime Minister’s Department, 22 January 2022

Why were floods so bad? Because we were not prepared, Moaz Nair, FreeMalaysiaToday, 29/12/21

Deforestation 100x KL?

An area 100x of Kuala Lumpur has been earmarked for deforestation according to an environmental group called RimbaWatch (“RW”). In their study titled “State of Malaysian Rainforest 2023”, Malaysia has deforested 359,244 hectares between 2017 and 2021. The highest rates of deforestation is in Sarawak and Pahang.

According to them a further 2.3 million hectares of forests in Malaysia have  been earmarked for deforestation. This is an area 100x the size of Kuala Lumpur and larger than Perak, Penang and Melaka combined.

Source: https://en.wikipedia.org

Timber logging outfits were the highest driver of past deforestation (between 2017 to 2021). They accounted for 42% of deforestation followed by oil palm plantations (15%).

In 2017, Malaysia had a forest cover of 18.3m hectares or 55.5% of total land area. In future it could decrease to 15.6m hectares or 47.4% of total land area. This is below our commitment to maintain 50% of its land as forest cover (pledged by Malaysia in Rio Earth Summit of 1992).

Why does this happen? Lack of centralised monitoring; lack of commitment and profit motive of private entrepreneurs. “Forest cover” must include only natural forests not plantations – rubber or oil palm.

What is the consequence? Flooding, landslides, wildlife habitats destroyed and eco-balance jeopardised.

What can be done? Commitment to step-up reafforestation; halt any further deforestation especially in Sarawak and Pahang; create greater awareness on preservation of our forests; examine carbon trading for those impacted by measures to stop deforestation and use our forests for eco-tourism.

Land is a state matter and many elites are involved in this business. It requires strong Federal persuasion to halt this act of killing our trees and wildlife. Otherwise, we will have more floods and then blame it on God!

Reference:

Area 100 times of KL set up for deforestation, says environmental group, FMT Reporters, FMT, 20 March 2023

Nord Stream Pipelines: Who Bombed Them?

A veteran American investigative journalist has claimed that the September 2022 bombing of the undersea Nord Stream gas pipelines was carried out by the Central Intelligence Agency (CIA) in a covert operation at the direction of the White House. President Joe Biden’s administration has denied the allegations and called the report “utterly false and complete fiction”.

Seymour Hersh, a Pulitzer Prize-winning journalist who has previously worked with The New York Times and The New Yorker magazine, published the findings of his investigation on Substack. The report claimed that US Navy divers, operating under cover of a mid-summer 2022 NATO exercise, planted remotely triggered bombs to destroy three of the four Nord Stream pipelines.

Source: https://en.wikipedia.org

A series of leaks were reported in the Nord Stream and Nord Stream 2 pipelines in September 2022. This multi-billion dollar projects were to carry natural gas from Russia to Germany through the Baltic Sea. After an examination, both Sweden and Denmark, in whose jurisdiction the leaks happened, said the leaks took place because someone deliberately bombed the pipelines. However, they did not reveal who was responsible for the attack.

Ever since it became operational in 2011, Nord Stream, the first of the two pipelines, had been one of the major sources of energy supplies for not just Germany but also other countries in Europe. Once the Russia-Ukraine war broke out, it became the centre of tensions as Russia sought to use the pipeline to negotiate its interests by restricting supplies.

With Ukraine and the US asking European countries to reduce their dependence on Russian energy, this led to a difficult and uncertain economic outlook for the continent. The cost of living and energy rose dramatically. With Germany having decided to halt the Nord Stream 2 project two days before the Russian invasion of Ukraine, and following the bombing of the pipelines, virtually no gas from Russia to Europe now flows through this route.

According to the Hersh report, President Biden began holding meetings with a newly formed task force. The US feared that as long as Germany and much of Western Europe were dependent on the Nord Stream pipelines, they would be hesitant in providing aid and arms to Ukraine against a possible invasion by Russia.

The decision to sabotage the pipelines by President Biden came after “more than nine months of highly secret back and forth debate inside Washington’s national security community about how to best achieve that goal”. To execute the mission successfully, the US sought help from Norway and in March 2022, a hand-picked team of CIA and National Security Agency (NSA) operatives flew to the country to discuss the operation with the Norwegian Secret Service and Navy. This is what Hersh has written.

The 1,224 km-long Nord Stream pipeline runs from Vyborg in northwest Russia to Lubmin in northeastern Germany. The company behind the project is Nord Stream AG, which was established in Switzerland in 2005 in partnership with Gazprom — “ a publicly traded Russian company producing enormous profits for shareholders which are dominated by oligarchs known to be in the thrall of (Russia’s President) Putin”, the report said.

Though most of the gas supplied by Nord Stream 1 went to Germany, a substantial quantity was also delivered to western and southern parts of Europe.

According to Hersh’s report, in the aftermath of the incident, “Russia was repeatedly cited as a likely culprit, spurred on by calculated leaks from the White House—but without ever establishing a clear motive for such an act of self-sabotage, 

NATO also released a statement after the incident and said the pipeline leaks were likely the “result of deliberate, reckless, and irresponsible acts of sabotage” and pledged a “united and determined response” to any attacks against their allies’ critical infrastructure.

With the energy supply from Russia at all-time low, European countries had been importing liquified natural gas, or LNG, from the US on a much bigger scale. LNG though is significantly more expensive than piped natural gas from Russia.  Apart from the US, Azerbaijan has also become a major supplier to these countries. In 2022, the gas supply from Azerbaijan to the EU reached 12 billion cubic metres.

Instead of finding a concrete solution for the Ukraine war, the U.S. is keen to fulfil its strategic interests. Nothing is morally right or wrong. And the media goes along with the official narrative – Russia did the hara-kiri! Why is there  no U.N. sponsored  investigation? Isn’t this an act of war? So it was for Iraq, Libya, Syria, Afghanistan and a whole host other nations who faced the wrath of the U.S. for not dancing to their tune. Here, it is different because it is Europe and it is only cost of living, energy prices and climate change. Anyway, who cares if America wills it!

Reference:

US bombed Nord Stream gas pipelines, says top investigative journalist. What happened under the Baltic Sea last year? Alind Chauhan,www.indianexpress.com, 10 Feb 2023

London or Londongrad?

For years, the United Kingdom (UK), specifically London, has continued to be a haven for economic offenders from other nations. Russian oligarchs have kept their money parked in the country in the form of property and other assets. It has earned the city an unenviable nickname, 'Londongrad'.

Others like Indian businessmen, like Nirav Modi and Vijay Mallya, declared as fugitive economic offenders (FEOs) by the Indian government, have been living in the UK, seeking asylum.

The ongoing war in Ukraine has brought the topic back to the discussion. In March 2022, the British Parliament passed the economic crime act to ease the process of conducting trials of people with international corruption cases against them. A report by The Economist said that the country has a money-laundering problem amounting to $125 billion per annum.

Source: https://en.wikipedia.org

Various reports have discussed why London is the 'Laundromat' of global 'dirty' money. The first reason cited is the weak enforcement of laws. According to a report by Financial Times, the money can be transferred to a UK company from foreign bank accounts without much trouble. Although the laws require the company's details to be recorded with the government, these laws are not implemented strictly. The money is usually transferred to the shell companies in the UK and then moved across various bank accounts to 'clean' it.

Apart from implementation, the report also said that a nexus of accountants, lawyers and oligarchs have been formed in the country. Lawyers and accountants help oligarchs evade the tax laws. Oligarchs, in return, pay them hefty fees.

There are four steps in which the whole process takes place, according to FT. The first step is "placement". The money is brought into the country through foreign bank accounts and parked in shell companies' bank accounts.

Second, the transactions are "layered". Here, several complicated financial transactions are conducted with the money. This makes it difficult for the agencies to keep track of the origin of such funds. Several banks, too, are a part of the process. FT identified 86 such banks in its report. Then, the money is "integrated" into the system. Costly assets like houses, watches, cars, and jewellery are bought with the money to integrate the money into the system.

In the UK, offshore companies are allowed to buy a property without revealing the details of the person who is ultimately buying it. Around 84,000 houses have unknown owners in the country.

Lastly, if any cases are filed against the launderers, they are "defended" by the nexus of accountants and lawyers. According to a report by Transparency International, 86 banks, 81 law firms and 177 educational institutes have accepted dirty money.

After the war in Ukraine broke out, the UK House of Commons passed the Economic Crime Act, which makes it mandatory to register overseas entities and their beneficiaries with the government. It also aims to intensify sanctions enforcement in the country. Since the passage of the bill, Britain has sanctioned over 1,600 individuals and businesses, including 100 Russian oligarchs, according to a report by The Economist.

London is a known haven for “dirty” money. In fact, some of the connected elite in many developing countries like Nigeria or Malaysia transfer funds for “safe-keeping” to London. Many also buy landed assets with these funds. Some have suggested Malaysia has “lost” over RM1 trillion over last 10 years. Maybe MACC or the PM’s office could recover it, then we will have enough for development expenditure.

Reference:

London or Londongrad? What makes the UK a hub for global “dirty money”, BS Web Team, www.business-standard.com, August 8, 2022

An Overweight Population by 2035?

More than half the world's population will be classed as obese or overweight by 2035 if action is not taken, the World Obesity Federation warns. More than four billion people will be affected, with rates rising fastest among children, its report says.

Low or middle-income countries in Africa and Asia are expected to see the greatest rises. 

The report predicts the cost of obesity will amount to more than $4tn (£3.3tn) annually by 2035. The report in particular highlights the rising rates of obesity among children and teenagers, with rates expected to double from 2020 levels among both boys and girls.

Source: https://cdn.britannica.com

The effects of obesity's prevalence on lower-income countries is also highlighted in the report. Nine of the 10 countries with the greatest expected increases in obesity globally are low or lower-middle income states in Africa and Asia. Reasons include trends in dietary preferences towards more highly processed foods, greater levels of sedentary behaviour, weaker policies to control food supply and marketing, and less well-resourced healthcare services to assist in weight management and health education. Lower-income countries are "often the least able to respond to obesity and its consequences".

The findings estimate that rises in obesity rates around the world will have a significant impact on the global economy, equating to 3% of global Gross Domestic Product.

As in climate change, the developed countries with their McDs, KFCs, Baskin Robbins, A&Ws and many more create the mess. Unless you have a global sugar/carbo tax on all these companies the situation will only get worse. If you have the funds from the sugar/carbo tax then you can channel the bulk of it to healthcare and preventive steps. Otherwise, as usual the poor and uneducated will suffer!

Reference:

Half the world on tract to be overweight by 2035? Alys Davis, BBC News, 4/3/23

Will There Be A Global Debt Crisis?

The problem of excess debt is not just a domestic issue. Globally, debt levels have soared to unprecedented levels. Global debt has hit a record US$300 trillion (RM1.32 quadrillion) or equivalent to 349% of global gross domestic product (GDP), notes S&P Global Ratings in a recent report.

This figure – monies owed by governments, households, financial and non-financial corporates – is higher than pre-global financial crisis (GFC) peaks. It works out to US$37,500 (RM165,563) of average debt for each person in the world versus a GDP per capita of just US$12,000 (RM52,980).

Debt is a double-edged sword. It is an effective tool to promote economic development and enhance living standards if used wisely and in moderation. On the other hand, the effects can be detrimental and lead to financial ruin if it is used in excess and not well-managed.

The Prime Minister has revealed that the federal government’s debt and off-budget liabilities have reached RM1.5 trillion, exceeding 80% of the country’s gross domestic product (GDP).

Excluding off-budget liabilities, the federal government debt-to-GDP ratio as at end-June 2022 stood at 63.8%. This is still below the government’s self-imposed statutory limit, which stands at 65%, up from 55% prior to the Covid-19 pandemic.

According to Bank for International Settlements’ (BIS) working papers, the threshold for government debt is around 85% of GDP. For household debt, the threshold is around 85% of GDP, while for corporate debt, it is 90%. Debt beyond these thresholds can be a huge drag to a country’s economy in the longer term.

According to Bank Negara Malaysia, the household debt-to-GDP ratio had reverted closer to pre-pandemic levels at 84.5% as at end-June 2022 after easing from 89.1% as at end-December 2021.

It is still among the highest in the region, behind that of South Korea, whose household debt-to-GDP ratio is more than 100%, as well as Taiwan and Thailand at around 90%.

The bulk of household debt in Malaysia comprised loans for the purchase of residential properties at 59.4% of the total RM1.4 trillion in the system as at end-June 2022. This was followed auto loans at 12.6%.

The central bank points out that lending standards remaining generally prudent, especially among banks, to ensure asset quality. It further notes that the share of more-risky borrowers with a debt-service-ratio of more than 60% remains fairly stable at 24% of total household borrowers, or 32.6% of total banking system loans. Household impairment and delinquency ratios increased marginally, but remained low and within expectations at 1.2% and 0.6%, respectively, as at end-June 2022.

Meanwhile, the non-financial corporate debt-to-GDP ratio had moderated to 104.4% as at end-June 2022 from 109.7% as at end-December 2021, Bank Negara data shows. The improvement is mainly due to stronger economic growth, with the GDP expanding 6.9% during the first six months of 2022, as compared to a slight contraction in the second half of 2021.

Debt may be part and parcel of life. But as past and recent economic crisis had shown, debt levels that are too high – be they in the government, household, or corporate sector – can ultimately be a drag to growth. As such, getting debt back to more reasonable levels is an important step to a resilient future.

So, a debt crisis globally may not happen but if one major developed economy is in serious trouble, the contagion can impact others and lead to a global crisis.

References:

A global debt crisis looms? Gurmeet Kaur, The Star, 18 Feb 2023

High on debt, Cecilia Kok, The Star, 18 Feb 2023

Malaysian Monopolies: Are They Beneficial?

 In its election manifesto, Pakatan Harapan (PH) had pledged to dismantle the monopoly in the food and essentials sectors to ensure competition. This is to put a stop to profiteering, and encourage entrepreneurship. After assuming office, the Prime Minister said he reprimanded the shareholder who controls Bernas Bhd, over its monopoly. 

Is Bernas the only monopoly in the country?

Source: https://ms.wikipedia.org

There is a sort of monopoly/duopoly for motor vehicles (Proton/Perodua), motor vehicle inspection (Puspakom Sdn Bhd), landline telecommunications (Telekom Malaysia Bhd or TM), electricity supply (Tenaga Nasional Bhd or TNB) and medical supplies to government hospitals (Pharmaniaga Bhd), and perhaps certain transport operators/providers.

There is also at least one case of very limited competition – that of the import of sugar. While it is not a monopoly in the true sense of the word, the business is controlled by only two companies, MSM Malaysia Holdings Bhd and Central Sugars Refinery Sdn Bhd. Individually, the market capitalisation of these companies ranges from RM629 million to RM19.95 billion.

Not all monopolies are bad, for example TM and TNB which are in sectors that involve huge overhead costs and have strategic purposes (this is the view of Dr Yeah Kim Leng as reported in FMT). The entry of new players in these sectors would result in wasteful fixed investment and redundant duplication.

If investment costs and risks are too high for competition or where private investors are too risk-averse, then a monopoly is acceptable. However, it may need effective oversight especially when tariff adjustments are proposed.

Of course more industry players in a free, open and competitive environment would boost competition, ensure efficiency, encourage innovation and protect consumer welfare through lower and more competitive prices, better quality products and wider choices (as noted by Dr Yeah).

Barriers to entry such as high capital investment, fast technological changes (e.g. 5G), and limited expertise (Proton initially) will suggest monopolies are the way forward. But over time, it has to be dismantled because consumers are on the losing end on price choice and innovation.

Reference:

Explained: The state of Malaysian monopolies, Tsubasa Nair, FMT, 28/2/23

“Mentega Dapur”

“Mentega Dapur” is my creation of today’s daily living problems. During or before the Covid-19 pandemic, many were in undue stress with their business or family matters. Many have no homes, daily food for family, or other basic expenses. In addition, they are in debt with credit companies and/or professional “Ah Longs”. Some have RM100,000 or more outstanding with interest of 25-30%! Others are worse off. And some others have interest “frozen” and repayment restructured. But even then without a job or some employment how do you repay? Hence the pressure to withdraw from EPF. But if your EPF account has been fully withdrawn because you are a senior citizen, then where do you go for an eventuality – Ah Long? Credit card company?

As at end of December 2022, the current balances under credit cards was RM39.5 billion. The overdue balances was about RM1.6 billion, which is within reasonable bounds but still significant - about 4% of the total. Household debt is sum of credit cards, personal loans, home loans and others. In 2021, household debt made up of the following:

To overcome the problems faced by middle or lower income groups, the Government has to initiate a fund or an institution, hopefully with BNM oversight to refinance/take-over debts owed by individuals and restructure them with repayment of 7-10 years, concessional rate of 2% and little or no collateral. Then we are really in the “Madani” society – meeting the needs of “Mentega Dapur”.

References:

Monthly highlights and statistics in December 2022, BNM

Spotlight: Household Debt, BNM, BIS, DOSM

Silicon Valley Bank: Will Its Collapse Lead to a Banking Crisis?

Four decades ago, Silicon Valley Bank (SVB) was born. The California-headquartered organisation grew to become the 16th largest bank in the US, catering for the financial needs of technology companies around the world. As the preferred bank for the tech sector, SVB’s services were in hot demand throughout the pandemic years. The initial market shock of Covid-19 in early 2020 quickly gave way to a golden period for start-ups and established tech companies, as consumers spent big on gadgets and digital services.

Many tech companies used SVB to hold the cash they used for payroll and other business expenses, leading to an influx of deposits. The bank invested a large portion of the deposits, as banks do.

Source: https://wiki2.org

The seeds of its demise were sown when it invested heavily in long-dated US government bonds, including those backed by mortgages. These were, for all intents and purposes, as safe as houses.

But bonds have an inverse relationship with interest rates; when rates rise, bond prices fall. So when the Federal Reserve started to hike rates rapidly to combat inflation, SVB’s bond portfolio started to lose significant value.

If SVB were able to hold those bonds for a number of years until they mature, then it would receive its capital back. However, as economic conditions soured over the last year, with tech companies particularly affected, many of the bank’s customers started drawing on their deposits.

SVB didn’t have enough cash on hand, and so it started selling some of its bonds at steep losses, rattling investors and customers.

It took just 48 hours between the time it disclosed that it had sold the assets and its collapse. Given banks only keep a portion of their assets as cash, they are susceptible to a rush of demand from customers.

While SVB’s problems stem from its earlier investment decisions, the run was triggered on 8 March, when it announced a $1.75bn capital raising exercise. It told investors it needed to plug a hole caused by the sale of its loss-making bond portfolio. Customers were now aware of the deep financial problems at SVB, and started withdrawing money en masse. Unlike a retail bank that caters for business and households, SVB’s clients tended to have much larger accounts. This meant the bank run was swift.

Two days after it announced it would raise capital, the US$200bn company collapsed, marking the largest bank failure in the US since the global financial crisis.

Immediate concerns of widespread contagion have been contained by the US government’s quick response in guaranteeing all deposits of the banks customers. There had been concerns that if that guarantee wasn’t implemented, SVB account holders would not have been able to pay employees, sending ripples through the economy.

The longer term questions is whether SVB’s vulnerability to rising interest rates is paralleled in other banks through an over-exposure to falling bond prices. To counter the risk, the Federal Reserve has unveiled a new program that allows banks to borrow funds backed by government securities to meet demands from deposit customers. This is designed to prevent banks from being forced to sell government bonds, for example, that have been losing value due to rising rates.

Central banks around the world have been raising rates over the past year to tame high inflation, with the US moving from near zero to more than 4.5% at a rapid pace. Most forecasters expect rates to go higher in the US, UK and Australia, before stabilising.

The appetite to keep raising rates will now be tested if central banks become concerned that SVB’s problems are indicative of a broader weakness in corporate balance sheets caused by rising rates. Many central banks will now do the “stress test” for banks and report that all are good for the moment. The real question is whether the general public will accept that narrative. It is useful for central banks not only to reassure that banks are in good shape but depositors are guaranteed of their funds even if there is a fall-out. That will stem any possibility of a contagion.

Reference:

Silicon Valley Bank: why did it collapse and is this the start of a banking crisis? Jonathan Barrett, The Guardian, 13 March 2023

Why Can’t We Up The OPR?

Bank Negara as expected held steady its overnight policy rate (OPR) at 2.75% at its Monetary Policy Committee meeting on 9 March 2023. Some economists have opined that Bank Negara may increase the OPR by another 25 basis points in the second quarter of 2023 (2Q23) or beyond, to the pre-pandemic rate of 3%.

While the Federal Reserve is focused on bringing down inflation even at the expense of the growth, an OPR increase to 3% will not stifle economic growth in Malaysia. There is a need to keep interest rates above the inflation rate. Past data however has shown that it was not common for the real interest rate to be in the negative territory for two consecutive years.

The country’s headline inflation contracted to 3.7% in January 2023 from 3.8% in December 2022. Core inflation declined to 3.9% in January this year from 4.1% in December last year.

But floods in Johor and other parts of the country will impact core inflation.

While central banks have slowed the pace of tightening, interest-rate increases still loom. Across the world, headline inflation has come off their peaks but core inflation and other key price measures have proved stubborn, prompting authorities including the Federal Reserve to flag the possibility of a return to bigger rate hikes just a month after slowing the pace to a quarter-point. With bank failures they may halt further increases for the moment.

The Monetary Authority of Singapore (MAS), which uses the exchange rate as its main monetary tool, has tightened the policy five times since October 2021 and is due to review settings in April against the backdrop of  inflation and momentum in economic activity after China’s reopening.

The current gap between Fed Fund Rate and OPR may depreciate the ringgit further and raise cost of food imports (of RM60 billion annually). The recent bank failures in the U.S. may, however, halt for a while any Fed fund rate increase. Nevertheless, Malaysian savers continue to suffer low deposit rates which are below inflation while businessmen and exporters gleefully enjoy no change in OPR and a depreciating Ringgit.

References:

Central bank forecast to hold OPR steady, Business, The Star, 6 March 2023

S’pore’s MAS chief says global rate hike cycle has ‘ways to go’, FMT, 9 March 2023

U.S. Rates May Be Heading Higher Than Expectations?

In 2022, most U.S. investors and central bankers underestimated how high inflation would climb. Now they may be underestimating how high interest rates will need to go to bring inflation down.

Although the Federal Reserve had the most aggressive credit tightening campaign in four decades, payrolls surged, retail sales jumped, and equity prices soared.  Inflation so far has been sticky and running well above the Fed’s 2% target. That’s a recipe for more rate hikes.

The risk is that tighter credit eventually catches up with the economy and triggers a recession. Investors are already upping their bets on how far the Fed will raise rates in this tightening cycle. They now see the federal funds rate climbing to 5.2% in July 2023. That compares with a perceived peak rate of 4.9% just two weeks ago in early February 2023. The central bank’s current 4.5% to 4.75% target range will not hold for long.

Source: https://www.investopedia.com

Economists are marking up their estimates of what’s known as the terminal rate — the highest point that the Fed will get to. Some have raised their forecast to 5.6% from 5.1%, citing a resilient labour market, easier financial conditions and elevated inflation.  Fed policymakers are also sounding more hawkish as well.

During their last forecasting round in December, Fed policymakers pencilled in a peak rate of 5.1% for 2023. Former International Monetary Fund chief economist Ken Rogoff won’t be surprised if rates end up at 6% to bring down inflation. 

The latest problem is not inflation but bank failures—SVB and two others for now. The Fed is constrained from raising rates which could lead to more failures (if they do) and a contagion or an Armageddon to follow. The joint statement by Treasury, Federal Reserve and FDIC on March 12 may allay some fears. 

What’s that got to do with Malaysia? Our OPR is currently at 2.75%. If the differential between OPR and the Fed Funds rate keeps widening, the impact is on currency and inflation. The ringgit will depreciate significantly to be close to RM4.60 to the dollar while inflation may double from 4%. Why? For us, it is imported inflation with food imports alone amounting to RM60 billion annually. Then there is intermediate goods and others. For currency depreciation, it is a whole host of factors including interest rate differential, inflation (comparisons), net outflow of funds, trade surplus/deficit and speculation by professional traders. If the Fed were to defer a rate hike because of the current banking situation we are in a better position to decide on our OPR rise or otherwise. Meanwhile its best BNM issue a statement that our banks are on solid footing and all depositors are assured of their funds placed with banks.

Reference:

US rates may be heading higher than Wall Street or the Fed think, Rich Miller, Bloomberg, www.theedgemarkets.com, 16 Feb 2023

Singapore Property Market Faces Surging Chinese Demand!

Singapore’s property market is bracing for surging demand from Chinese buyers. Real estate agencies in the city-state have seen more inquiries from mainland Chinese. Industry watchers note a 10% to 15% increase in January 2023, since Beijing announced it was ending three years of global isolation. The border reopening has also seen a spike in queries about immigration to Singapore.

Chinese have been the largest foreign buyer group in Singapore since 2016 and made up 6.9% of foreign purchases of private apartments in 2022. Some expect more than 10% increase in the number of homes purchased by Chinese this year, in tandem with rising supply.

Still, such demand is unlikely to fuel price rises in the city-state as the number of Chinese buyers is still small compared with locals. Home prices grew at the slowest pace in more than two years in the last quarter of 2022, taking the annual gain to 8.6%.

China’s reopening is also stoking greater migration interest. The city-state is among top destinations for wealthy Chinese. Migration inquiries from Chinese nationals in China and Hong Kong jumped 600%. Queries about Singapore residency were the fourth highest in 2022, after Portugal and Greece residency and Grenada citizenship. Singapore’s “safety and security, stable political environment, pro-business policies and good infrastructure” are attractive to global investors.

Perhaps we should welcome them in Johor where the largest overhang of condos, service apartments are now available – but will our authorities do the right thing?

Reference:

Singapore property market braces for surging Chinese demand, Sing Yee Ong, www.theedgemarkets.com, 2 Feb 2023

Employees Provident Fund or Emergency Provident Fund?

The government has given the green light to Employees Provident Fund (EPF) contributors to use the savings in their Account 2 as collateral for bank loans to tide through difficult times. EPF is meant for retirement savings, and that other countries globally have stopped this kind of special withdrawals, such as Australia, Peru and Chile. About RM145.5 billion has been withdrawn since 2020.

As of April 2020, the median savings of bumiputra members was at RM15,500 but that had shrunk to RM4,900 as of December 2022. The Indian community saw about a 40% drop in median savings – from RM25,700 to RM14,900.

Source: www.kwsp.gov.my

Chinese Malaysians, on the other hand, only saw a 1% drop – from RM45,800 to RM45,200.

As for income groups, the Top 20 (T20) group, which has 2.6 million members, saw a 9% increase in median savings – from RM140,440 as of April 2020 to RM152,964 as of December 2022.

The median savings of the Middle 40 (M40) shrank by 34% from RM30,113 to RM19,926.

The median savings of the Bottom 40 (B40) dropped by 76% to RM577 – from RM2,434.

There are 5.2 million members in the M40 and B40 groups.

In addition, only 3%, or 350,000 members, had achieved the adequate savings threshold of RM600,000.

A total of RM44.6bil was taken out through a special withdrawal scheme in 2022. The total contribution for 2022 was RM87.8bil whereas total withdrawal was RM91bil.

For 2022, the EPF declared a dividend rate of 5.35% for conventional savings, with a total payout of RM45.44bil, and a 4.75% dividend rate for syariah savings, with a payout amounting to RM5.7bil. In total, the retirement fund’s payout for 2022 amounts to RM51.14bil.

But this whole idea of using savings in Account 2 as collateral for bank loans is wrong! Is EPF another Danajamin? Or is EPF a retirement fund or Emergency Provident Fund?

Using EPF savings as collateral is as good as withdrawing the sum from EPF. We cannot have a retirement fund acting as facilitator for guarantees or permitting any further withdrawals.

It has to be Bank Negara Malaysia (BNM) providing a special fund for those EPF members needing personal emergency loans. The proposed Emergency Loan Fund is administered by BNM through selected banks. Each loan sum does not exceed RM20,000, interest rate is fixed at 2% and the repayment period is 7 years. This is an easier solution to fix than the convoluted scheme by the government. Can we do that? Otherwise, the T20s will also withdraw all their funds and we have a confidence crisis! 

References:

Govt allows EPF members to use savings in Account 2 as collateral for bank loans, Chester Tay, theedgemarkets.com, 9 March 2023

RM145bil in EPF withdrawals made since 2020, Ragananthini Vethasalam, The Star, 

5 March 203

Dairy Farm Exits Food Retail Businesses in Malaysia

Hong Kong’s Dairy Farm International Ltd (DFI), which operates a chain of hypermarkets and supermarkets under the Giant, Cold Storage and Mercato brands, is exiting its food retail businesses in Malaysia. 

DFI, which operates the retail chain under GCH Retail (Malaysia) Sdn Bhd, is believed to have been sold to a group of Malaysians led by Datuk Andrew Lim Tatt Keong. Lim is the group executive chairman of KL Sogo and he also sits on the board of Penang-based Gama Supermarket & Departmental Store Sdn Bhd.

Source: https://en.wikipedia.org

GCH Retail in Malaysia is 70% owned by DFI and 30% by Syarikat Pesaka Antah Sdn Bhd, a company linked to Negeri Sembilan royalty. It is understood that DFI’s Singapore retail business will not be sold.

GCH, which had aggressively shut stores in Malaysia since 2019, bringing the total number of stores to less than half by 2021, undertook a revamping, resizing and repositioning exercise to return to the black. In 2018, it operated some 122 stores.

The company was in the red from 2013 and returned to the black in 2020, posting RM12.23 million in net profit. The retailer however slipped back into the red in FY2021. It is yet to file its financial results for the year ended Dec 31, 2022. In FY2021, the retailer posted a net loss of RM106.17 million, on the back of RM2.38 billion in revenue. It had total liabilities of RM2.71 billion and total assets of RM1.23 billion.

GCH entered the country in 1999, via the purchase of a 90% stake in the Giant business, then operated by the Teng family. At the time, there were seven stores — five supermarkets and two hypermarkets.

GCH is part of the DFI group. DFI is incorporated in Bermuda and has a main listing on the London Stock Exchange and secondary listings in Bermuda and Singapore.

In Malaysia, DFI also operates a pharmacy and health and beauty chain under the Guardian Health & Beauty Sdn Bhd. This is not part of the deal. DFI remains fully committed to its retail business, i.e. Guardian Health and Beauty business.

For the supermarkets, competition is good for the customer where companies innovate, improvise and improve.

Reference:

Giant operator Dairy Farm to exit Malaysian grocery business after 24 years, Vasantha Ganesan, theedgemarkets.com, 23 February 2023

Scams Worldwide: A Growing Industry?

 Around US$55.3 billion (SGD 77.2 billion) was lost to scams worldwide in 2021. This is according to a study done by non-profit organisation Global Anti Scam Alliance (Gasa) and data service provider ScamAdviser.

The study – based on data collected from 48 countries including Singapore – found that the global amount lost in 2021 had risen by 15.7 per cent, from US$47.8 billion in 2020. Victims in Singapore lost at least $633.3 million to scams in 2021.

Source: Focus Malaysia, 20/9/22

Investment scams, especially those involving crypto-currency, are growing rapidly worldwide. In Singapore, investment scams accounted for the most amount of money stolen, with victims losing $190.9 million in total. The largest amount taken in a single case was $6.4 million.

A digital token inspired by the popular South Korean Netflix series Squid Game, for instance, scammed people of US$3.4 million in five days. The digital currency called Squid skyrocketed in price before losing all its value after its unknown creators cashed out the tokens late in 2021.

In business e-mail compromise scams, where scammers pretend to be the manager or director of a company to get victims to transfer them money, the average amount being asked for has increased to about US$109,000 from US$91,000.

Scammers tend to go after medium-sized companies instead of larger ones, as smaller firms often do not have the budget to train employees to protect themselves against scams.

In 2022, scammers managed to swindle almost RM500 million from Malaysians, with RM415 mil lost in the first seven months of 2022. The rising trend of online fraud is alarming. This is according to the National Scam Response Center (NSRC). 

The NSRC had received 16,752 calls of which 6,277 were complaints about online fraud cases. The results of the report also found that 12,877 bank accounts were suspected as donkey accounts.

It used to be Nigerians who were good at this. Now it is mainland China, Koreans, Malaysians, Indians, Russians and many others who add colour to a global enterprise. If you read the stories – it may look too simple. But scammers are clever to go for those vulnerable – love, short of money, greed for higher returns, and other human emotions they can exploit. Imagine you are wooed by a K-pop lookalike – handsome and willing to care for a 60-year old woman! And you part with your millions of hard-earned cash for a potential lover!

We need people solid in cyber-security to help stop this menace and authorities working together globally to end this menace.

References:

$77b lost to scams worldwide in 2021- up 16% from previous year, Wong Shiying and David Sun, The Straits Times, 9 Nov 2022

Online scams cost M’sians RM52 mil in 3 months, Focus Malaysia, 19 Feb 2023

EPF’s Decent Dividends in a Difficult Year!

The Employees Provident Fund (EPF) has received praise for declaring relatively high dividend rates for 2022 despite the challenging financial environment over the past year.  EPF declared a 5.35% dividend for conventional savings and 4.75% for shariah savings. A real return of 2% (with inflation at 3.3% in 2022). This compares with the 6.10% for conventional savings and 5.65% for shariah savings declared for 2021.

However, the total current savings of the B40 group is a mere 0.7% of the total, or RM7.7 billion, in the fund. The 6.29 million EPF members in the B40 group only have an average of RM1,255 in their savings.

Source: www.kwsp.gov.my

In contrast, the T20 category, who also make up 3.14 million (20% of the total number of members), owns 83% or RM818 billion of the savings in EPF, totalling RM984 billion. On average, they have RM260,205 each. That’s no fault of theirs!

As for the M40 group, which makes up 40% of the total number of contributors or 6.29 million, they only have 16% or RM159 billion of the total savings in the fund. On average, each of them only has RM25,268.

These numbers reveal how most Malaysians are going to struggle in their old age. The racial profile of the EPF members also has some worrying indicators.

Malays/Bumiputeras, who make up 9.52 million members, have an average savings of RM35,000. But, as announced before, about 70% of them have savings of below RM10,000. The total held by this group is RM333 billion, or 33% of the total.

The Chinese, on the other hand, make up 4.29 million members, with an average savings of RM129,888 each. Their total is RM557 billion, or 66% of RM984 billion. As for Indians, there are 1.3 million members, with an average savings of RM62,769, with a total of RM81 billion.

By all accounts, the survival of the millions of private sector employees, who are in the lower-income category and mainly dependent on EPF, has come under scrutiny.

The attitude of Malaysians towards savings and working to be independent after they retire is a problem. EPF is a retirement fund, not an emergency fund. If the Government wants to be benevolent then have a separate “Emergency Loan Fund”, which is separate and administered by BNM and selected banks. The rate is concessional (2%) and for 7 years. We cannot have a mixture in a retirement plan. An ex-PM started this withdrawal scheme and confused people on the role of EPF.

References:

All-round praise for EPF’s ‘decent’ dividends, Reshna Reem Ganesan, FMT, 4/3/23

Shockingly low EPF figures should alarm govt, K. Parkaran, FMT, 5/3/23

What is the Jana Wibawa Programme?

Jana Wibawa, or Program Jana Ekonomi Pemerkasaan Kontraktor Bumiputera (Bumiputera Contractor Empowerment Economic Generation Programme), was introduced in November 2020 during Muhyiddin Yassin’s administration. (This article is largely from Malaysiakini published on 22 February 2023). 

In a parliamentary reply on Dec 16, 2021, then-finance minister Tengku Zafrul Abdul Aziz laid out two purposes for the programme. The first was to expedite the delivery of government projects to help stimulate Malaysia’s post-Covid-19 economic recovery. The second was to help bumiputera contractors in the construction industry build capacity to become more competitive.

Source:https://www.therakyatpost.com

Projects under Jana Wibawa were awarded either through direct negotiation or prequalified tenders. Pre-qualified tenders involve only contractors who passed a pre-qualification process and are invited to submit their bids for a project.

With direct negotiation, there is no tender process at all. Projects are awarded to a contractor after negotiations with the government. Nevertheless, Zafrul assured at the time that there were safeguards in place.

According to Zafrul in the same written reply, a special evaluation committee at the Finance Ministry would vet the contractors and the conditions imposed on them. He said the committee comprises representatives from the Public Works Department, Irrigation and Drainage Department and the Construction Industry Development Board.

In addition, the implementation of Jana Wibawa projects must follow Treasury Department guidelines regarding directly negotiated contracts and the terms of reference for the Jana Wibawa programme.

The Treasury guidelines stipulate the circumstances where directly negotiated contracts may be considered and the document is publicly available. However, little is publicly known about Jana Wibawa’s terms of reference. 

In a parliamentary written reply on Feb 20, Minister in the Prime Minister’s Department (Law and Institutional Reform) said letters of acceptance were issued for 56 projects valued at RM6.3 billion. The MACC is investigating cases where the letters “involved family members of main leaders in certain political parties”.

A source at the MACC told Malaysiakini that Bersatu received contributions believed to be more than RM300 million from around 10 contractors who were awarded various projects when the party was running the government. The agency  supposedly froze Bersatu’s bank accounts in mid-January to facilitate investigations into this matter.

People who championed integrity are now tainted by allegations of bribery. A former PM who called himself “Abah” was behind the Jana Wibawa scheme. Why is integrity sacrificed in politics?

Reference:

What is the Jana Wibawa programme? Koh Jun Lin, Malaysiakini, 22 Feb 2023

Long Queues at KLIA!

Travellers arriving in KLIA have complained about the long queues and waiting time at the immigration counters at KLIA.

The problem is a long-standing one despite Tourism, Arts and Culture Minister calling for a faster process. It happened again on 24 February to the disdain of travellers. A few travellers claimed they had to wait for up to three hours before they could clear immigration. With no announcements given, many of them were left confused and wondering why the process was at a snail-like pace. The aerotrain, which was not in operation, exacerbates the matter and causes even more frustration.

Source: https://klialimousine.com/

The current option for travellers is to use the shuttle bus service to get to and fro the main terminal building to the satellite building. A similar situation is happening in KLIA 2 as well. Some said people queued for three hours and claimed the officers kept talking to each other.

Travellers are calling for the situation to be resolved. The calls for improvement include reimagining and revamping the Immigration Department and weeding out incompetence in the civil service. Other suggestions include having more reliable autogates and having sufficient counters open to hasten the checking process.

The Tourism Ministry has an allocation of RM250m under Budget 2023. What’s the point of promoting tourism when the first impression a tourist gets is a virtual aerotrain and insufficient or below par staff at Immigration?

Reference:

Long queue and wait at KLIA anger travellers, Adeline Leong, The Rakyat Post, 26 Feb 2023

Covid Vaccines Turn Pharmaniaga Into Deep Losses

On 26 February, Pharmaniaga Bhd announced its largest ever quarterly net loss of RM664.39 million. This is for the fourth quarter ended Dec 31, 2022 (4QFY2022). This is primarily due to RM552.3 million of impairment of Covid-19 vaccines. In addition, it has written down the goodwill of the Indonesian manufacturing cash-generating units of RM50.3 million. Pharmaniaga has now become an affected listed issuer under Practice Note 17 (PN17). 

Quarterly revenue, however, grew 21.22% to RM862.72 million from RM711.72 million a year earlier due to “healthy growth” across the group’s concession, non-concession and Indonesian businesses as a result of strong demand from the customers subsequent to the resumption of normal business activities after the Covid-19 pandemic. The increase in revenue was partially offset by the lower revenue from the sale of Covid-19 vaccine. 

The group’s balance sheet as at Dec 31, 2022, shows that its short-term borrowings, which would be due within six months, ballooned to RM968.27 million from RM570.05 million a year ago. Its long-term borrowings amounted to RM190.6 million versus RM285.17 million. The pharmaceutical firm’s receivables increased to RM351.66 million as at end-2022 from RM297.75 million a year ago. Its cash balance was at RM52.84 million, while its inventory dropped to RM767.26 million from RM1.26 billion a year ago after the impairment.

It is currently in focused talks with various parties, both local and overseas to dispose of the vaccines. The majority of which is Sinovac. Aggressive selling efforts on the Covid-19 vaccine stocks are ongoing as the shelf life of the vaccine is still valid.

This is a tragic outcome of a political decision to buy more than sufficient stocks for the pandemic. If the company’s financials deteriorates further, there will be disruption of supply of medicines and drugs to the public health system. Politicians don’t pay the cost of a mistake – it is management, employees and other stakeholders. Pharmaniaga should have insisted a “take or pay” clause with the Government for any inventory of six months or more. It is too late now and only hope is for disposing inventory below cost.  The alternative of course is the Government does a bailout of RM700-900 million or provide a 10-year concession.

Reference:

Massive RM552.3 million vaccine provision pulls Pharmaniaga into deep losses, trigger PN17, Syafiqah Salim, theedgemarkets.com, 27 Feb 2023