Khazanah Nasional Bhd, as a sovereign wealth fund, cannot avoid comparison with Temasek Holdings Pte Ltd, its peer across the Causeway. Khazanah's inception in 1994 was to help grow Malaysia's long-term wealth. As Temasek gets stronger, Khazanah has seen muted in its performance over the years. This was probably blighted by "bad" investments and huge asset impairments.
An example: Khazanah's 2018 impairments stood at RM7.3 billion, with roughly half going towards sustaining Malaysia Airlines. But Temasek had a 20-year head start. It kicked off in 1974 with an initial portfolio of S$354 million in assets previously held by the Singapore government.
Source: https://en.wikipedia.org
Temasek ended the financial year to March 31, 2022 with a net portfolio value of S$403 billion, revenue of S$134.9 billion versus S$110.9 billion in financial year 2021 and S$10 billion in net profit.
Khazanah, which was seeded with RM2.6 billion in government assets at birth, performed better in 2022 than in 2021, but was way off from 2020. Its profit from operations rose to RM1.6 billion in 2022 from RM670 million in 2021. But this was much lower than the RM2.9 billion profit posted in 2020, already a 61 per cent slump from the preceding year. Khazanah recorded an all-time-high realisable asset value of RM157 billion in 2017, which grew 8.2 per cent over 2016. The realisable asset value, a key indicator of financial performance, slipped to RM122.5 billion last year.
Should taxpayers be worried about this? Are Khazanah's assets severely depleted after years of divestment? Were the divestments intended to boost Khazanah's dividend to the government? Does Khazanah have enough resources for asset rebuilding? Will Khazanah borrow more to partially fund growth? Will the government inject fresh capital into Khazanah?
The fund's investments were RM3.3 billion in 2019, RM9.7 billion in 2020, RM8.7 billion in 2021 and RM6.6 billion in 2022. The investments shrank in the last two years. Khazanah's investments portfolio achieved a poor four-year return of 2.2 per cent amid volatile global markets. Last year saw a negative 5.5 per cent return.
To be fair, 2022 was extremely challenging for global markets, with rising inflation, aggressive monetary tightening and the effects of the Russia-Ukraine war. It was similar three years before due to the Covid-19 pandemic. Khazanah blamed the negative performance in 2022 on global market downturn, aligned to declines in MSCI EM Asia, S&P 500 and FBM KLCI indices at -22.8 per cent, -19.5 per cent and -4.6 per cent, respectively.
The major listed companies in Khazanah's portfolio are some of the largest and most important in Malaysia. They include Axiata Group Bhd, CIMB Group Holdings Bhd, Tenaga Nasional Bhd, Telekom Malaysia Bhd and Malaysia Airports Holdings Bhd.
Khazanah took over Malaysia Airlines under a five-year RM6 billion turnaround plan launched in 2014. But the carrier's financial problems began years before. A case in point is the 2002 wide asset unbundling exercise for the now-defunct Malaysian Airlines System Bhd after the government took over the loss-making airline from Tan Sri Tajuddin Ramli. Before the last capital injection in 2021, worth RM3.6 billion until 2025, Khazanah and the government had reportedly pumped in RM28 billion to keep Malaysia Airlines afloat.
A stronger Khazanah will be a big catalyst for Malaysia's long-term wealth and socio-economic development. And it can only do this if it were to operate without political interference. When vested interests or strategic interests begin to matter, return to investment could become nebulous!
Reference:
Is Khazanah Nasional’s Star Dimming? Zuraimi Abdullah, New Straits Times, 23 March 2023
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