Brain Drain in Malaysia: Why They Go Abroad?

 

Tibco Blog

 

Brain drain is a global phenomenon today and Malaysia is one of the most affected countries. The countries of choice for Malaysians are Australia, Singapore and the United Kingdom. Despite the reduced percentage in loss of human capital (from 63.8 per cent in 2014 to 57.1 per cent in 2018), it is still considered high compared with the investment made for the development of human capital.

Countries mentioned above often offer a variety of funds or scholarships for foreign students. Many young individuals choose to stay and work in respective countries after having completed their higher education there. Some may want to come back, but the lack of suitable opportunities back home makes them stay.

The Malaysian Employers Federation (MEF) sees bureaucratic red tape in Malaysia as only one of several reasons for the nation’s loss of talent to other countries. MEF executive director Shamsuddin Bardan noted that many educational institutions collaborated better with foreign companies than with local firms.

According to Rueben Ananthan from the Malay Mail, the Malaysian economy is primarily centred around production and manufacturing rather than research and development (R&D). This results in high demand for semi-skilled labour and a drastic lack of highly skilled job opportunities. R&D has suffered from low funding and ranks very low among the government’s list of priorities. The job market in Malaysia also caters exclusively to ‘traditional’ jobs such as doctors, lawyers, engineers, accountants, finance executives and administrative assistants. There are very few opportunities for individuals who choose to study niche subjects.

Another factor is that the government is not making enough effort to ‘entice’ and encourage Malaysian professionals overseas to come back and contribute to the country. Agencies such as Talent Corp claim that more than 5,000 professionals have been brought back to work in Malaysia since 2011. However, this is just 0.2 per cent of the total Malaysian diaspora currently living overseas.  The total number stands at close to 1.7 million people.

The government should look at the gaps that the country needs in order to transform into a developed country. Then, scout actively for professionals with matching skills. Hiring policies should be needs-based rather than race-based. And if the government was able to make greater effort to stay connected with those who have left, and these are those who have better exposure overseas, it could be useful to the Malaysian economy.  A brain drain could be turned from an issue to an advantage! But please don’t hold your breath on that with a race centric government.

 

Reference:

1.  Rueben Ananthan Santhana Dass, Brain drain in Malaysia: Why Malaysians don’t want to come back home, MalayMail, 6 July 2020

2.     Why talented Malaysians go abroad, FreeMalaysiaToday, 2 October 2020

3.     Is Malaysia doing enough to stop its brain drain? The Asean Post, 25 August 2019

 

 

Why Does Malaysia Airlines Keep “Crashing”?

Even before MH370 and MH17 episodes in 2014, Malaysia Airlines has been on a “crash” mode. Flying this airline gives you “goose pimples”. You are not sure if they have any screw missing because of cost containment. 

Should the Government shut it down? If it does, Malaysia Airlines will be the first national airline in Asia to go bankrupt. Japan Airlines, Garuda have come back from the brink.

In August 2014, Khazanah Nasional Berhad paid RM1.38 billion to take it private. Then Khazanah provided RM6 billion injection to keep it afloat and resolutely follow the Malaysia Airlines Recovery Plan (MRP). But to no avail, it is still bleeding, and only continuous transfusion keeps it alive. Then Covid-19 hits!  And over 94% revenue loss in March alone. The flag carrier requires RM21 billion in government assistance to survive up to 2025. That was before impact of Covid-19 (Simple Flying, Chris Loh, Jan 24, 2020).

Merger? Explored not feasible. White knight? None in sight.

Shukor Yusof of Endau Analytics thinks Malaysia Airlines should be disbanded as it is beyond resurrection! It has legacy issues. He says the airline has run out of ideas, run out of money and the Government has run out of patience.

The global airlines industry is expected to lose USD84.3 billion in 2020. IATA estimates place losses of up to USD15.8 billion in 2021.

Malaysia Airlines has undergone two rounds of layoffs in the last 14 years. Over 6,000 employees in 2006 and 2007 and 6,000 in 2015. It still has a 13,000 strong work force.

Couldn’t we do a “Geely”? Look at Proton Holdings, a complete turnaround from a “no-hoper”. The Malaysia Airlines board, management are re-constituted by a new mainland Chinese investor, preferably an airline. Then they infuse new cash to turn cost centres into profit centres or strategic business units of their own. But do we have the “will” to do that?

 

Reference:

1. Up to Khazanah to sort out Malaysia Airlines’ quandary, says Tengku Zafrul, 9 Oct 2020, The Edge

2. Why does Malaysia Airlines keep failing – and is there a way to stop it? 22 Mar 2019, The Edge

Why Should UEM Sunrise Merge with EcoWorld?

The proposed merger between Eco World Development Group Bhd (EcoWorld) and UEM Sunrise Bhd favours the latter, according to Kenanga Investment Bank Bhd (“Kenanga”), given that EcoWorld’s key shareholders would lose their majority rights, listing status and potentially their brand.

Source: https://www.edgeprop.my

On EcoWorld’s side, Kenanga said a potentially strong reason for the merger may be that its key shareholders are concerned over the outlook for the property sector and economy for the foreseeable future, and therefore the group could benefit from the backing of a stronger shareholder in the form of Khazanah Nasional Bhd via UEM Group Bhd.

This would help EcoWorld in the event that it needs to raise funds via equity. Eco World's net profit reportedly fell 72.7 per cent to RM13.8 million in the third quarter (Q3) ended July 31, 2020 from RM50.5 million a year ago.

It reported lower revenue of RM477.9 million in Q3 from RM521.4 million previous year.

This was due to the lower share of the results of its Malaysian joint-ventures namely Eco Grandeur, Eco Business Park V, Eco Horizon, Eco Ardence and Bukit Bintang City Centre.

According to a recent report by CGS-CIMB Research, Eco World's net gearing stood at 0.75 times as at financial year 2019.

The firm expected Eco World's net gearing to increase to 0.8 times for FY20, and further grow to 0.9 times for FY21 and 0.93 times for FY22.

UEM Sunrise, meanwhile, posted a net loss of RM93.36 million in the second quarter ended June 30, 2020 from a net profit of RM40.36 million a year ago.

Its revenue plunged 88.8 per cent to RM111.96 million from RM1 billion. Khazanah Nasional Bhd fully owns UEM Group, which has 2.99 billion shares in UEM Sunrise for the 66.06 per cent stake.

Also, UEM Sunrise on the other hand has been struggling with many issues, the merger of UEM & Sunrise (again the deal initiated by the Khazanah for Datuk Tong Kooi Ong – the owner of The Edge) has never really bedded down properly. Two different cultures coming together, with skills mismatch. And Tong said of the merger “Tong says the merged company is expected to have a market capitalisation of RM10 billion, with various segments from construction to property development to hospitality”. What is the market capitalization of UEM Sunrise now? RM 10 bil? RM 25bil?

 

It is only 17% of what was promised, current market cap is onlyRM1.7 bil. If we put both UEM Sunrise & Ecoworld together as one, you have one giant property company, massively leveraged (by state banks), in an industry that will see no growth for next few years. UEM Sunrise board commissioned a study, which was done by Bain & Co, and it was suggested that the best partner for UEM Sunrise was either MRCB or Sime Property. 

 

Why can’t there be a better way forward? Instead of relying on Khazanah or a GLC, it is time for overseas parties (or a white or blue knight) to acquire EcoWorld and the Government provides incentives or approvals for the acquisition. Leave UEM Sunrise to sort out its own issues!

 

References:

1. EcoWorld merger plan favours UEM Sunrise, says Kenanga, Ahmad Naqub Idris, The EdgeMarkets, 6 October 2020

2. Former PNB chief raises concerns over proposed UEM Sunrise-EcoWorld merger, Ayisy Yusof, The New Straits Times, 6 October 2020

3. Khazanah dungus is bailing out another failed company using taxpayers money, www.untold.news.blog

 

 

 

Airasia X: Why Should Creditors Take a Steep Discount?

The Edge Markets on 6 October 2020 reported, AirAsia X Bhd (AAX) has unveiled a massive debt restructuring proposal in which the airline will reconstitute RM63.5 billion worth of debts, including future lease rentals, aircraft purchase commitments (70% or more to Airbus) and advanced ticket sales, into a principal amount of up to RM200 million. This is a steep haircut for creditors. In addition, the long-haul low-cost carrier also proposed a capital reduction of 90% of its issued share capital in order to offset its accumulated losses. This means a reduction of RM1.38 billion from its share capital.

AAX, which slipped to the brink of insolvency as the Covid-19 pandemic added to its financial woes, has also proposed share consolidation to combine every 10 shares into one, according to a bourse filing.

The cash-strapped airline did not propose any cash call to recapitalise its balance sheet in the announcement. Neither has it proposed or found a “white knight” for the rescue.

However, the group said it intends to raise up to RM500 million, including by applying for a government-guaranteed loan under the Danajamin PRIHATIN Guarantee Scheme and/or raising funds from equity providers.

As at June 30, AAX's total borrowings was at RM6.09 billion (16 international lessors), while its current lease liability amounted to RM856.41 million, and its non-current liabilities stood at RM4.95 billion.

AAX's proposal comes just a few days after Malaysia's national carrier, Malaysia Airlines Bhd, revealed on Oct 2 that it had reached out to its lessors, creditors and key suppliers, seeking steep discounts, under an urgent restructuring exercise.

Similarly hit hard by the pandemic, the group's holding company Malaysia Aviation Group had said in a letter to lessors that the group was unlikely to make payments owed after November, unless it received more funding from state fund Khazanah Nasional Bhd.

The new principal sum of RM200 million for Air Asia X is an amount which the group's future operational cash flow may accommodate, and is payable annually over a period of up to five years. The debt settlement amount shall be unsecured and carry an interest rate of 2% per annum payable in arrears, commencing on the anniversary of the implementation date of the proposed debt restructuring.

"In the case of airline customers and travel agents, they will receive travel credits with extended validity for future travel or purchase of seat inventory," said AAX in the announcement to Bursa Malaysia.

Tune Group Sdn Bhd, which is the investment vehicle owned by Tan Sri Tony Fernandes and Datuk Kamarudin Meranun, is the largest shareholder of AAX, holding a 17.83% stake. AirAsia Group Bhd owns 13.76%, while Kamarudin holds an 8.94% direct stake and Fernandes has a 2.69% direct stake.

Its director Datuk Lim Kian Onn, who will assume the deputy chairman to lead the airline's restructuring, owns a 4.24% stake.

The carrier has been loss making in most of the years since it was listed in 2013.

For the six-month period ended June 30, AAX's net loss widened substantially to RM854.9 million as its revenue halved to RM1 billion. MIDF Research said based on Q2 2020, Airasia X’s cash balances stood at RM252m with operating expenditure of RM220 million.

Are creditors taking a steeper discount than shareholders? Which bank will accept these terms? Isn’t it better to put this airline to bed (grave)? Why can’t the creditors convert the debt and takeover the airline? And get professional managers to run it?

If steep discounts are the way forward, it’s a “no brainer” in this land of restructurings. Political connections cannot play a role in driving this idea through. And why should the taxpayer (Danajamin) foot another RM500 million for an “X” airline. It should re-brand its name if it wants to survive! Then look for better viable options!

References:

1. Steep haircut for creditors to rescue Airasia X, The Edge CEO Morning Brief, 6 October 2020

2. Airaisa X to stave off liquidation with RM63.5 bil debt restructuring, www.freemalaysiatoday.com,  7 October 2020

3. Airasia X at existential crossroad, lays “bold” restructuring proposals, New Straits Times, October 7, 2020,

 

Self-Rescue or A White Knight?

https://corporatefinanceinstitute.com/

As businesses affected by the pandemic have yet to be recover, many are expected to restructure their debts after the moratorium. While some businesses embark on a financial restructuring route, others may need to recapitalise their businesses with a ‘white knight’ and still others may focus on new business models or operational turnarounds.

 

A ‘white knight’ is a company or individual that acquires a target company. It is usually a takeover, which is why some may prefer to retain control via ‘self-rescue’. “A white knight is necessary when the business is operating in a weak sector that requires new funds to recapitalise its business. In some cases, white knights bring in new competencies and skills to complement existing management” says EY Solutions LLP strategy and operations partner Sriram Changali.

 

However, the downside is that the existing shareholders and creditors tend to take higher haircuts and experience lower returns. That may ensure the white knight’s investment is commercially viable. 

Banks could be able to support self-rescues, where the business essentially could demonstrate that it is still viable. But self-rescues present challenges when it comes to whether management has the resources and skills to execute the turnaround and ensure a successful restructuring.

Regardless of whether local businesses will take the white knight or self-rescue route, financial restructuring is dependent on the financial forecast of a business. It is also driven by the design of the recourse or the mechanics to manage forecast risks and defaults. This, in turn, determines the level of debt that the business can afford.

On that note, Sriram believes that the key to developing sound financial restructuring is to have robustly designed scenario planning and determine appropriate mechanics, triggers and resources that can mitigate the risk of a post-restructuring default.

“Financials restructuring is not only dependent on a business’ financial projections. It is also driven by the design of the recourse or the mechanics to manage forecast risks and defaults. A well-designed mechanism should be able to close any gaps in the forecast by automatically converting the shortfalls to ordinary shares or equity-related instruments to effectively negate any future risk of default,” he said. 

At MP Capital we will work with you on financial restructuring or rescheduling. With over 25 years’ experience in the business, we can tailor to the needs of all stakeholders.

Reference:

Malaysian firms may be in need of a ‘white knight’ post-Covid-19, Focus Malaysia, 25 Sep 2020

Is Trump Really a “Clown”?

President Trump announced that he was ending negotiations over a new economic aid package with Democrats, after accusing Speaker Nancy Pelosi of “not negotiating in good faith.” No wonder Joe Biden calls him a clown.

Source: https://www.cnbc.com

The S&P 500 had begun to climb before Mr. Trump’s announcement, on Twitter. It slid more than 1 percent soon afterward, and ended the day about 1.4 percent lower.

The tweet also sent shares of airlines reeling. Shares of American Airlines fell more than 4 percent, giving up early gains, while United Airlinesstock fell more than 3 percent. Shares of Boeing, which had earlier said it was lowering long-term estimates for aircraft sales, fell nearly 7 percent.

...request, and looking to the future of our Country. I have instructed my representatives to stop negotiating until after the election when, immediately after I win, we will pass a major Stimulus Bill that focuses on hardworking Americans and Small Business. I have asked...

— Donald J. Trump (@realDonaldTrump) October 6, 2020

Earlier in the day, the Federal Reserve chair, Jerome H. Powell, urged the government to take action to address the economic pain the pandemic has inflicted on millions of households. “Too little support would lead to a weak recovery, creating unnecessary hardship for households and businesses,” Mr. Powell said in remarks before the National Association for Business Economics.

Since approving nearly $3 trillion in economic relief this spring, Congress and the White House have failed to reach agreement on another package, despite warnings from economists, including Mr. Powell, that follow-up aid is needed to maintain the country’s economic recovery.

Though talks all but collapsed in early August, Ms. Pelosi and Treasury Secretary Steven Mnuchin have resumed discussions in recent days as companies continue to furlough or lay off tens of thousands of Americans and local governments, schools and industries across the country lobby for more congressional relief.

But both sides have remained far apart in their expectations of what a new spending bill should include. Democrats in the House last week approved a $2.2 trillion relief package, but Republicans have balked at Democrats’ plans, deeming them far too costly.

Tuesday’s trading on Wall Street highlights intense focus recently on developments in Washington, from concerns about Mr. Trump’s health after his Covid-19 diagnosis, to the prospect that a battle over the Supreme Court would derail progress on other fronts.

But in recent days, some analysts on Wall Street have looked on increasingly favorable polling for former Vice President Joseph R. Biden Jr., President Trump’s Democratic challenger, and prospects for a resounding victory for Democrats on Nov. 3, as a precursor for a large stimulus package next year.

Such a “blue wave” would “sharply raise the probability of a fiscal stimulus package of at least $2 trillion shortly after the presidential inauguration on January 20, followed by longer-term spending increases on infrastructure, climate, health care and education that would at least match the likely longer-term tax increases on corporations and upper-income earners,” wrote analysts at Goldman Sachs this week.

So is Trump a clown? Yes, he is! Otherwise,

·            He won’t be doing a “fake” Covid-19 recovery;

·            “Fake” trade wars (he failed in reducing U.S. trade deficit);

·            Failed in making America Great;

·            Failed in race relations;

·            Failed in income distribution

·            Failed in two of his marriages;

·            Failed in running his business;

·            Failed in raising his kids;

·            Failed in paying taxes; and

·            Failed in being a Christian (No, a photo shoot with a bible in front of a church does not make you a Christian!)

His best bet is to re-start and join the Barnum and Bailey Circus as a clown!

Reference:

Stocks slide as Trump calls off stimulus talks, New York Times, October 6, 2020

 

 

 

Business Sentiment Not Improving?

A majority (78%) of Malaysian businesses are either moderately or extremely concerned regarding the Covid-19 pandemic. This was determined by the ‘Impact of Covid-19 on Malaysian Businesses’ report. The report is a joint initiative between Monash University Malaysia, Monash Malaysia Research and Development (MMR&D) and Global Asia in the 21^st Century Research Platform.

Food and beverage (F&B), entertainment & tourism, as well as agriculture industries are most concerned with the decrease in consumer confidence. In contrast, almost half of the firms (43%) within the business and financial services industry are concerned with a potential global recession. The report shows that construction firms are struggling to balance between worker well-being and productivity, with 35% worried about a reduction in productivity of their workforce. At the same time, the manufacturing and F&B industry noted the vulnerability to supply chain shocks as one of their major worries.

More than a quarter (26%) of F&B-related businesses being family-owned, face the highest risk of going out of business. Other key findings from the survey include:

·       65% of respondents are re-strategising their financial commitments given continued high levels of uncertainties;

·       Managers and company owners appear to have a bleak outlook, with 73% of businesses expecting the company’s revenue to decrease this year;

·       60% of companies cited the immediate financial impact of the pandemic as their greatest concern followed by a potential global recession (42%), and 31% questioning their ability to stay afloat;

·       Companies are exploring all avenues to mitigate the impact of the pandemic, with a near equal focus on changing business and operational strategy (66%), cost containment (65%), and changing company financing and expenditure plans (63%); and

·       73% of respondents fear that Malaysia may be at a high risk of economic stagnation.

 

Source: https://tobiasglaser.ch

 

Despite the various headwinds, 15% of respondents remain very optimistic and 30% optimistic about Malaysia’s economic outlook in the coming 12 months.

What should the Government do? There are several steps the Government could act:

·       Engage with SMEs, trade associations, Chambers of Commerce on a bi-weekly basis;

·       Issue latest bulletins of developments, initiatives launched on a weekly basis;

·       Process concerns and mitigate them with concrete steps;

·       Step-out with emergency/contingency measures/funds;

·       Monitor confidence levels by sectors; and

·       Then, perhaps confidence level will also return with political stability.

 

Reference:

Business sentiment not improving just yet, says Monash report, Focus Malaysia, 25/9/20