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Tuesday May 19, 2009

Malaysia's first state-established RM11b sovereign wealth fund identifies projects

PETALING JAYA: The country’s first state-established sovereign wealth fund, Terengganu Investment Authority (TIA), with an initial fund of RM11bil, has identified several high-impact investment projects in the tourism, energy and agriculture sectors in the state and around the country.

This week, TIA will raise RM5bil, which sources say will involve the issuance of Islamic medium-term notes on the back of a Federal Government guarantee, while a further RM6bil will be “raised through the assignment to TIA of some of the future oil royalties due to the state,” it said in a statement. TIA’s current paid-up capital of RM1mil will be raised to RM200mil soon and in due course increased to RM1bil.

TIA chief executive officer and former executive partner at Accenture, Shahrol Halmi, said the fund had identified several strategic partners and would team up with well-known sovereign wealth funds for these projects, which include regional and international projects that have “positive spillover benefits” to the state.

Shahrol Halmi ... fund has identified several strategic partners

“The key objectives of TIA’s investment strategy are to generate long-term sustainable and recurring returns and to ensure the development of long-term sustainable economic and social programmes for the state,” he said.

The Mentri Besar of Terengganu (MB Inc) owns 100% of the ordinary shares of TIA with the Ministry of Finance (Inc) and TIA Foundation (it will be set up by early June to fund and implement social benefit programmes in the state and the country) owning one preference share each. The preference share entitles the holder to certain approval rights (including rights to appoint nominees to the board) as well as a 10% share of TIA’s annual after-tax profits.

TIA’s board of directors will receive investment advice from an economic advisory panel which includes Employees Provident Fund CEO Datuk Azlan Zainol and Felda Holdings Bhd group managing director Datuk Mohd Bakke Salleh.

TIA was set up on Feb 27 after receiving the nod from the Cabinet and state executive council to manage the long-term oil royalty of the state, an idea mooted by Yang di-Pertuan Agong Tuanku Mizan Zainal Abidin after a visit to Abu Dhabi in February last year.

“His majesty wanted to ensure sustainable income for the state long after oil and gas reserves run out,” said the statement.

The initial directors of TIA are Tengku Datuk Rahimah Sultan Mahmud, who has extensive professional experience in several industries namely energy with Esso Malaysia, group managing director and CEO of Lembaga Tabung Haji Datuk Ismee Ismail and Shahrol. More directors – local and international – will be appointed shortly to the board.

The statement also said TIA would incorporate a triple-tier check and balance system comprising the board of directors (representatives from the three stakeholders who cannot hold positions in the Government or occupy any political positions), a board of advisers (to include “international eminent persons”) and a senior management team which will have a “mix of experienced, prominent local and international individuals”.

Tuanku Mizan will be the first chairman of the board of advisers, which will include the Prime Minister (or Finance Minister as the alternate appointee to the Prime Minister), and the Mentri Besar of Terengganu. Khaldoon Al-Mubarak, chairman of Abu Dhabi Executive Affairs Authority and CEO of Mubadala, will also serve on the board.

The statement said that in order not to confuse the economic mission with the social mission, it was considered necessary for TIA Foundation to have its own dedicated board of trustees, management team, operating budget and processes. “An example of a potential social development initiative that has been identified is microfinance. TIA Foundation plans to provide small loan facilities to micro-entrepreneurs, fishermen, and farmers in Terengganu, to fund working capital or capital expenditure to help them break out of the poverty trap,” it said.

Meanwhile, Prime Minister Datuk Seri Najib Razak said the Federal Government would gain 10% from the net profit of TIA. He said this while responding to a question on the rationale of the Government’s guarantee for the TIA’s RM5bil fund.

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