Bonds to remain vital source of funding


  • Business
  • Tuesday, 30 Dec 2003

TODAY we feature three CEOs whose hallmark is professionalism. They are Datuk C. Rajandram of Rating Agency of Malaysia (RAM), Datuk Krishnan Tan of IJM Corp Bhd, and Dr A. Hapiz Abdullah of DuPont Malaysia Sdn Bhd.  

Although he keeps a low profile, Rajandram had been in some high-profile jobs – as secretary of the Capital Issues Committee (1976–85), advisor at Bank Negara (1980–91), and chairman of the Corporate Debt Restructuring Committee.  

He is also one of the founders of RAM, and has built it up into one of the most respected rating agencies in Asia.  

Tan, like Rajandram, has nurtured a strong professional team at IJM Corp. Although the largest shareholding in IJM changed hands recently, the new shareholder has left IJM very much on its own.  

Such is the regard for Tan's skills as a manager that a number of large property developers are turning to him for advice on critical issues such as management, corporate governance and succession.  

Hapiz heads a relatively small team (under 160) at DuPont Malaysia. Given that DuPont has such an extensive range of products across all sectors – it's hard for anyone not to be in touch with a DuPont product in the course of the day – his focus is to pool resources and promote the concept of “One DuPont”.  

The latest addition to the company's products is powder coating, following the acquisition of Herberts by the US parent.  

Datuk C. Rajandram 

Managing director 

Datuk C. Rajandram

Rating Agency Malaysia 

 

Challenges and prospects for Malaysia's economy in 2004. 

The key challenges for next year will be to maintain steady economic growth, preserve political and social stability, reinvigorate private sector participation, and strengthen human resource and technological capability. 

We note also that the level of private investment has been very low since the regional crisis of the late 1990s. Boosting private investment, further liberalising our investment regulations and unleashing private entrepreneurship would be another challenge. 

We are now at the crossroads between extricating ourselves from labour-intensive and low technology products and forging a high-technology and knowledge-based economy. Therefore, the education and training delivery systems should be strengthened so that they can respond effectively to changing market needs. 

We expect Malaysia's economy to grow by 6.3% in 2004, driven by rebounding corporate investments, sustained personal consumption, improving external trade, and accommodative fiscal and monetary policies. On the supply side, the manufacturing and services sub-sectors will continue to lead in strengthening output growth. 

We are quite certain that Malaysia stands a good chance as a potential regional service centre. The key advantages that we have are our multi-lingual, educated workforce, abundant natural resources and excellent physical infrastructure in the form of roads, ports, power and telecommunications. We also have favourable accounting and legal frameworks. 

 

Prospects and challenges for your sector/industry in 2004. 

The bond market is estimated to grow strongly this year, with bond issues likely to hit about RM50bil, approximately twice the gross amount in 2002. While we do not envision the market to repeat this record performance in 2004, we believe that the domestic bond market will keep on growing as an important source of financing. 

Disintermediation on the part of financial institutions will continue as corporates continue to prefer raising funds via the bond market. We anticipate particularly healthy growth for structured finance transactions, as demonstrated in the more developed markets. 

For 2004, RAM anticipates RM30bil –RM35bil being raised through the bond market. This projection has taken into account the expected improvement in Malaysia’s economy in 2004 (estimated 6.3% GDP growth) and the positive outlook for the US and global economies, counterbalanced by the likelihood of interest rates firming up by the end of the first half 2004 and the upturn in the local equity market. 

Our forecast has also factored in the rated issues that are currently in the pipeline. 

RAM will strive to further enhance its credit rating skills and services. We will also endeavour to sustain the pool of skilled professionals in order to attain the objectives mentioned. RAM seeks to maintain the credibility and quality of its credit rating service to meet the increasing market demand for reliable and consistent credit ratings as well as the potential advent of foreign rating services. 

 

What will be the focus of your company/group next year? 

Over the past 12 years, RAM has successfully established a strong brand name and commendable track record in Malaysia. Our main strategy for the next few years will revolve around enhancing our franchise and making RAM an internationally acclaimed credit rating agency with its credit ratings being of international quality. 

Timely dissemination of information is the epitome of the much-talked-about topic of increased transparency and the disclosure-based regime (DBR). RAM has always distinguished itself in its efforts to provide prompt and adequate information. 

We will continue to explore ways in which to maintain and step up efforts in this direction. 

We will also be focusing on implementing measures and processes that we believe will further affirm our integrity. RAM already complies with some of the best practices advocated for the ratings industry and we will continue to practise and enhance the advocated values. 

Some identified initiatives include announcing rating decisions in the shortest time possible, improving the timeliness of rating reviews and making our rating criteria even more transparent. 

We strongly believe that credit ratings in the ‘black box’ style where the rating methodology and bases of rationale are not transparent will only plague the market with unreliable and inconsistent ratings detrimental to investors. 

 

Do you expect your company/group to do better or worse in 2004, compared with 2003? 

RAM expects to achieve a strong set of operating and financial results for 2003, capitalising on the strong growth in the local bond market. 

For 2004, RAM expects a healthy, albeit softened, financial performance on the back of the anticipated lower level of bond issuance. As mentioned earlier, we forecast RM30bil–RM35bil to be raised through the bond market next year. 

 

Is China an important factor in the management of your operations? 

China is not a direct factor in our operations. However, the 'China factor' plays a role when we evaluate the impact on certain industries as well as the performance of companies. 

 

What should be the priorities of the new Prime Minister for the country? 

We believe that Datuk Seri Abdullah Ahmad Badawi will be a positive influence on our economic and business market development. We may see more efforts towards improving the level of government services. This would certainly lead to more efficient management of the economy. 

His early pronouncements also hint at the likely adoption of a simple and straight-forward approach to economic development with an emphasis to benefit the ‘man in the street’ and the low-income categories of the population. 

In the immediate term, the new administration is expected to restore business confidence as well as improve efficiency and productivity levels. Efforts should be focused on promoting private investment, strengthening our competitiveness, developing new sources of growth and enhancing the effectiveness of the delivery system. 

Some of the more prominent areas are human resource development and technology enhancement. We also believe that the policy thrust of the 8th Malaysia Plan will continue to be relevant under his administration. 

Dr A. Hapiz Abdullah 

Dr A. Hapiz Abdullah

Managing director 

DuPont Malaysia Sdn Bhd 

 

Challenges and prospects for Malaysia's economy in 2004? 

I would definitely agree that the global economy is on the upbeat and the economies of the United States, the European Union and Asia are on a positive growth path; what more with China, India and Japan forging ahead with growth rates that are very commendable. 

Malaysia's economy is expected to grow at an average 6% in 2004. We have to be more competitive through greater productivity when our costs are no longer low and diversify into the highly competitive and sophisticated services sector. 

Gross domestic product growth has been largely input driven, not productivity driven. When we throw more money into projects we must ensure good returns. 

Our challenge for 2004 will be to enhance the competitiveness of the manufacturing sector, tapping our strength in natural resources and primary products, as well as creating a highly qualified and educated workforce imbued with information and communications technology (ICT) knowledge and skills. 

We would have to stimulate the economy with attractive packages and economic incentives to be competitive, and to compete with other countries and attract new businesses in, and to, the country. We must have the competitive edge over other countries in the region. 

 

How badly was your company affected by SARS and the Iraq war. Has it recovered from these events? 

DuPont in Malaysia was fortunate to have little impact from by the SARS and the Iraqi war. The impact was very minimal. In fact, we have seen positive sales growth and increased market share compared with 2002. 

While SARS may have adversely affected the economic and social activities of some countries in the region, the impact in Malaysia was limited, with tourism, the services sector and the physical movement of people from one geographical point to another being the most significant. 

For DuPont Malaysia, we were able to utilise ICT to ensure that our business communication went on smoothly through video and audio-conferencing, and via the Internet. 

Although our technical, marketing and senior officials were restricted in their travel, remote alternatives have ensured that we kept in close contact with our customers. In fact, this more constant contact has helped strengthen our relationships with our business partners. 

 

What will be the focus of your company/group in 2004? 

DuPont Malaysia has always been consistent and focused on its winning strategies, which were implemented a few years ago. This is done through integration of scientific knowledge based on research and development (R&D), by creating new products and product differentiation, via knowledge intensity, that is, by unique offerings that make us different from others. 

We observed that most of our customers are attempting incremental increase in productivity via six-sigma concept, etc. to propel them to continued growth for their business. This win-win situation and a strategic alliance yielded the growth that our customers and DuPont had seen in 2003. This mutual understanding is very important for us to prosper. 

We will continue to hold true to our core values – commitment to safety, health and the environment; integrity and high ethical standards; and treating people with fairness and respect – as well as direct energies to winning, now and in the future. 

In this regard, I am positively optimistic and firmly believe that there are plenty more avenues and opportunities in the Malaysian marketplace and we can forge ahead with this win-win formula in 2004 and beyond. 

 

Do you expect your company /group to do better or worse in 2004, compared with 2003? 

We in Malaysia expect to be much better off in a still challenging and difficult economy. We see strong revenue growth as several of our business initiatives are on track, and we witness strong organic growth from our existing business. 

As mentioned earlier, our strength is in the application of scientific discoveries that are a product of our excellent R&D. Our products are there to meet the needs of the various industries and consumers. DuPont has always come out with new products to meet the new emerging needs of various sectors. 

Our record, based on product quality and excellent marketing and customer relationships, convinces me of a better year in 2004. 

It would be pertinent to note that the economies around the globe are growing, as evidenced by the performance of the bourses/share markets, and purchasing power of people around the world. Coupled with the global economic rebound, there will be an increase in local and external demand. We expect Malaysia's exports to grow in tandem with this positive situation. 

 

Is China an important factor in the management of your operations? 

There is no denying that DuPont Asia Pacific is one of the regions that will be a key component driving the company's growth in the near future. Today, China attracts the most foreign direct investments. It is forecast that China will eventually overtake the United States as the largest economy in the world. 

Currently, China is the sixth largest growing economy in the world. China's progress will fuel the growth of other countries in the region. In this regard, China will be a key player and an economic power for business like DuPont. 

 

What should be the priorities of the new Prime Minister ? 

Tun Dr Mahathir Mohamad has left a legacy – a prosperous country, racial harmony and stable government. Datuk Seri Abdullah Ahmad Badawi's focus would be to maintain that stability and take us to a higher plane. 

As he has already begun to demonstrate a push towards greater efficiency, particularly in dealing with the public and counter/customer service, transparency and accountability will be priority, I believe. 

Red tape and bureaucratic style of governance will have to give way to a people friendly and business savvy governance. The government machinery must be enabler and catalyst for private sector economic growth. 

A proactive stance should be adopted to support business and commerce so that we are able to compete locally and overseas. 

He must also give essence to the clean, efficient, trustworthy government enunciated by Dr Mahathir. 

Confidence building measures should be put in place, particularly in this transition period. A knowledge-based society that can compete in the international marketplace should be developed that it can concentrate on economic growth, and to improve standards and quality of education, so that we can be global players in this millennium and digital world. 

There is a greater need for the Prime Minister to look into economic restructuring and a rethinking on all government policies so that they are relevant to the current socio-economic situation. 

With implementation of the World Trade Organisation protocols and regime, and Asean Free Trade Area, we will face numerous challenges in the global marketplace. While we are progressing in the right direction, we have to move – and move fast – to remain competitive. 

Datuk Krishnan Tan

Datuk Krishnan Tan 

Chief executive officer and group managing director 

IJM Corporation Bhd 

 

What do you see are the challenges and prospects for Malaysia's economy in 2004? 

Recent reports indicate an improving global economic environment with major economies showing positive growth trends. Malaysia's economy will benefit from this recovery. Data also show that Malaysia's trade is growing rapidly with the fast growing Asian economies and this is another major positive. Furthermore, with domestic consumption on the rise and commodities prices firm, Malaysia's economy will see better performance in 2004. 

A major challenge will be one of improving our global competitiveness in the manufacturing sector and finding competitive niches in the rapidly expanding service sector which is attracting a greater proportion of global foreign direct investment (FDI) flows. The Asean Free Trade Area (Afta) and China will pose major challenges in this regard. 

Identifying opportunities for establishing international smart partnerships and market diversification should be enhanced through collaboration between the public and private sectors. Furthermore, the business friendly policies of the government should be continued to attract foreign investments and also spur domestic investments and consumption

 

What are the prospects for your sector/industry in 2004? 

The planned reduction in government development expenditure in 2004 and the determination to balance the budget in the near future would imply a slower pace of order flow from the government unless privatisation projects are escalated to bridge the slack. 

The private sector residential market is, however, expected to be buoyant and should provide opportunities. The long-term outlook is one of a maturing local construction market and, with a great number of players, a very competitive business environment. 

On the other hand, regional markets such as China, India and the Middle East are experiencing robust activity levels in their construction sectors. These countries provide good market diversification opportunities that we should capitalise on for future growth. 

 

The government has outlined numerous incentives for the construction/housing industry during the past two/three years. Have these incentives given a boost to your company’s operations and revenue? 

These have certainly been positive. An improved housing sector has helped our property division achieve better sales and profits, while providing a stream of work for our construction division. The latter and our building materials division have also benefited from order flows from the growth of the private housing sector. 

 

What will be the focus of your company/group in 2004? 

On the revenue front, enhancing our construction order book will remain a key priority to ensure sustained growth in the immediate future. 

Efficient project execution with equal emphasis on the quality of our product and service will always remain a top priority to ensure bottom line targets are met. Overall, the group’s focus is to build an organisation that is internationally competitive and profitable, a Malaysian flag bearer of well built and run projects in the competitive international markets. 

 

Do you expect your company/group to do better or worse in 2004, compared with 2003? Why? 

The existing order book will adequately provide for work in 2004, but new construction order flow is important for continued growth. Recent order flows have been positive and expectations for improvements appear positive both locally and internationally. 

All other divisions of the group are expected to perform better. We remain optimistic of a better 2004. 

 

Is China an important factor in the management of your operations? 

Business decisions today can seldom be made in isolation without some consideration of what is happening in China – be it its enormous appetite for raw materials, its competitive manufactured products or what is going to happen to the renminbi. Our direct business exposure to the China business is small but positive. 

On the other hand, from the construction business perspective, we think that the Indian market will provide Malaysian contractors a big niche market. It is not surprising that since 1998 Malaysian contractors have or are executing over RM11bil worth of contracts in India and expectations of even greater involvement are positive. 

The Indian infrastructure sector is beginning to roll and so is its property sector. Malaysians can build on their experience there and ride the enormous opportunities in this sector. 

 

Datuk Seri Abdullah Badawi has taken over as Malaysia’s fifth Prime Minister. In your view, what should be his priorities for the country and the industry you are in? 

We take great pride in showcasing ourselves as a very united, peaceful and tolerant multi-racial and multi-religious society. We must focus on continuing to see that this remains our heritage as our prosperity hinges on our continued political stability and the confidence it provides. 

On the economic front, we must set in place systems and processes that can lead to the growth of local businesses that can become globally competitive. 

A system of comprehensive competitive bidding for government procurement – modified as it may for Malaysian societal needs – will be good for transparency as well as the emergence of a class of competitive goods and service providers who are able to compete effectively in the global arena. 

This can be one of the solutions to the government's recent emphasis on the need to balance the budget, prioritise spending and fight corruption. 

For the construction industry, the competitive bid process should be prioritised for reasons explained earlier. Malaysian contractors have also, over the decade, built enormous experiences and capabilities that can be exported. Successes in India show that this can be done. 

Government support and push in this direction can lead to a very successful export of construction and consultancy services from our country. 

CEO Outlook 2004

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