He is busy sweating the RM260bil worth of assets of Malaysia’s largest fund-management firm.
IT is to no one’s surprise that Permodalan Nasional Bhd (PNB) group chairman Tan Sri Abdul Wahid Omar is back in his element. A veteran of rebuilding companies and creating value, Wahid is busy shuffling between the meeting rooms on the fourth floor of the fund’s headquarters in Kuala Lumpur.
Known as a workaholic who easily spends some 12 hours a day in his office, the 53-year-old Wahid schedules meetings back-to-back until late evening.
Hence, it is easy to fathom why the seasoned corporate hand, who has overseen the transformation of some of the largest companies in Malaysia and has turned even wiser after a three-year stint as Minister in the Prime Minister’s Department, is watching the clock as he speaks on PNB’s strategies going forward.
But nobody should be surprised.
Many would have thought that Wahid would take it easy as group chairman of PNB. But he is obviously having none of that, as he sweats the RM260bil worth of assets of Malaysia’s largest fund-management company.
When Wahid and his president and group chief executive Datuk Abdul Rahman Ahmad speak, the market pays attention.
This is because PNB is a major investor in stocks listed on Bursa Malaysia and owned 10.3% or RM186.2bil of the exchange’s RM1,814.59bil total market capitalisation as at June 30, 2017.
Having completed his one-year stint as PNB group chairman this month, Wahid is now preparing to take PNB into the next wave of restructuring, which involves its “core” companies.
The companies that fall in the “core” category are those that PNB owns more than a 10% equity stake, or RM1bil in investments. The number of core companies under PNB’s belt is more than 40.
This comes hot on the heels of the first phase of PNB’s transformation, where it demerged the listed entities that are “strategic” companies. The companies under this category are the likes of MALAYAN BANKING BHD (Maybank), Sime Darby Bhd, UMW HOLDINGS BHD and Chemical Company of Malaysia Bhd.
The companies were demerged to create pure plays.
For instance, UMW’s oil and gas business was demerged from the parent company. Sime Darby will spin off its plantation and property units.
The end result is to create pure plays.
“The pure plays will position the companies where they can be benchmarked against the others,” Wahid tells StarBizWeek in an interview.
The next wave of restructuring
For the next level of restructuring in the core companies, he says the group will be coming up with a model on how to engage with PNB’s “core” companies constructively.
“PNB does not have a board representative in most of these companies.
“In the case where we have over a 15% stake, PNB will be seeking a board seat so that we can have better and closer influence.
“But for those below 15%, we may come up with an appropriate mechanism on how to engage with them constructively,” explains Wahid.
As a major investor, it is incumbent upon PNB to know the trends in the respective industries which its investee companies are involved in.
“As these telcos share many common industry and regulatory issues, it will be great to see them all performing well,” adds Wahid. PNB owns an 18% stake in Axiata, 11% in Maxis and 12% in Digi.
On whether PNB would consider reducing some stakes in its selected core companies, he says this will depend on its view on the industry and the company it is invested in.
“If we are bullish on the industry, then we will be increasing our stakes in these core companies. Otherwise, we will consider diluting our stakes.”
But there is a situation whereby PNB is positive on the industry and the share price of the core company has also gone up. “Then, PNB might also want to lock in the profits,” adds Wahid.
Compared with PNB’s strategic companies where “we hardly change our holding investments, for core companies, the stake will tend to fluctuate”.
Under PNB’s ongoing transformation plan, Wahid and his team have been addressing structural issues on how corporations should be organised to achieve better performance.
The unlocking of value in Sime Darby, which saw an increase in the valuations of three focused pure plays collectively, is already a positive indication, adds Wahid.
Currently, the transformation of PNB’s strategic companies is also gathering momentum, with total market value increasing by RM29bil year-to-date and RM40bil year-on-year as at July 31, 2017.
Going forward, Wahid points out that PNB would consider putting in a bit more money into private investment, property and fixed income.
For private investment, PNB will be looking at investing in more unlisted companies.
Currently, PNB has investments in companies such as I&P Group Sdn Bhd, MIDF, Boh Plantations Sdn Bhd, Unilever Malaysia and Projek Lintasan Kota Holdings Sdn Bhd (Prolintas), all of which are unlisted companies.
The bulk of PNB’s RM260bil worth of assets are currently invested in listed equities (69%), mainly in Malaysia.
The remaining 20% is in cash, 5% in fixed income, and property and private investments are at 3% each.
According to Wahid, PNB is planning to lower its 20% cash position to 15% under its asset allocation.
“Theoretically, I think we can go lower than that, but as the first step, we can manage to reduce it to 15%. This also means we can have 5% to be invested across private investments, property and fixed income.”
As for start-ups, PNB seems to have its reservations on investing in them or fintech companies.
While he admits that there is potential upside to investing in start-ups, there is also risk in it.
“PNB will need to learn more before we are brave enough to invest,” says Wahid, adding that risk rewards and expected returns must be clear.
According to Wahid, the fund-management company is bullish on the financial services, telecommunications, plantation and property sectors.
“I think the financial services sector is still the core of the country’s economy.
“Telcos are a good proxy to technology despite the pure telecoms business still being challenged by stagnant revenue, while plantations still have good potential, given crude palm oil being a versatile commodity used both in food and non-food products,” he adds.
Wahid says it is all about generating total shareholder returns that can come from both dividends and share price appreciation. “That is why we would like our investee companies to benchmark themselves against the best in the industry in terms of operating matrix.”
On dividends, Wahid also wants PNB’s investee companies to have a high dividend payout ratio.
“It is important for our companies to generate profits so that they can distribute a sufficient quantum to the shareholders.”
Should there be a situation where there is a requirement for reinvestment, PNB will be happy to support those companies with a reinvestment policy.
According to Wahid, PNB’s strategic companies have different levels of dividend policies – depending on their respective industries, their profitability and whether they need more reinvestments.
For example, Maybank, in which PNB owns a 48% stake, has been paying out high dividends. “In a normal situation, on average, it is not unreasonable for most companies to declare at least half of their profits as dividends to shareholders.
“I think it is equitable to distribute half to shareholders and the other half for reinvestment into the company. So, this will instil discipline among our companies in terms of how they manage their capital.
“But, of course, we would like it (dividend) to be higher whenever possible,” explains Wahid.
On another note, Wahid says the governance structure of corporate Malaysia, especially among government-linked companies (GLCs) which PNB has invested in, is at the forefront while a majority of its non-GLCs also have good governance.
But he is quick to add that there may be some corporates “with blurring of lines between owners and the management/company”.
On PNB’s part, the group has always encouraged the separation of roles between the chairman and CEO of companies.
“Even among our group of companies, these roles are separated.”
In addition, all PNB investee companies are also encouraged to embrace good governance practices, says Wahid.