The sovereign wealth fund that is poised to see a new set of directors on board is expected to revert to its old role of being the strategic investment arm of the government rather than a sovereign wealth fund.
SINCE May 9, the board members of Khazanah Nasional Bhd knew things were going to be different after the outcome of the 14th general election. The writing was on the wall from the statements of Prime Minister Tun Dr Mahathir Mohamad and the subtle messages coming from Putrajaya.
Even Tan Sri Mohd Nor Mohd Yusof, a person close to Dr Mahathir, could not do much to get a clear picture, other than having an inkling that the government wants to see a change on the board of Khazanah.
On Monday, June 23, the message came for all nine members to submit their resignation. On Tuesday, Putrajaya got their undated resignation letters. It was supposed to be a hush-hush affair.
But news broke out on Thursday morning and by Friday evening, it became clear that Khazanah would see a new board – as early as next week.
The situation is not unique to Khazanah’s board.
The heads of many government agencies, many of whom were political appointees, have been told to resign since May 9 with new appointees to be made to those positions.
The culling of such heads began with some 17,000 political appointees being told to go and that cleansing process trickled down to heads of government-linked companies (GLCs) that had prominent roles in the previous administration.
Soon enough, Datuk Seri Mohammed Shazalli Ramly, the-then CEO of Telekom Malaysia Bhd, resigned and that was followed by other high-profile names such as Tan Sri Abdul Wahid Omar leaving Permodalan Nasional Bhd as its chairman.
“After Wahid left, they knew the writing was on the wall,” says a source.
The changes seem to be gathering speed as indications are that the current government wants all such positions replaced with their people by Merdeka Day. News of possible departures of heads of government agencies continued to swirl and this week, the biggest change of all was announced.
On Thursday, Khazanah issued an official announcement that its entire board of directors had offered their resignations in undated letters, meaning that their positions were at the pleasure of the government.
The move surprised many and set tongues wagging, given the unprecedented en masse decision by the board to leave.
“It sounds to me that they are resigning in protest. The reason given is a valid one, which is that they are giving the opportunity to the new government to appoint people who can work with it. I respect them for that.
“But the fact that they announced a mass resignation after meeting as a group does give some hints of a protest,” says Wan Saiful Wan Jan, who is a Parti Pribumi Bersatu Malaysia strategist and chairman of the National Higher Education Fund Corp.
While the offer to resign by the board of Khazanah took the market and political watchers by surprise, expectations were that the impasse must come to an end. Khazanah has been subject to repeated criticism by Dr Mahathir, with the latest salvo being that its focus had waned. Previous denunciations were targeted at the amount of money being paid to the top management of Khazanah.
Like many in the government and its agencies, Khazanah managing director Tan Sri Azman Mokhtar had to make a presentation to the Council of Eminent Persons shortly after it was convened. It is believed that the presentation looked at how toll rates could be lowered, as Khazanah owns 51% of PLUS Malaysia Bhd.
Since then, there has been basically radio silence and that has not helped the current management at Khazanah, as word spread on how Azman could not seal a meeting with the prime minister after reports of him being asked to leave had been intermittently making their rounds periodically.
Such an impasse had put Khazanah in a straight jacket as it could not operate effectively. The board was also handcuffed by the fact that it could convene a full board meeting without the chairman being appointed.
That position goes to the prime minister and with Dr Mahathir not sanctioning him being named chairman or picking a suitable replacement or alternate, the board, and hence the decision-making process, within Khazanah was frozen.
The sovereign wealth fund that manages billions of ringgit in assets could not act on strategic decisions that seek to improve its fortunes.
A clean slate
Yesterday, the government accepted the offer to resign by Azman and the rest of the board members. In making that decision, the Prime Minister’s Office (PMO) says it will enable the government to restructure the sovereign wealth fund accordingly.
Dr Mahathir welcomed the offers to resign and said the board members’ resignation was a move to “clear the deck to allow the government to restructure it” in line with the policies of the new administration.
The statement said it was the Prime Minister’s prerogative to appoint the fund’s new board members, the re-designation to other entities and to retain some of them to allow for continuity.
It is learnt that a decision on such a matter will be done quickly. Some have said the two women board members will likely be retained for their independence, expertise and diversity.
The other will likely be Mohd Nor, who was the first the offer to resign. He is expected to play a pivotal role should the prime minister retain him on the board.
Mohd Nor was recently appointed the chairman of Lembaga Tabung Haji by the current government.
Two other names have cropped up in terms of taking a high position in Khazanah. They are Datuk Mohd Zafer Mohd Hashim, who was formerly the president and managing director of Bank Pembangunan Malaysia Bhd, and a former board member of FGV Holdings Bhd.
The other is Datuk Charon Wardini Mokhzani, who is the former deputy CEO of CIMB Group and managing director of Khazanah Research Institute. Charon is now the group managing director of Malaysian Industrial Development Finance Bhd.
A source says the offer to resign was not a hostile move. “Putrajaya should not be surprised. It was a decision not taken in vacuum.
“They were aware that the board had to do something to move forward. So, the board decided to make it easy for them and offer to resign,” says the source.
A source adds that there were whispers that the government wanted the board to clear its deck and as time went on, the messaging became more apparent until it was clear that they were left with no other alternative.
“It was discussed and finally the members decided to offer resignation letters. It is not a hostile move,” says the source.
Dr Mahathir dispelled suggestions that the government was on a witch-hunt prior to the board members resigning. “We do not regard everyone as guilty of everything, but this administration will not accept obvious wrongdoings.
“This action of clearing the deck will allow restructuring, as our policies are now different. While we believe in paying good salaries, we cannot all the time base it on commercial rates. We would rather focus on rewarding with good bonuses tied to performance, as some companies may not perform as they should,” says the statement by the PMO.
With the government retaining some of the flexibility in keeping some of the board members, the task of finding other capable people to fill the vacant positions in Khazanah may not be as hard as people think.
“The mass resignation is definitely a surprise and raises the question about continuity. At the same time, the people running the show are the management and not the board. The board has legal and fiduciary responsibilities but the day-to-day operations are not with them.
“We have a completely new set of ministers running the country now. Other than a small number, none of them have been ministers in the past. No one questioned whether they can do the job or not. They just have to do it. Its the same with Khazanah,” says Wan Saiful.
One of the major criticisms the current team at Khazanah has faced was the straying in focus. Dr Mahathir has criticised Khazanah for deviating from its original objectives, but there are others who will argue that they did what was asked of them.
Under Azman, Khazanah was to helm the transformation of the GLCs and in pursuing that evolution, it focused on driving profit and delivering financial returns to its stakeholders. Its realisable asset value grew from RM63.7bil to RM157.2bil between 2005 and 2017. Its net worth adjusted, which measures the value created stripping out liabilities, grew to RM115.6bil as at end-2017 from RM40.5bil a decade ago.
It drafted new policies and published colour-coded books on what to do for the transformation of other GLCs too. The returns it generated were substantial and after a decade of improvements, the process was declared a success.
In January this year, Khazanah said it planned to launch the next wave of its evolution called Transformation 2.0 to boost innovation in its investee companies.
The new five-year programme is expected to result in higher returns compared with the returns from the previous programme.
All that will likely come to naught now that the government is looking at a different path for Khazanah and the role it plays in the economy.
It used to play a strategic role in developing industries in Malaysia, where it took equity stakes in some of the iconic projects the country had embarked on during the industrialisation phase.
“Khazanah is a government-linked investment company and it has to fulfil the mandate given by the government. I would say whatever the direction is set by the current government, that is the direction it has to take,” says Wan Saiful.
Khazanah will be kept in its current format, but the direction it will take is going to be different. A source expects Khazanah to invest in industries banks are hesitant to bankroll, but serve an important role in the development of the Malaysian economy.
“Those days it was in heavy industries. Going forward, it will be in new industries that will be important in today’s industrial revolution,” says a source.