Stock market dips Felcra next? Stake sale must fulfill best practices


  • Business
  • Saturday, 13 Oct 2018

A board above the floor of the New York Stock Exchange shows the closing number for the Dow Jones industrial average, Thursday, Oct. 11, 2018. The DJIA fell 545 points, or 2.1 percent, to 25,052.83. (AP Photo/Richard Drew)

THIS week has not been great for stocks. The Dow Jones and S&P 500 have had six consecutive days of straight declines with big plunges on Wednesday and Thursday.

Alarmed headlines have been screaming that this correction is happening thanks to rising interest rates, the trade war between China and the United States, and rising bond yields.

Quite honestly, none of these reasonings are new.

It sure didn’t matter two weeks ago when the Dow was scaling new highs.

What we really should be asking ourselves is whether anything has fundamentally changed for the worse since this fall in stocks started.

Markets got jittery on Wednesday when 10-year treasuries hit their four-year high and are now settled at the 3.173% level.

Investors fret that rate hikes are bad for stocks.

However, Federal Reserve (Fed) head Jerome Powell has indicated that there isn’t much risk of high inflation.

Less inflation probably means less Fed tightening, as inflation is a primary driver of long-term interest rates. For now, signs point to benign prices for the foreseeable future.

Now in terms of trade tensions between China and the US, what new development has there been since last week or the week before? Fears have been ongoing for months that China would retaliate just as fiercely to all tariffs imposed by the US. Even if the US really were to impose a tax on all products from China, this would still only knock off a percentage point of China’s gross domestic product. It’s true that the International Monetary Fund (IMF) has downgraded its global growth forecast.

On Wednesday, the IMF cut its forecast for global growth to 3.7% this year and next year – down 0.2 percentage points from an earlier estimate. The downward revisions mean that the global economy would grow by the same rate for three consecutive years starting 2017. Now, is that so bad?

Stocks are volatile and sentiment is fickle while fundamentals still seem broadly intact. The movements we see today are typical behaviours that happen during matured bull markets.

Bear markets do not happen when economic data is strong and there is plenty of caution and fear in the market. They always happen when everyone is euphoric and the headlines are positive.

AFTER Felda, another government-linked company (GLC), Felcra Bhd, will soon undergo a series of forensic investigations on its past investments.

Recall, the Federal Land Consolidated and Rehabilitation Authority was corporatised to become Felcra Bhd in 1997 to enable the group to explore new business opportunities, away from its dependency on plantations and agriculture-related crops.

Back then, the previous government had big plans for Felcra, including a proposed listing of a newco, Felcra Holdings Bhd. This was to replicate the initial public offering of Felda Global Ventures Holdings Bhd. Similarly, under the Felda settlers’ schemes, over 90,000 participants of the Felcra schemes will stand to reap the benefits from the potential listing of Felcra Holdings.

To pave the way for a listing, Felcra’s previous management then undertook a massive internal retructuring and consolidation of its 13 subsidiaries to be placed under the newco. Once listed, Felcra Holdings was envisaged to transform into a diversified GLC that would be able to generate a revenue of RM2bil per annum with profit as much as RM300mil per year.

However, despite the meticulous preparation, the listing of Felcra Holdings failed to take off in 2014-2015 for unknown reasons. While its listing status is still up in the air, this has not stopped Felcra’s previous management from making investments into new businesses, including real estate, livestock, cash crops and education, among others.

However, the nature of these past investments has been put to question of late, given recent reports claiming graft and abuse of power in some of the deals. Hence, many opine that the newly appointed Felcra chairman - Datuk Mohamad Nageeb Ahmad Abdul Wahab - who succeeds Datuk Bung Moktar Radin, will be put to test to head the forensic investigations into the group’s past deals. Armed with 39 years of experience in the agriculture, rubber and palm oil industry, Nageeb is currently the president of the Malaysian Palm Oil Association, which represents 118 local plantation companies.

THERE has been much talk about a possible sale of government assets as a means to raise funds to plug the holes created by the 1MDB scandal.

The idea of an asset sale is a welcome one. There is no point in being asset-rich and cash-poor.

Assets can always be acquired later when the country’s financial footing is stronger.

Today’s Khazanah Nasional Bhd represents the asset-rich phenomenon. The fund has built up the assets over the years through organic growth and acquisitions.

One of its biggest assets is IHH Healthcare Bhd, which had a market cap of RM42bil as of Friday.

The sovereign wealth fund’s 40.33% stake in the healthcare group is worth some RM16.93bil.

If you were to take Khazanah’s stakes in other companies such as CIMB Group Holdings Bhd, Tenaga Nasional Bhd, Axiata Group Bhd and Malaysia Airports Holdings Bhd into consideration, they are likely to be a significant amount even if the fund were to pare down part of its shareholdings. This can go a long way in reducing the country’s crippling debt problem.

Of course, there is the fear that selling these assets would mean the country losing some aspects of its sovereignity, or that it will lose assets that it may never be able to buy back.

So, a middle-ground approach ought to be taken - sell the assets which are not core to the running of the country.

Most importantly, all sales should be done above board, fulfilling the highest best practices so as not to have any preferential treatment of bidders.

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