Short Position

  • Business
  • Saturday, 16 Mar 2019

More catalysts needed

THIS week, it was highlighted that Malaysia’s stock market is Asia’s only market that is in the red this year.

The Finance Ministry has said that the government “does not control the movements in the stock market”, and that its performance is dependent on domestic and global factors.

But surely a country’s stock market performance has some correlation to a country’s economic conditions and policies.

So what does this say about Malaysia’s present situation?

One leading regional economist opined that Malaysia is in dire need of a growth narrative. He suggested two low-hanging fruits – namely tourism and manufacturing – as possible catalysts.

Many leaders in corporate Malaysia lament the need for the government to focus more on growing the economy proper.

To be fair some efforts are underway. Finance Minister Lim Guan Eng has just launched the RM3bil Industry Digitalisation Transformation Fund (IDTF) which is aimed at helping Malaysia achieve its Industry 4.0 goals by accelerating industry’s adoption of the related technologies for smart manufacturing. His ministry has also engaged with rating agencies to allay concerns they have had. No downgrades have taken place since the 2018 change in government. Still confidence among businessmen in the country is lagging.

While it is only fair to say that the new government needs time to sort the numerous issues it is saddled with, it also needs to hurry to fix the overall economic and business narrative.

When the domestic economic conditions become more attractive, the investors will come. And the stock market will rise.

While some tend to think that the economy and the equity market are two different things, there’s no denying that more often that not, they go hand-in-hand. The stock market is a leading indicator for the economy.

There are nine more months to go in 2019. Let’s hope better news is in store.

An AP saga all over again

APPROVED permits (APs) are pervasive for just about any imported item but they have drawn the most controversy from their use by the automotive sector.

Essentially a mechanism to control imported cars, APs were introduced in 1970 to promote and provide opportunities for bumiputras in the automotive sector. About 15 years ago, the “AP king scandal” blew up when a few well-connected individuals were found out to have monopolised the AP business, enriching themselves.

Since then, there’s long been a debate whether the mechanism should be maintained or abolished.

There are two types of APs issued by the International Trade and Industry Ministry (Miti).

Franchise APs are given out to franchise holders of car brands to officially bring in their cars.

Open APs, meanwhile, are dished out to qualified bumiputra independent dealers, typically smaller distributors to import reconditioned vehicles for sale in the domestic market.

It’s these APs which have come under scrutiny for supposedly damaging sales of franchise AP holders who have taken the time and money to invest in local assembly and after-sales service centres.Open APs were supposed to have been a thing of the past as far back as in 2010 under the commitment given by National Automotive Policy, but its implementation was postponed.

Earlier this week, the issue of open APs surfaced again when it was reported that the government had allegedly approved 38 new AP holders.

On Thursday, Miti formally announced the implementation of a new open AP Policy since the start of the year. It was reported that it had given the green light for 164 companies to be open AP holders, out of which 36 are new companies.The development comes at a time when car sales are expected to be sluggish this year. The rise of the new entrants in the open AP segment gives rise to whether the industry is going back to the old way of doing business, which many thought would end with the new government.

Aabar’s RHB misadventure

THE Abu Dhabi-based Aabar Investment PJS’s foray into RHB Bank started in May 2008 at RM7.20 per share. The group forked out RM3.875bil for a 25% block of the bank in a transaction booked at 2.3 times book value.

It was the second-highest values banking transaction in recent Malaysian history. The first was when Tan Sri Rashid Hussain acquired Kwong Yik Bank from Malayan Banking Bhd at 3.2 times book value in a deal struck late 1997.The person who mediated the entry of Aabar into RHB was fugitive businessman Low Taek Jho or better known as Jho Low. At that time, he was the point person for money from the Middle East to Malaysia.After more than 10 years, Aabar has started to reduce its stake in RHB Bank.

The fund, whose stake was diluted to 17.75% by June 2016 after a series of corporate exercises that the bank implemented, sold a block of shares in August last year.

It sold 120.3 million shares at RM5.12 per share, netting an estimated RM615.94mil. Aabar’s stake came down to about 14.5% after the August disposal.

It sold another block of 191 million shares on March 11 at RM5.48 each. The sale is estimated to have come to RM1.05bil.

Aabar still has another 400.5 million shares in the fourth-largest banking group in Malaysia. Based on RHB Bank at RM6 per share, the block is worth some RM2.4bil.

After taking into account what Aabar has received from the sales of its shares so far and what’s left in its stable, it should be sitting on a surplus position of only less than RM200mil.

This is without taking into account the exchange rate gains or losses and dividends received from RHB Bank for the past 11 years.

Is the investment in RHB Bank worthwhile for Aabar?

On hindsight, the money, if put elsewhere, would probably have yielded better returns for the fund unless it disposes of the remaining 9.99% block or 400.5 million shares at a hefty price compared with the current levels.

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