Short Position


Who’s buying into Barakah?

THE forced selling of Barakah Offshore Petroleum Bhd shares continued with another 10 million off-loaded in the open market at about 9.5 sen.

The shares belonged to Nik Hamdan Daud, who stepped down as chief executive of Barakah earlier this week. Nik Hamdan still has another 31.2% of Barakah amounting to 262.8 million shares, meaning there is a lot more forced selling to be done at Barakah.

The question is, who is buying the shares of the company that was saddled with debts of RM335.6mil as of December last year?

The Samling group of Sarawak has 6.6% in the company. The company and its subsidiary have a restraining order against creditors to give itself time to restructure its debts.

The order, that was taken in January, was valid for 90 days, meaning that the protection period has come to an end now. The end of the order coincided with the stepping down of Nik Hamdan earlier this week.

Barakah is one of the new oil and gas (O&G) companies that came into the market in the last O&G run. However, it read the market wrongly and expanded its business just before the crash in June 2014. From then onwards, it has been downhill for the company.

As for Nik Hamdan, he was one of the new corporate guys who made it to the top for a while because of the O&G run. The entry of the Samling group added some credence to the group’s ability to be able to restructure its debts.

However, that has not been the case. The debts are still not restructured and Nik Hamdan has stepped down. Going forward, it should not come as a surprise to anyone if his shares are continued to be forced-sold in the market.

The space to watch out for is the new name to emerge, who would dare take on a company with huge ebts.

The indebted civil service

A REPORT by CGS-CIMB this week highlighted an interesting statistic – that in 2017 alone, a massive RM5bil was lent out to civil servants by credit cooperatives, which are part of Angkasa, Malaysia’s national co-operative movement. That is a staggering figure but it is not new. Last year, a report by Bank Negara revealed that Malaysia’s civil servants spent more than half of their monthly salaries repaying debts. As at Feb 2018, the total outstanding civil servants debt stood at RM236bil, equivalent to 20% of total household debt or 17% of the gross domestic product (GDP). This is higher than levels observed in 2012 at 18% of total household debt or 15% of the GDP. Credit obtained from non-bank financial institutions (NBFI) amounted to 62%, significantly higher than the national average of 18%.

The indebtedness of Malaysia’s civil service is clearly a massive problem that needs to be fixed. The central bank has said that its policy priorities include measures to improve financial literacy and strengthen NBFI lending practices and oversights, which are vital to achieve a more sustainable level of civil servant debt accumulation and avert the build-up of risks in the future. The main reason why debt providers are apt to seek out lending opportunities to civil servants is the presence of the Angkasa auto deduction scheme. The Angkasa scheme allows for deductions from civil servants’ income to repay their debts, making their creditors virtually risk-free. No wonder many companies seek out opportunities in this area.

The CGS-CIMB report was on Ace Market-listed Orion IXL Bhd , which has been losing money over the last few years. But Orion has inked a deal with Angkasa to provide a fintech end-to-end loan application and approval platform called MyAngkasa Az-Zahra for its credit co-operatives to offer microloans to government staff. While such a service may be a cheaper and more efficient way for civil servants to borrow, the bigger question is, what is being done to solve the problem of getting them out of their already highly indebted situation?

Where is the catalyst?

NEWS of the revival of the ECRL and Bandar Malaysia projects is certainly music to the ears of the construction sector. The sector, even though its contribution to the GDP is not the largest among the other majors sectors of the economy, has the most linkages with the economy.

Money that flows to the sector translates the fastest to lifting economic growth. With the economy projected to grow between 4.3% and 4.8% this year, that is a signal that something needs to be done fast.

The growth is not fantastic but some will argue it is decent, given the overhaul of governance and the focus on tackling debt. But as the Pakatan Harapan government closes in on one year of its administration, the question that begs asking is what is there to be positive about economically?

The stock market is in a funk. It is a great generator of wealth, but only little of that has happened over the past four years. Housing is in a slump and despite the predilection of developers that sunrise is on the horizon, it is looking more like a prolonged Arctic winter, where the sun will only rise after a long, long time. Palm oil too has its own problems, where prices of the good old days may just be an urban legend how things are going.

Consumer spending growth continues to fall and then there is investments, which are not great, and job creation, where people are worried about retrenchments rather than finding a higher-paying job.

What Malaysia needs is a new catalyst, something to excite businesses and money flow. Maybe the drive into agriculture will be one, but that is not the quick fix the capital market needs, especially when it is faced with a massive exodus of money from the potential removal of the country from one of the major bond indices.

The ECRL will help with construction flows but Bandar Malaysia talks about building more buildings that will only add to the building glut that engulfs the sector. Hopefully, there will be further policy developments in the months ahead that can lift the sentiment and prospects of the business sector.