Khazanah braces for challenging year

“In particular, our portfolio restructuring will increase the sustainability of our assets for the long term, ” Khazanah managing director Datuk Shahril Ridza Ridzuan told StarBiz.

PETALING JAYA: Khazanah Nasional Bhd is bracing for a challenging year ahead amidst an already uncertain global economy that is further battered by the coronavirus disease (Covid-19).

While the nation’s sovereign wealth fund is comfortable that its diversified portfolio and strategies are robust, it said it will be extremely difficult to achieve the same levels of success as last year.

Khazanah returned to the black in 2019 with a profit from operations of RM7.36bil and declared a total dividend of RM1bil to the government.

It posted losses of RM6.27bil in 2018 but had declared a higher dividend of RM1.5bil then.Khazanah managing director Datuk Shahril Ridza Ridzuan said 2020 will be particularly challenging as an already uncertain global economy was harmed by the ongoing Covid-19 spread.

“While our government’s stimulus package is a welcome response, we nevertheless are preparing for a period of global economic slowdown. The current uncertainties will affect countries and companies alike.

“It will be very difficult to repeat our 2019 performance, but we believe that the things we did last year put us in a good position to face the challenges this year.

“In particular, our portfolio restructuring will increase the sustainability of our assets for the long term, ” he told StarBiz.

Khazanah recorded higher gains on divestments last year at RM9.9bil as compared to RM1.4bil in 2018 while impairments were at RM4.9bil from RM7.3bil the previous year.

It also strengthened its financial position with a reduction in expenses by 28.2% to RM484mil from RM674mil in 2018.

This equates to 35 basis points (bps) as a percentage of assets, compared to 50bps the previous year.

Debt was reduced by 17% to RM45.8bil from RM55.2bil in 2018, while realisable asset value cover saw on improvement to 3 times from 2.4 times.

Shahril said the sovereign wealth fund’s 2019 performance was achieved against a backdrop of uncertainties in the global landscape, which saw a prolonged Brexit process as well as the heightening of the United States and China trade war.

“This was made more challenging by the continued low returns environment and generally slower economic growth.

“Despite these challenges, we managed to achieve significant progress in delivering on our mandate to grow Malaysia’s long-term wealth, ” he said.

Shahril added that Khazanah will continue to focus on further diversifying its commercial fund, while working with the Government to enhance relevant regulatory frameworks, embedding environment, social and governance (ESG) considerations across all investment activities and engaging investee companies on value creation initiatives.

The commercial fund, which is an inter-generational wealth fund, generated a time-weighted rate of return of 8.3%, surpassing the long-term targeted rate of return equivalent to the Malaysian Consumer Price Index (CPI) plus 3% on a five-year rolling basis.

The commercial fund’s net asset value (NAV) stood at RM73.1bil as at Dec 31,2019.

Khazanah said it has progressed significantly towards diversifying the commercial fund under its refreshed mandate and was well positioned to increase its investment activities in 2020.

The strategic fund on the other hand, achieved the financial and strategic outcomes for specific assets despite the sluggish market in 2019.

It generated an overall return of 2.9%, versus its targeted rate of return of the 10-year Malaysian Government Securities (MGS) yield which was 3.3% as at Dec 31,2019, on a five-year rolling basis.

Meanwhile, Khazanah also said the PLUS Malaysia toll restructuring is now at the stage of discussions with stakeholders to put into place the necessary amendments to existing agreements.

It has thus far, successfully achieved a resolution which sees an 18% reduction in toll rates on PLUS highways and savings to the Government totaling RM42bil over the new concession period ending 2058 and also for Khazanah and the Employees Provident Fund to remain as PLUS’ shareholders.

Asked if there would be a change in Khazanah’s board and senior management following the recent change in government, Shahril said it will still remain the same at the moment and appropriate announcements would be made if there were changes.