GLCs become a playground for politicians


  • Analyst Reports
  • Saturday, 20 Jun 2020

In the past, Petronas has always been treated differently compared to the other GLCs because it is a guardian of the country’s oil and gas reserves and a major contributor to the Federal Government coffers. Apart from MISC, Petronas also controls four other listed companies, which are all heavyweights on the stock exchange.

THE market capitalisation of MISC Bhd is RM34.5bil. It is no small company and one of the global heavyweights in tanker services to support the oil and gas industry. Changes to the board are something every stakeholder looks at seriously.

It cannot have a situation where a new chairman quits just after 17 days into his appointment. Tan Sri Noh Omar was appointed on June 1 and quit on Thursday. No reason was given except that the Umno MP from Tanjong Karang decided to quit after a discussion with Prime Minister Tan Sri Muhyiddin Yassin.

Noh Omar will go down in the history of MISC and probably among GLCs as having the shortest tenure as chairman. Two other persons will join Noh Omar as creating “a first” among companies linked to the government.

Petronas president and chief executive officer Tan Sri Wan Zulkiflee Wan Ariffin, who is being replaced at the end of this month, goes down as the first who steps down before the tenure ends. The other person is Permodalan Nasional Bhd CEO, Jalil Rasheed who will leave after serving seven months.

Already GLCs tend to underperform compared with their peers due to their weakness in running operations. The spate of appointments and resignations only makes matters worse for the GLCs.

The changes at GLCs, whenever power changes hand in Putrajaya, coupled with the dismissal of high-profile cases involving politicians and people close to them, are factors that will fare high in the list of consideration of any international investor and rating agencies. Fears of lack of governance and enforcement against those who abuse their positions and disruption in management strategies due to board changes will continue to haunt these companies.

It brings to question whether the GLC transformation programme that was launched in 2005 is still relevant amidst the fragile political state of affairs. It raises doubts if there is a serious effort to resolve some of the problems these companies face.

Take for instance the changes in the Federal Land Development Authority (Felda). It has seen four changes to the post of chairman in the last two years. Felda itself has a huge debt burden and needs a strong leadership to solve its financial problems.

Felda is the major shareholder of FGV Holdings Bhd and plays a big role in managing the affairs of settlers that determine 54 parliament seats. Four changes to the chairmanship in a space of two years do not help resolve Felda’s problems.

Datuk Seri Idris Jusoh is the new chairman of the Federal government controlled entity that is the major shareholder of FGV. Fortunately, there has been no change in the board of FGV which is led by its chairman Datuk Wira Azhar Abdul Hamid, so far.

But would anybody dare rule out changes in FGV’s board and management in future, considering the political situation today?

If abrupt changes can happen in Petronas, which is a Fortune 500 company, it can happen in any other GLCs.

In the past, Petronas has always been treated differently compared to the other GLCs because it is a guardian of the country’s oil and gas reserves and a major contributor to the Federal Government coffers. Apart from MISC, Petronas also controls four other listed companies, which are all heavyweights on the stock exchange.

In an unprecedented fashion, the Prime Minster’s Office suddenly announced the appointment of the Petronas chief financial officer Tengku Muhammad Taufik Tengku Aziz to replace Wan Zulkiflee, who would be going to Malaysia Airlines.

Wan Zul’s farewell message, which is well-publicised, seems to suggest that he left because he did not want to be part and parcel of any process that is against the governance of the national oil company.

Coincidentally, a few days after Wan Zul’s departure, reports surfaced that Petronas would drop its appeal on a sales tax legal suit against a High Court decision favouring the Sarawak State government. The suit involved sales tax of RM2.8bil, which the state was claiming against Petronas.

Petronas is engaged in a legal tussle with Sarawak over the rights of oil and gas resources in the state.

Whether Wan Zul’s departure is due to the differences with Sarawak is a matter of speculation.

Just like the resignation of Nor Omar from MISC and the reason for Jalil to leave PNB – it’s all hushhush. Nobody talks about the reasons publicly.

The unceremonious departures of key officials are something that corporate Malaysia has to do away with. It cannot leave the market to play guessing games as to why people abruptly leave their positions, especially in large companies.

Such changes would particularly catch the attention of rating agencies. For instance, Petronas issues billions of debt papers and cannot afford to have additional scrutiny by rating agencies.

Malaysia’s political stability has never been so fragile as the current environment. Never has there been a situation where the possibility of the government changing midway during the five-year term is a real threat.

Because of the close nexus between GLCs and changes in Putrajaya, the fear that there would be another round of new appointments within the next two years is warranted.

In this situation, no investor in their right frame of mind would want to commit to long-term business agreements with the GLCs. That is the reality.

The vews expressed here are the writer’s own.

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M. Shanmugam , GLC , Politicians

   

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