PERMODALAN Nasional Bhd (PNB) has assets under management of RM312bil. The money put into Sapura Energy Bhd’s fund raising exercise in late 2018 makes up less than 1% of the assets under management.
But it makes up for 90% of the bad publicity that the national investment fund receives in recent weeks
PNB’s decision to put more money into Sapura Energy was made during the tenure of Tan Sri Abdul Wahid Omar and Datuk Abdul Rahman Ahmad. At that time, PNB was also a major shareholder in UMW Oil and Gas Bhd, now known as Velesto Energy Bhd.
PNB ploughed RM2.7bil into Sapura Energy and RM700mil into Velesto through fund-raising exercises. Both companies needed the money to restructure their finances after the June 2014 oil price crash.However, PNB’s investments in Velesto drew little attention, unlike its presence in Sapura Energy.
PNB was already a major shareholder in Velesto when it put more money into the company. In the case of Sapura Energy, the fund became the single largest shareholder with close to 40% after a fund-raising exercise that was completed in January 2019.
Even then, PNB’s aggressive participation in Sapura Energy’s rights issue raised eyebrows because the fund already had exposure to the sector through Velesto. Moreover, many would have thought that PNB would have learnt its lessons after its subsidiary, Sime Darby, chalked up RM2bil losses due to an oil and gas venture in Qatar in 2009.
On the face of it, the abrupt departure of Abdul Jalil Abdul Rasheed as president and group chief executive of PNB is said to be related to a dispute on his qualification as a graduate of the prestigious London School of Economics and Political Sciences (LSE). Jalil obtained his BSc (Accounting and Finance) from the University of London, which has an association with LSE for its economics programme. Hence, his qualification was a matter of debate.
Nevertheless, Jalil stated during his departure note that during his eight-month tenure in PNB, he was harassed, threatened and finally decided to leave.
In the social media scene, however, Jalil’s leaving was associated with him supposedly wanting to institute changes in Sapura Energy, which supposedly did not go down well with the management of the oil and gas company. The board of Sapura Energy has denied any such allegations.
The value of PNB’s investments in Sapura Energy today is RM640mil. Considering that the fundamentals of the sector are still weak, it will take a long time before PNB recovers its investments.
But Sapura Energy is not the biggest problem for the new PNB president and group chief executive, Ahmad Zulqarnian Onn. The graduate from Harvard has to appease 14.2 million unit holders by giving them a return of at least 7 sen per unit when the year ends.
PNB has six fixed price unit trust funds and eight variable price funds. The fixed price funds are the likes of Amanah Saham Bumiputera (ASB) and Amanah Saham Malaysia where the investments of investors are assured as the price of their units are usually fixed at RM1 and they get a return of 7% or more.
The returns from the variable price funds are almost the same as the fixed price unit trust units. However the price of the units are based on the net asset value of the fund, which may go above or below the investment value.
In December last year, PNB declared its lowest dividend for its flagship ASB. Investors received 5 sen per unit of RM1 invested and a bonus, which are given in shares, amounting to 0.5 sen.
It was the lowest since 1990 and the performance was on the back of Bursa Malaysia recording a 6% decline in its benchmark index.
The EPF declared a dividend of 5.45%, which is just marginally lower than the total income distributed and bonus of ASB.
However, the significance of the returns is that it marks for the first time in recent years where EPF’s returns from its convention fund is higher than the income distribution of ASB. If PNB did not throw in the bonus of 0.5 sen, ASB’s returns would have been lower than EPF’s dividends.
The EPF is a fund that is almost three times the size of PNB. And the EPF does not get the same privileges as PNB, which is considered a bumiputra investor.
The EPF has to chalk up a gross income of more than RM50bil per annum to declare dividend of more than 5%, an amount that would be acceptable to its contributors.
It is estimated that PNB needs to generate a gross income of RM20bil per annum for it to distribute an average of 7 sen for its funds. Last year, its total gross income was RM15.12bil, hence the lesser than the usual amount distributed to unit holders.
Since 2014, EPF’s returns from its overseas investments have done well for it to pay out commendable dividends to its contributors. Over 25% of EPF’s money is placed in assets overseas that include real estate, equities and private equity deals. Some 92% of PNB’s money is in the domestic market. It is the single largest shareholder in Maybank, SP Setia, Velesto Energy, Sapura Energy, UMW Holdings Bhd, MNRB Holdings Bhd, Chemical Company of Malaysia Bhd, Duopharma Biotech Bhd, Sime Darby, Sime Plantations and Sime Property.
These companies are leaders in the sector they operate. For instance, Maybank is the biggest banking group while SP Setia is the largest property company. UMW is the biggest listed automotive group while Sapura Energy is the largest oil and gas outfit in the country.
Because it is the largest shareholder in these companies, PNB inevitably ends up having to drive the performance of the companies through the management. It is not an ideal situation for a fund.
A fund should be able to enter and exit investments with ease. It should not be a situation where the fund has accumulated such a large stake in the company that it cannot afford to fail.
Many of the strategic companies under PNB lag behind their peers in the sector. They do not yield the desired results. But there is little PNB can do to sweat the assets.
PNB’s penchant for creating industry leaders in the domestic market has brought a mixed bag of results. It has to start looking outside the country if the returns are to be sustained.
The views expressed here are the writer’s own.
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