Permodalan Nasional Bhd (PNB), the country’s largest fund manager, surprised the market this week after announcing that it plans to sell its entire stake in one of its flagship investee companies – Chemical Company of Malaysia Bhd (CCM).
PNB said it has entered into a deal with a public-listed company Batu Kawan Bhd to sell its 56.3% stake in CCM for RM292.8mil or RM3.10 per share.
Despite the challenging market conditions, PNB is selling its stake in loss-making CCM at a premium of more than 100% from the latter’s one-year volume-weighted average market price (VWAMP).
CCM has been one of PNB’s 10 strategic investee companies for many years. The fund said that the sale is part of its asset diversification strategy to rebalance its portfolio, as well as to enhance value and deliver sustainable returns to its unitholders.
Some observers have perceived that the divestment of CCM had come at a time when PNB would need additional cash to face a higher rate of withdrawals by its unitholders due to the Covid-19 fallout.
This came after the government announced that members of the Employees Provident Fund (EPF) can withdraw their savings from Account 1 to cope with the economic impact from Covid-19 that saw job losses, reduced salaries and slower business activities.
Speaking to StarBizweek, PNB group chairman Tan Sri Dr Zeti Aziz highlights that withdrawal by its unitholders remain stable and that the fund has not seen “any disruptive” withdrawals this year.
While acknowledging that the fund is being ‘tested’ by the coronavirus (Covid-19) pandemic, she says PNB is striving to provide “competitive” returns to its unitholders this year and that its dividend would reflect the current condition.
Zeti suggests investors look beyond 2020 as she expects a rebound in the economy and that PNB is set to benefit as it has taken advantage of the weakness in the market to accumulate good stocks.
“Our unitholders shouldn’t take the current return that they are receiving as a representation of what lies ahead in the future.
“What lies ahead of us is more promising. I am optimistic, given that time and again, we have seen the strength of our economy rise up and recover, and with it, returns will improve, ” she says.
“As we shift to diversify our investment portfolio, the potential for high returns is there.
“There are new industries that have potential, such as technology and health, and we have confidence in our financial sector investments, ” she adds.
The former Bank Negara governor says that the county’s banking sector faces the current crisis from a position of strength and would remain resilient.
“In this current pandemic wave, with economic activity shutdowns and businesses under stress, our financial institutions are operating in this environment from a position of strength, therefore they are able to cope.
“Once this pandemic subsides, they will emerge stronger.
The former Bank Negara governor had been instrumental in transforming the country’s banking sector to what it is today.
Banks in Malaysia have gone through restructurings, consolidations and rationalisation efforts that have placed them on a stronger footing.
Recognising the highly uncertain outlook due to the Covid-19 outbreak, many local banks have provided for future potential losses.
They could do so as the banks have posted high earnings in the past.
Malaysia’s GDP contracted by 17.1% for the period between April and June, which was the lowest recorded since 1998.
While the economy bounced back in the third quarter contracting by only 2.7%, the economic downturn would affect PNB’s investee companies’ capability to dish out dividends.
Even before the pandemic hit, PNB had already been challenged by the poor performance of the local capital market.
Last year, the fund declared its lowest ever dividend of 5.5% for its flagship fund, Amanah Saham Bumiputera (ASB).
The return, however, was still higher than the Employees Provident Fund (EPF) returns of 5.45%.
This was in the backdrop of challenging economic conditions led by the US-China trade war.
As at the end of 2019, Bursa Malaysia’s leading index – FBM KLCI – was down 4.7% compared to the start of the year.
This was further exacerbated by the underperformance of the main index for years. It is noteworthy that over the last six years, the index ended in positive territory only once, which was in 2017.
PNB has RM315bil assets under management (AUM), of which 91% are invested in the Malaysian capital market and 8.5% overseas.
It has 14 billion unitholders and would need to chalk up a gross income of more than RM13bil a year to declare a dividend of at least 5%.
Since 2017, PNB has been increasing its overseas investment as part of the group’s diversification and risk management strategy. With this strategy, according to Zeti, PNB has done better than the fund’s domestic investments this year.
“Overseas investments have generated far more than domestic for this year. Had we not diversified into the overseas market, our earnings would have been much less.
“Overseas investment started two years ago. As we go along, we will gradually increase it but we will do so cautiously, ” Zeti says.
PNB’s Achilles heel is its heavy exposure in the local stock market.
But that is about to change with the sale of CCM. Sources said that PNB is also looking to sell stakes in other stocks on Bursa Malaysia.
Zeti recognises that the fund would also need to diversify its domestic investment portfolio into other asset classes including fixed income and real estate.
“We were very concentrated in investment in equities for example, and fortunately, a few years ago we really intensified the diversification into other asset classes, ” she says.
The imminent leadership changes at PNB over the past four years had made many wondering how that would disrupt the fund’s strategy and performance moving forward.
Zeti acknowledges that while there have been rapid changes in the CEO level, the fund’s strategies remain intact and that it remains focused on its mandate, which is to enhance its unitholders’ value.
“Institutional strength prevailed through the changes in leadership. Each CEO was supported by the high powered team that delivered the results and each respective CEO had their strength and delivered these results.
In the span of two years, PNB saw three changes in its CEO that include Datuk Abdul Rahman whose stint lasted from 2016 to 2019, and he was replaced with Jalil Rasheed in October 2019.
Under Abdul Rahman’s stewardship, he had mapped out a six-year PNB Strategic Plan for 2017-2022.
Then under Jalil the fund’s sustainability roadmap was enhanced.
After nearly nine months into the job, Jalil relinquished his position and was replaced by Ahmad Zulqarnain Onn, who hailed from Khanazah Nasional Bhd, in July this year.
Zeti was appointed as chairman of PNB group chairman on July 1,2018, replacing Tan Sri Abdul Wahid Omar, who had served from August 2016 to June 2018.
For the first time ever in 20 years, PNB is bridging its annual Minggu Saham unto digital platforms. Dubbed as Minggu Saham Digital (MSD), Zeti says the event aims to attract every segment of Malaysians population from millennials to the matured population to bring awareness to financial management, from savings to investments to enhance wealth.
The event will be a seven-day live stream programme from Nov 18 to Nov 24 with various types of content including educational forums and webinar series, as well as interactive programmes such as game shows, cooking shows, science experiments, a virtual treasure hunt and a face mask design competition.
At the launching of the MSD on Thursday, Finance Minister Tengku Datuk Seri Zafrul Tengku Abdul Aziz said financial management and planning are more important now than ever at both the individual and family levels especially the uncertainties created by Covid-19.
“It’s never too late to save and invest wisely for future financial security. MSD is also timely to impress upon the public the importance of financial awareness among Malaysians, and this digital approach makes it all the more convenient to make the most of what PNB has to offer, ” he said during his speech at the virtual launch of the MSD.
He pointed out that the pandemic has seen the country’s household debt to GDP increase to a high of 87.5% as of June this year.
Quoting the National Statistics Department, Tengku Zafrul said 7 out of 10 self-employed individuals have savings of less than a month.
He said EPF data also shows that more than half of contributors who are one year from retirement age have savings of less than RM50,000.
‘This means that they will have an income of only RM200 a month in retirement life, ” Tengku Zafrul said.
Echoing Tengku Zafrul, Zeti said that one of the important purposes of savings is to prepare for the rainy days.
“If u don’t have savings, how can you invest and that will increase indebtedness.
“It is very important as a nation, we save and Malaysia has been a high savings nation. That is how it finances our growth and development, ” she says.
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