Wednesday, August 30, 2006

Pantai, Khazanah, Bailouts?
What's Wrong With The Picture?

As reported in The Edge: "Khazanah Nasional Bhd's move to take control of Pantai Holdings Bhd, which holds two government healthcare concessions, will not hurt investor perception of Malaysia, said Second Finance Minister Tan Sri Nor Mohd Yakcop. “This is not a bailout. This is a market-driven solution to a problem where there is a willing buyer, willing seller. Pantai is seen to be in an industry which is viewed as sensitive as it holds two concessionaires. It (Khazanah's taking control) has resolved the issue of this sensitive sector," he told reporters in Putrajaya on Aug 29.

On Aug 28, Khazanah said its wholly owned subsidiary Pantai Irama Ventures Sdn Bhd had bought a 6.6% stake in Pantai and entered into a deal with Parkway to acquire the Singaporean company’s 134.7 million Pantai shares at RM2.65 each. Parkway would in turn acquire a 49% stake in Pantai Irama, which will have a 35% stake in Pantai. Parkway will be the operating partner through a management contract. Meanwhile, Parkway said Pantai Irama would have four directors with two each coming from the Khazanah arm and Parkway. The two Khazanah appointees are its executive director (investment) Ganen Sarvananthan and its senior vice president (investment) Tunku Ali Redhaudin Tunku Muhriz. Parkway's appointees are its chairman Richard Seow and managing director Dr Lim Cheok Peng. Meanwhile, Pantai's share price rose 10 sen to close at the year’s new high of RM2.61 on Aug 29, with a total of 5.56 million shares done. Its warrants also ended 10 sen higher at RM1.48."

Issues To Consider:
1) Not a bailout, yes and no, but the problem with Pantai and Parkway was created when Parkway bought Pantai. Parkway is a foreign entity. The company definitely needed to secure approvals from SC/Bursa and most importantly FIC. What was the FIC doing in approving such a deal without batting an eyelid?? If a company was given a government concession, which materially effected the value of that company, that company is an entity that has "national interest" written all over it. Hence to sell controlling interest in that company is inequitable.
2) That very same issue was what derailed Shin Corp and Temasek's deal early this year - so much so that Thaksin was eventually removed because of the deal. Shin Corp was started based on government concessions, and then to resell the company to a foreign party pissed a whole lot of people.
3) A bailout is ... like TRI and MAS and the government. When the company is bleeding and the owner does not have a clue on how to turn it around. Pantai is not a bailout in that sense, but of a different kind. The Parkway people found themselves in the middle of a storm in a teacup, much like the way temasek found itself embroiled in a stewing pot luck of tom yam goong. The politcal backlash was too much to endure for Parkway, and if Parkway were to maintain its independence, it will have to give up the concessions or sell it cheaply. That would have reduced Pantai's value dramatically. Khazanah stepping in would have been a solution in keeping the value in Pantai and appeasing the backbenchers.
4) This deal mirrors excatly why Malaysia corporate still has some ways to go. We plug holes instead of making sure there are no holes to start with. We do crisis management when better planning and execution would have eliminated much of the need for crisis management. We find second rate solutions to unecessary problems which would not have sprung up with everyone exibiting more professionalism. If FIC did its job, or was allowed to do its job, instead of being railroaded to let the deal pass, such a thing would never needed to happen in the first place. If the authorities in the proper approval stages were allowed to do their jobs, and not being instructed to clear the approval processes, maybe such a thing would not need to happen.
5) Khazanah stepping in needed the a spin from the Second Finance Minister to tell everyone why Khazanah was required to step in. We make life difficult for ourselves. The fact that Khazanah was asked to step in need not happen in the first place, it probably wasn't something they wanted control of. Can you imagine if Khazanah was asked to "step in" once a year to clean up the mess made by other - then after a few years, Khazanah would be holding controlling stakes in companies it did not wanted, and not part of its masterplan. Things like these saps the power and management time from Khazanah to do really fruitful things or maintain its long term investing strategy, without having to deal with unecessray hiccups. Just one of these deals a year can kill the effectiveness of Khaznah. The problem is these type of deals are not that infrequent ... want to go into examples?!!

Please, more professionalism, and no more railroading of certain projects/approval processes because certain people asked for them. Let the people appointed in their respective governing bodies to do their job, instead now they can only shrug their shoulders in exasperation. I love my country, Merdeka ... we have come a long way, no need to do everything the long way ... man!


zentrader said...

Moral harzard kind of thing. If that is market driven, no need to go there and then come back here lah. Go directly for it at the first place. Just my view.

sopskysalat said...


you insight is valuable! i am a frequent reader. wonder if you can post your view on us economy going forward as the current slowdown is lingering in everyone's mind.

also, i find the equity market also find itself in an uncertain state.


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