The Prime Minister had announced the setting up of a private equity investment fund under the name Ekuinas (derived from Ekuiti Nasional Berhad) a few days ago.
• Ekuiti Nasional Berhad (Ekuinas) to be established with initial capital of RM500 million, eventually to be enlarged to RM10 billion fund.
• Ekuinas will focus its investments in high growth sectors, in line with supporting the New Economic Model
• Ekuinas will jointly invest with private sector, reflecting a genuine partnership and through a fully commercial approach will ensure meritocracy of participating Bumiputeras
• Ekuinas will complement the other existing funds.
Blitzing through his first 100 days, the PM sought the need to liberalise the economy in the middle of the worldwide recession. Malaysia is not spared from this crippling phenomena as she registered 6.2 negative growth in the first quarter of 2009. The most recent contraction was back in 2001.
The PM endeavours to bring Malaysia out from the recession as quickly as possible using the main thrust of his approach – attracting foreign investments. Working hand in hand with this main thrust is his desire to see more quality bumiputeras venturing into businesses.
While we applaud his good intentions, caution may be the best approach in these challenging times. Good strategy without proper execution will lead to wastage and worse, economic disaster. Case in point would be the dividend payouts by Petronas to the government since 1976.
Interesting to note that for 28 years (1976 to 2003), the total number of dividends paid was RM173 billion while for a mere 6 years (from 2004 to 2009), the dividend payout was RM253.6 billion!
Again, if the nation was not fundamentally strong as at 2003, we could have fallen into a fiscal emergency by now!
Wastage is one of the government’s worst enemy. But in our case, the main perpetrator for this wastage was Pak Lah’s own mismanaged administration. With RM173 billion for 28 years we have had Penang Bridge, PLUS highways, KLCC, KLIA, Sports Stadiums for the Commonwealth Games, Sepang F1 circuit, Putrajaya and many other infrastructures. And those were just infrastructures. Many other fiscal policies were made which required money yet the economy was vibrant while the cost of living was kept low.
What did we get after the government spent RM253.6 billion for the past 6 years? What momentous, physical, good for the people, monuments had the government built? The Crystal Mosque in Kuala Terengganu? Get real. Even the 2nd bridge in Penang is yet to be built and the cost is escalating while the Sultan Mizan Stadium has its roof collapsed barely a year after it was officiated. Did he spend it on intangibles like Islam Hadhari? Mind you, Petronas dividends were not the only money he squandered. Revenue from income tax evaporated into thin air without anything to show for the past 6 years. And yet, he had the cheek to lie to us saying that Malaysia has no more money to develop any mega projects.
We however, do know about all the money laundering schemes hatched during the last 6 years which surmounted to billions of ringgit. For instance, RM10 billions being spent on public transportation in Klang Valley since 2004 but the construction of the new LRT lines have not moved an inch. And who was the prime beneficiary of this amount of money?
The point is, inefficient execution will jeopardise any good intentions. When dishonest people were entrusted to guard our nation’s wealth became even more greedy than they were at the start of their powertrip, things will not go as it was originally intended. No wonder Malaysians were kept at the losing end.
I had high hopes that the new PM will stop relying on people with vested interests which clamour his inner circle. It was often repeated by many people that Dato’ Sri Najib Tun Razak must not be over reliant on advices from people closest to him without getting other balancing views. He must not repeat the mistakes of Pak Lah.
So, when Najib announced the setting up of Ekuinas, I couldn’t help noticing that Ekuinas’ reasons of existence is very much similar to what Ethos’ Capital and the people behind it had wanted back in October 2008. The blogger A Voice made a blistering attack on Omar Ong and Rohana Mahmood in his article back then.
Basically, I am writing this to highlight on the need for the government to put strong monitoring mechanisms to counter check the activities of Ekuinas Berhad. I guess when we had too much unscrupulous people abusing the nation’s wealth under the pretext of ‘good intentions’, one tends to get slightly paranoid. This paranoia is exacerbated by The Edge’s interview with the top two people in Ethos last year. By putting two and two together, I found too much coincidence between this interview and the setting up of Ekuinas.
Firstly, Ethos Capital was established up to look into the private equity business opportunities in Malaysia as both Omar and Rohana saw the tremendous potential for revenue making in this industry.
“ She believes that under the current global economic crisis, private equity can do well, because we are looking at distressed companies, looking at those that need capital injection and those who are unable to grow because they are unable to get funding, so the alternative form of funding, naturally, is private equity fund.
As far as the Private Equity industry and Ethos Capital is concerned, we see value not just in Malaysia but in the region, in fact we are doing this, we are just waiting things out,” she says, adding that Ethos has recently made an investment, paying a valuation that is less than one time price to book. “It was a very good deal… this is a credit crunch, banks are not lending, all we have to do is identify the good deals,” Rohana adds.
The heightening crisis has prompted Ethos Capital to expand its mandate. While before it wanted to focus on value creation and growing smaller companies for an eventual listing, it will now also look at distressed companies in the wake of the financial crisis.”
Secondly, it is widely known that Omar Ong, the Managing Director of Ethos is a close confidant of the PM. This TECHNOCRAT wannabe has the ears of Najib Razak and had successfully ensconced himself into the inner circle of the seat of power. In order to justify the existence of Ekuinas, the MECD must first be abolished. This will make the new private equity fund more relevant. However, it still overlaps other governmental institutions with similar objectives such as MARA, Mavcap, MDV, Tekun, PNS, PNB etc. To this, this blog feels that the EPU Minister needs to clarify the matter in Parliament.
The Edge also stated, “Rohana is already looking to start raising money for Ethos Capital’s second fund end of next year, and this time, the goal for the fund size is lofty — she hopes to raise more than RM500 million.”
Well, perhaps with the imminent appointment of Ethos’ Managing Director as one of the director of Petronas, RM500 million will be an easy feat to achieve.
Nevertheless, the purported objectives of Ethos Capital and Ekuinas are similar enough although the latter will slightly focus more on bumiputera companies. That is why, in certain aspects, I find it quite ludicrous for Malaysia to have so many private equity funds. The birth of Ekuinas makes it a direct competitor to Ethos Capital. With this regards, I hope the people in Ethos’ management will not have a hand in setting the direction of Ekuinas and its funding activities. I pray that this will not be true. The lack of humility shown from the interview did not help the cause of these people in the long run.
Just read Rohana Mahmood’s pompous announcement of Ethos Capital’s intention to dabble in private equity funds . It still lingers in the minds of those who remember.
“People are going to invest in Ethos because of who we know, and also because of what we can do, because I don’t compromise integrity and shareholder value, that is something I will not do, you can kill me, you can bribe me, but I will not do this… so, yes, I make no apologies about knowing who I know, like the Carlyle and Blackstones of the world, but at the end of the day, these guys deliver value. Full stop.”
Her partner, Omar Ong chipped in with another gem.
“I make no apologies for that (being well connected), I think as in anywhere in the world, if you know people, it will help, but what is important is that there must be professionalism, ability to execute. Gone are the days when network alone was important. Frankly, in our business, we need networks regionally, and also a clear plan for value creation, because people will not give money based on network alone.”
Now, the big questions are:
1. Since Ekuinas will not be audited by the Big 4 firms and its books will not be opened to public, who will given the task to manage the monies in Ekuinas?
2. What are the operating agreements or the management agreements between the parties involve in the overall management of the fund? And how much are the commissions and the management fees?
3. Who are the consultants employed for the incorporation of Ekuinas?
4. Who will be the members in its Investment Committee Board?
5. Will EPF/Petronas money be used to finance Ekuinas?
All these questions derived from the hope of not wanting to see another blunder. We do not want to see a case where even a RM2 company can get huge chunk of investment which in the end is just another facade for money laundering by cronies. As the consequence, the objective of achieving an increase in bumi equity will fail yet again. This blog believe the questions above are valid and members of the Parliament should ask for further clarifications on this.