Ekuinas’ role in Najib’s politics

Last July, the setting up of Ekuinas was announced by the Prime Minister, Dato’ Sri Najib Tun Razak. Last week, the top management of Ekuinas finally announced their arrival to the scene.

In July, I wrote an article asking 5 relevant questions:

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.

Last weekend, the Chairman and the CEO of Ekuinas gave a few glimpses on how Ekuinas will operate. In case anyone forgets, the real reason for its existence is ‘to boost Bumiputera participation in the economy’.

This is in line with the massive economic reforms and the FIC deregulation which had canceled out the 30% equity requirement of Bumiputera shares in any new listing.

Interesting to note that Najib had swiftly repealed this old economic mechanism with immediate effect. With only 18% bumiputera equity holding, I wonder whether this equity percentage could stay put at 18% without any intervention from the revamped FIC for the past 70 days.

As Ekuinas will only make its first investment in 6 months, I believe the Bumiputera equity holding will further decrease within this 250 day-period of ‘doing absolutely nothing’.

Now, the objective of Ekuinas is to boost the participation of Bumiputera in the economy by investing in Bumiputera companies with high growth potential. As the government saw that the Bumiputera equity owners often cashed out their shares as soon as they received them, then this method (giving pink forms etc) of achieving a respectable Bumiputera national equity holding may not be feasible anymore.

I totally agree.

But can Ekuinas successfully replace this micro level mechanism with a macro level approach instead? Can Ekuinas increase the participation of Bumiputera well above this 18% barrier? Can they push it up to 30% and beyond?

Since any new listings no longer required to have 30% bumiputera equity requirement, and the fact that the new SC  public spread requirement in IPOs will further decrease the bumiputera holding from 25% to 12.5%, Ekuinas will have to shoulder much burden with regards to increasing the Bumiputera equity holding.

Reading Najib’s proclamation of economic reforms, there was no other mechanism besides Ekuinas that could compensate the sudden loss of opportunities for the Bumiputeras. When previous mechanism of wealth generation was abused by a few, it seems that the fate of many will now suffer as the consequence. Everything that the Prime Minister announced at that time was to the immediate detriment of Bumiputera asset ownership. Read this again please.

Yes, we all know that he wanted more Bumiputeras with quality than just quantity. But is Ekuinas the only solution? With the MECD abolished and most of the agencies under it were either absorbed or transferred to other ministries, one could not help but wonder whether there were any wisdom put to it.

The MECD was a one stop centre for all business issues involving and affecting the Bumiputeras. When all of its agencies were absorbed to 8 other ministries, how efficient would each of those director generals in supervising the achievements of the bumiputeras in order to create an overall Bumiputera Commercial and Industrial Community (“BCIC”)?

To me, it would make more sense to have one ministry to concentrate in the grand objective of creating the BCIC (in Malay, it is called Masyarakat Perdagangan dan Perindustrian Bumiputera).

MITI for instance has a more global outlook with regards to the Malaysian economy. Can the minister and his officials in charge be able to focus in a more localised issue that plagues these ex-MECD agencies?

Can Sabri Ismail of the Domestic Trade and Consumer Affairs Ministry be tasked to add franchise development and promotion and vendor development programme into his portfolio as well as taking charge of cooperative development, the Cooperatives Commission of Malaysia and also the Cooperative College of Malaysia?

All the agencies above are vital components in developing the BCIC. Yet he already seems to have his hands full just to counter any consumer products’ price hike.

Raja Tan Sri Arshad Raja Tun Uda (left) and Abdul Rahman Ahmad

I am not criticising Ekuinas for its role in creating quality wealth among Bumiputeras. I believe, it is in good hands especially since the Chairman and its CEO have enough credibility to make it an effective GLC.

I am only criticising the lack of serious effort in compensating/replacing the cancellation of several mechanisms that had relatively proven to be successful, with nothing more than a GLC which will increase only a fraction of the economic wealth of the Bumiputeras.

They are already losing ground and yet the government seemed to be heavy-footed with its proactive actions. The cost of losing 250 days by doing nothing could never be easily gotten back.

That is why, if we look at the current situation, Ekuinas has the unenviable job of trying to increase the wealth of the Bumiputeras to a better level than the 18% we have now. How long will we eventually see the success of Ekuinas? Two years? Five years? Ten years?

How long is the contract of its CEO? Is Ekuinas going to increase the Bumiputera equity holding to 30% before 2013? Is this its KPI?

Ekuinas’ Chairman even said that “through Ekuinas, Bumiputera corporate equity ownership will be institutionalised to ensure New Economic Policy objectives are met on a sustainable basis”.

How can Ekuinas ensure that the NEP’s objectives of eradicating poverty and restructuring the society so that racial identification through economic activities is eliminated, will be met? I don’t think Ekuinas’ roles and responsibilities encompass such huge parameters. Not many Bumiputeras are involved in unlisted companies in the first place.

Another important question is, will Najib still be the Prime Minister in 5 years time?

Naturally, the next Prime Minister may want to discontinue Ekuinas altogether. After the FIC has been repealed and  potentially Ekuinas be thrown to the abyss, what is in store for the BCIC next?

Discarding a few mechanisms and then putting all your eggs into one small basket like Ekuinas without thinking about other prevailing risks is suicidal.

Hence, when Ekuinas is pressured to do something that is beyond its reach and scope, transparency and corporate governance issue kicks in. And the 5 questions at the start of this article may be relevant still.

Especially when we were told that its Investment Committee Board will look at each investment in a case by case basis.  This is understandable. But how strong is the willpower of this Board with regards to any political interventions in its decision-making?

One thing for sure, the CEO promised all of us that:

“In the private equity world, there’s a need sometimes to keep certain information private and confidential for the purpose of competitiveness.

“We’re cognisant of our responsibility that the fund is from the Government and the public, and will ensure sufficient disclosure for transparency”.

Note that the opposition-aligned Malaysian Insider craftily snipped the second paragraph from its reporting in order to create malicious commentary along with its already one sided headline.

Anyway, the PM is playing dangerous politics if he is not taking into consideration all the future scenarios. In the effort to show how liberal he is to the relevant parties, he may end up being a persona non grata to the millions of people who rely on him the most.

It will be far less dangerous and even a positive risk for his political survival if he institute various action plans to further strengthen the BCIC. With the 2010 budget going to be announced soon, we shall see how he prioritise his agenda.

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Addendum:

The blogger Hidup Tuah wrote extensively about the Government’s unit trust fund – Permodalan Nasional Berhad. I believe PNB could have strategised its policies better than the one they are currently implementing. The articles can be read here.