Newsmakers of the year

By KINIBIZ

Many interesting events took place this year but the biggest headline-gripper of the year had been Malaysia Airlines, which faced twin tragic disasters as it grappled with growing losses that has spanned years.

Others include the rise and rise of Liew Kee Sin, former corporate bigwig Halim Saad’s twin setbacks, Khalid Ibrahim’s end as Selangor menteri besar amidst controversy, the Johor Sultan’s rising businesses, and the looming GST.

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For Malaysia Airlines, a year of tragedy and financial turmoil

To say it has been a miserable year for all associated with Malaysia Airlines, is a terrible an understatement.

Record-level losses quarter after quarter and a daily cash burn rate of RM5 million would have made painful reading for the management and investors alike. But that coupled with the two tragic incidents of the missing MH370 and the shot-down MH17 has made 2014 a massively problematic year for MAS.

Their financial woes started in February, after the national carrier announced full year 2013 (FY13) losses amounting to RM1.2 billion. The massive losses showed conclusively that chief executive officer (CEO) Ahmad Jauhari Yahya’s strategy of ‘load active, yield passive’ was not working – prompting suggestions that it was perhaps time for a rethink of strategy.

Unfortunately, financial troubles were only the beginning of the slew of troubles to come.

On Mar 8th, MAS airline MH370 which was en route from Kuala Lumpur to China went missing overnight with 239 people on board. Over the next few days, a frantic (sometimes mismanaged) international search and rescue operation was mounted. Sadly for the families of the passengers and for MAS, almost 9 months later the search has still come to nought.

Then in May, the national carrier posted a first quarter for 2014 (1Q14) net loss of RM442 million, which was almost double that of 1Q13.  The missing plane contributed to depressed passenger numbers.

The impact of MH370’s disappearance was immediate on MAS’ bottomline, with management saying that the incident had a “dramatic impact”. With it becoming increasingly clear that their strategy was failing, MAS’ management also announced that it was indeed undertaking a review of its business plan.

In late June, during a heated annual general meeting, Ahmad Jauhari or AJ as he is popularly known finally admitted that his turnaround plan was not working.

AJ and MAS Chairman Md Nor Yusof said repeatedly that radical and sweeping change was needed, but stopped short of giving concrete answers as to what those were. Even without details, the AGM shifted the focus on MAS back to its financial woes and to what needed to be done to turn its fortunes around.

Sadly, there was another tragedy on MAS’ horizon. On July 17, a flight from Amsterdam en route to KL was shot down from the skies of Ukraine – all on board were killed. Questions again immediately rose with regards to MAS safety policy, despite the fact the airline was flying an approved route and that many aviation experts said MAS did nothing outside standard operating policy.

It was not just MAS, but the Malaysian government that was scrutinised. After the somewhat messy handling of MH370, the government was determined to have better control of the situation. This time it did a significantly better job, both in handling communications and  successfully negotiating with the various factions to gain access to the crash site to retrieve remains and the black boxes.

Sympathising with the national airline, many Malaysians also came out to voice their support for MAS in the face of what many felt was unfair criticism – and as with MH370, MH17 too was embraced as a national tragedy.

On August 21, the remains of the first 20 out of 44 Malaysian passengers returned home and a solemn ceremony with full national honours was carried out to receive the remains. A moment of silence and prayer was also observed nationwide after the last casket was taken of the plane and placed in a hearse.

Over the next few months, several similar ceremonies were held as the rest of the remains returned to Malaysia. Subsequently, all Malaysian passengers were identified, the last of which on Nov 1.

However despite repeated calls by the international community for a cease fire to facilitate investigations, progress continues to be hindered by the volatile situation on the ground in Ukraine.

Meanwhile, MAS’ financial health continued to slide as the eagerly awaited restructuring plan was formulated. In early August, Khazanah Nasional Bhd which holds 69.37% finally announced that it would launch a RM1.4 billion de-listing exercise.

It said that this would “accord (it) greater flexibility to execute a restructuring plan and put in place an appropriate capital structure in view of substantial funding requirements for the next few years.”

In a show of support from the government, Prime Minister Najib Abdul Razak said that he “wholeheartedly supported” Khazanah’s plan and that the revival of the national carrier would require painful steps and sacrifices.

In late August, Khazanah revealed what it had in mind for MAS. The revival mission, the fourth in MAS’ chequered financial history would come at a RM6 billion price tag. Titled ‘Rebuilding a National Icon – The MAS Recovery Plan’, it outlined 12 key steps to be undertaken in the course of the rescue effort.

In what is by far the most daring turnaround plan undertaken in the carrier’s history, most surprising perhaps, was that it involved 6,000 job cuts – a traditionally unpopular move. It also included a migration from the current MAS ( old MAS) to a new company (new MAS).

Khazanah also announced that it was in the process of looking for a CEO to helm new MAS, and was accessing both local and foreign candidates – the latter of which would be a first for MAS.

The plan is to have the new CEO in place by the end of the year and then complete the migration from old to new MAS by July 2015. For Kinibiz’s comprehensive look at the turnaround plan, please go here.

On Nov 6, shareholders accepted Khazanah’s offer of 27 sen per share. The offer received the approval of  70.6% of shareholders by number and 93.4% by value.

This paves the way for the rest of Khazanah’s plan to kick into action. Among the next steps, is expected to be a move to pass the MAS Act in Parliament to smoothen the process of migration from the old to new MAS.

As a long and tumultuous year draws to a close for MAS, there still remains a difficult road ahead. Along with the hope that MAS is never again blighted with such a tragic year in terms of safety, there still remains much to do in terms of locating MH370 and bringing those who shot down MH17 to justice.

As Khazanah’s plan continues to unfold, the process of creating new MAS will also speed up in pace in 2015. And it will be watched keenly, to see whether turnaround 4.0 is finally the charm for the national carrier.

— By Stephanie Jacob

Other contenders:

Liew Kee Sin still hungry for success

Last year KiniBiz named veteran property man Liew Kee Sin as one to watch for 2014. And the man had not disappointed as far as excitement goes, apparently still eyeing the stars after reaching a pinnacle in nearly 20 years.

In January, he tendered his resignation from SP Setia, where he had been boss for nearly two decades, to leave a year before his terms would have ended in April 2015 as per his agreement with majority shareholder Permodalan Nasional Berhad (PNB) in 2012.

The agreement followed a takeover offer by PNB in 2011 which initially took SP Setia by surprise but later proceeded with Liew being a joint offeror. Part of the agreement was that Liew would stay on for three years after the takeover to ensure continuity, though Liew only stayed for two years and left in April 2014.

But Liew’s departure didn’t close the SP Setia chapter in his life completely. In a puzzling development, Liew stayed on as chairman of the Battersea Power Station redevelopment project – which SP Setia is undertaking as a joint venture with Sime Darby and Employees Provident Fund (EPF) – as well as chairman of SP Setia’s Qinzhou project.

This is puzzling as the market was already abuzz with Liew’s links to an emerging Eco World Development Group Bhd, in which his son is a major shareholder by virtue of Liew and wife’s financial backing during a reverse take-over of former Focal Aims Holdings Bhd in September 2013. Despite this Liew had denied to KiniBiz any link to Eco World, saying that the entity is driven by his former associates.

Both prolonged stints are said to be at the request of SP Setia chairman Zaki Azmi in the interest of continuity.

Less than a week after his last day as SP Setia boss, Liew emerged as a board member at Eco World but retains his chairman position at Battersea and Qinzhou to this day. Remarkably PNB had been silent throughout on the apparent conflicts with Liew’s various hats, neither removing him from SP Setia-linked positions — a company which PNB spent some RM6 billion to gain control of back in 2012 — nor addressing questions on Liew’s position.

All this while Liew remains the face of Battersea as the project gains incredible success. And in October, Liew announced that he is proposing Malaysia’s first property-focused special purpose acquisition company (Spac) that would focus on international property markets under the Eco World brand name.

Aiming to raise RM1.9 billion through the blank cheque listing, in one fell swoop Liew would cash in on his name, which after nearly two decades of success with SP Setia is essentially a brand in its own right, for a new global adventure. Liew had been many things over his long journey in the property business but dull is not one of them.

— By Khairie Hisyam

Halim Saad disappointed again

Businessman Halim Saad of UEM-Renong fame, once the blue-eyed boy of Corporate Malaysia, made headlines in March with an unsolicited bid to buy over PLUS Malaysia Bhd from UEM Group and Employees Provident Fund (EPF).

The bid was an audacious second attempt to retake PLUS, which operates eight highways totalling nearly 1,000 kilometres in the nation, after losing the highway operator and his larger UEM-Renong empire in the aftermath of the Asian Financial Crisis (AFC). His first unsuccessful attempt was when PLUS was privatised jointly by UEM and EPF for a total of RM31 billion in 2010.

In this latest bid, Halim claimed he can save the government and the rakyat at least RM40 billion over 24 years, which is the remaining period for PLUS’ concessions. These savings would come from his pledge not to increase toll rates further; to waive the government’s need to compensate PLUS for not raising toll rates in the remaining concession period; and to offer a rakyat-friendly toll scheme that offers discounts for commuters travelling certain distances should his vehicle Idaman Saga Sdn Bhd successfully take over PLUS.

However nothing came out of Halim’s second attempt to regain PLUS. News coverage following his bid indicates that there isn’t political will to allow him to do so, presumably because this would come at the expense of the government, which indirectly co-owns PLUS through state investment fund Khazanah Nasional Bhd which controls UEM, as well as the rakyat’s indirect interests represented by the EPF.

Later in August this year Halim saw a second disappointment as the Court of Appeal dismissed his appeal to reinstate a RM2 billion legal suit against the government, Khazanah Nasional and former finance minister Nor Mohamed Yakcop. The suit, initiated early last year and alleging breach of a settlement agreement that precluded Halim’s exit from UEM and Renong in the late 1990s, was struck out by the Kuala Lumpur High Court in October 2013.

Over 60 years of age now, these two disappointments suggest Halim’s door to return in a big way to Corporate Malaysia is shut, leaving him with only his oil and gas outfit Sumatec Resources, which is relatively of small scale compared to what he had during his heyday. But his tenacity and persistence after all these years is nonetheless admirable — Halim looks down now but is he really out for the count?

— By Khairie Hisyam

Khalid Ibrahim and the Selangor water saga

Abdul Khalid Ibrahim, former Selangor MB (Menteri Besar) hogged the limelight for much of the year with the protracted Selangor water restructuring.

In February, the Selangor and federal governments announced a controversial MoU (memorandum of understanding) for a RM9.65 billion takeover of the four water concessionaires — Syabas (Syarikat Bekalan Air Selangor), Puncak Niaga, Splash (Syarikat Pengeluar Air Selangor) and Abbas.

It was supposed to pave the way for the state to regain full control of water assets and operations after more than six years of wrangling. Instead, the water saga lurched into further turmoil.

The state and federal governments were criticised for  divulging little details about the MoU. The MoU was seen as lopsided, in favour of Putrajaya and many were sceptical of Khalid’s motives for signing the deal.

Khalid was also under fire, especially within his own opposition alliance, for his sudden support for Putrajaya’s controversial RM9 billion Langat 2 water treatment plant (packaged together as part of the MoU). It was previously deemed by the opposition as an expensive and unnecessary project.

Initially, most of the concessionaires did not agree to the RM9.65 billion takeover. That led to the federal government declaring WSIA (Water Services Industry Act), a move that allowed for the forced takeover of the water assets.

Still, Khalid dithered. Both parties, state and federal, started sending conflicting signals.

In the meantime, Selangor was flirting was disaster. Water levels at the dams were at critical levels. A prolonged drought and water rationing made residents anxious. Many businesses held out from investing in the state due to the water problems.

Khalid was eventually ousted by his own party after the contentious “Kajang Move”, but not before a messy political standoff that threatened to jeopardise Pakatan Rakyat’s (PR) hold on the  Selangor administration .

New Selangor MB Azmin Ali is pressuring Putrajaya to reveal details of its agreement with the Khalid administration, which it has seen fit to classify under OSA (Official Secrets Act).

— By Khairul Khalid

The Sultan of Johor’s growing business empire

This was the year that the Sultan of Johor, Sultan Ibrahim Ismail was thrust into the spotlight not for his royal duties, but for his fast expanding business empire.

Many of his business dealings were controversial, to say the least.

A RM4.5 billion land sale to Chinese developers Guangzhou R&F raised eyebrows. The 116 acres of prime of waterfront land in the Iskandar area of Johor Bahru (JB), near the JB-Singapore causeway and designated for high end mixed development, have caused uneasiness among local developers fearing oversupply in an already sluggish property market.

The RM4.5 billion land sale precipitated a backlash against the Sultan of Johor. The proposal of Johor’s new Housing and Real Property Board Bill to give the Sultan of Johor sweeping executive powers in the property industry. The Bill was subsequently shelved due to a public uproar.

He is also the largest shareholder of Esplanade Danga 88 Sdn Bhd, with a controlling stake of 64.4%. The company has a joint venture (JV) with another Chinese developer Country Garden for the Forest City project. It is a 2,000 hectare man-made island, almost half of the size of Putrajaya, near the second link to Singapore.

Forest City made headlines when Singapore expressed its concerns about the project not having a detailed environmental impact assessments (DEIA) report and potentially having detrimental effects to the nearby port of Tanjung Pelepas.

The Sultan also made several other eye-catching moves in the corporate world. He acquired shares in other existing businesses in deals worth more than RM600 million.

After the RM4.5 billion land sale, the Sultan of Johor bought a 15% stake in MOL AccessPortal (MOL) for RM396 million and 20% stake in Berjaya Times Square Sdn Bhd (BTS) for RM250 million.

He also owns a 51% stake in SIPP (SIPP) Energy Sdn Bhd that was awarded the development of Project 4A, a 1,000 megawatt (MW)–1,400MW combined cycle plant in Johor worth an estimated RM6 billion.

He was also reportedly targeting a 10% stake in Petronas’ RM3 billion 1,200 megawatt (MW) co-generation power plant project in Pengerang, Johor.

— By Khairul Khalid

For Malaysians, GST looms large

Malaysian businesses spent the past year preparing for and fretting over the Goods and Services Tax or GST, set to come into effect from April 1, 2015. Throughout the year, there was constant debate over which goods and services should be made GST-free.

Interest groups and politicians lobbied heavily for waivers from the consumption tax, adding to delays in finalising the lists of zero-rated or GST-exempt goods and services. Many people got what they wanted when the expanded lists were made available in October during the annual budget speech. Because many essential goods and services have been made GST-free, the tax now mostly targets discretionary spending.

In its first year, GST is projected to bring in about RM20 billion in indirect tax revenue, more than the current system of sales and service taxes.

Tax professionals say GST is necessary to modernise and broaden Malaysia’s tax system where only about 15% of salary earners pay any income tax at all. Opposition politicians claim the government is not doing enough to curtail spending and that the extra revenue GST will bring in would not be needed  if Prime Minister Najib Abdul Razak’s government was serious about prudent spending.

The Ministry of Finance estimates that GST could add about one-and-a-half percentage points to inflation numbers to bring headline inflation numbers well above 4%. The inflationary effect of GST will be a one-off event but ordinary consumers will no doubt feel the pinch. Inflation rates are already above their long-term average because of ongoing government subsidy rationalisation measures.

— By Chan Quan Min

1MDB, an unfolding disaster?

Financial scandal in the making 1Malaysia Development Bhd caught the attention of opposition politicians, Malaysia’s business media and even a former prime minister this year for delaying the release of its annual audited accounts.

The so-called strategic investment fund’s dubious business activities and unorthodox accounting methods were made plainly obvious when the accounts were finally lodged and made public through the Companies Commission.

Even former prime minister Mahathir Mohamad has come out to criticise 1MDB for financial mismanagement. Instead of increasing national wealth, the fund has contributed to Malaysia’s debt burden, he said.

While sometimes referred to as a sovereign wealth fund, 1MDB is more akin to a highly-leveraged hedge fund as most of its cash was generated from borrowings that totalled well over RM40 billion as of end-March 2014. A portion of the borrowings are backed by government guarantee papers and letters of support. A true sovereign wealth fund would never have to resort to borrowing.

Those borrowings were then used to pay for ageing power plants or placed in low-yielding financial investments overseas such as in the Cayman Islands, a known tax haven where information is particularly difficult to get. The stream of income from these investments in many cases was not sufficient to cover initial borrowing and administration costs.

It was therefore no surprise when 1MDB reported a pre-tax loss of RM670 million for the financial year ended March 2014. Even property revaluation gains – which helped nudge it into profit-making territory the previous year – could not make up for sharply increased borrowing costs.

1MDB is fast becoming a liability to Prime Minister Najib Abdul Razak’s administration. Some politicians in Umno make no secret of their dislike for the unstrategic investment fund.

1MDB is saved from even more flak than it is getting now only because it has hidden many of its financial transactions under convoluted arrangements not easily understood by the ordinary man on the street. Among the people really benefiting from 1MDB’s existence is the throng of bankers and consultants that surround it, happily receiving payment for work done that does not better national development.

— By Chan Quan Min

YTL scion in crony capitalism controversy

In early June, at the Global Malaysia Series forum organised by the Performance Management Delivery Unit (Pemandu), YTL Corporation Bhd managing director Francis Yeoh spoke against Malaysia’s “crony capitalism”, reportedly saying the nation cannot compete globally until cronyism is gone.

According to a news report by The Malay Mail Online news portal, Yeoh said 85% of YTL’s businesses are in Britain, Singapore and Australia because, among others, meritocracy rules in these places. In the same breath Yeoh also denied being former prime minister Dr Mahathir Mohamad’s crony, claiming to have pioneered the independent power producer (IPP) niche in Malaysia’s power sector through innovative thinking.

“The good thing about these three territories, I don’t have to kowtow to the prime minister before I do deal(s), I don’t have to see them even, even after I’ve won the deal,” Yeoh reportedly said. “I turn west because of this transparent, coherent regulatory framework.”

Backlash ensued, primarily through UMNO-controlled Utusan Malaysia that quoted various parties including UMNO members, Malay rights non-government organisations (NGOs) and businessmen as lambasting Yeoh’s remarks, among others warning him not to talk big considering YTL’s history.

YTL was the first independent power producer (IPP) in Malaysia, securing a lucrative deal in the mid-1990s that many claimed was due to YTL’s ties with then-prime minister Dr Mahathir Mohamad. This deal forced then-Tenaga Nasional Bhd executive chairman Ani Arope to resign due to his refusal to sign the power purchase agreement with YTL, which he told KiniBiz was “grossly unfair”. In any event the deal gave YTL its first platform in the power sector, which was followed by overseas expansion afterwards.

Following the backlash, Yeoh, son of YTL Corp founder Yeoh Tiong Lai, eventually apologised for his remarks, claiming that he was misinterpreted and that his remarks were misreported. However YTL was also forced to drop out of a consortium that the company was anchoring which had earlier bagged a direct award for a 1,000-1,400 MW gas power plant, codenamed Track 4A, in Johor. The other members of the consortium are Tenaga Nasional Bhd (TNB) and the Sultan of Johor’s vehicle SIPP Energy Sdn Bhd.

The award itself raised controversy given how it was directly given to the YTL-led consortium, the first such award since the government’s earlier commitment towards competitive bidding in giving out new power project contracts. In the aftermath of the award, two Energy Commission members resigned.

In any case, with the drop-out from Track 4A, YTL was forced to let go of the first power project awarded to an IPP since Dr Mahathir stepped down as prime minister more than a decade ago. And it was apparently because of what Yeoh would now wish he had not said during that Pemandu forum.

— By Khairie Hisyam

MRT Corp CEO’s (aborted) seppuku

Among the interesting news pieces in 2014 is one that came about as a result of the deaths of Mohamad Faruk Khan, Mohammad Alauddin Mollik, and Mohammad Elahi Hossain, three Bangladeshi construction workers who were killed when a concrete span fell on them during the construction works of the MRT station at Kota Damansara.

While indeed tragic, as all loss of life is, what came as a shock was the response by Mass Rapid Transit Corporation Sdn Bhd chief executive officer Azhar Abdul Hamid, who had resigned two days after the tragedy.

According to his statement to the media, that was his way of taking responsibility for the incident, and that he would still be pursuing the matter even if he was no longer CEO. Of course, the resignation, while lauded by some quarters, also drew flak from other, more cynical quarters.

At this time, MRT Corp has decided to not consider Azhar’s resignation just yet, allowing for the investigations to run their course before coming to their decision.

The construction works are a part of the Klang Valley Mass Rapid Transit project, a contract being handled by MMC-Gamuda KVMRT, a joint venture company between MMC Corporation and Gamuda. The project has, as of July 2014, cost MRT Corp RM8 billion.

— By Xavier Kong

Oil price crashes

Crude oil is the high-profile victim of the global commodity rout. Not just oil, prices of copper, iron ore and even precious metals have also taken a beating this year.

The price of benchmark Brent crude has gone from US$110 a barrel in June to only US$70 a barrel, an almost 40% drop in just five months.

Tracking the steep decline in crude oil prices was the many oil & gas companies listed on Bursa Malaysia.

Petronas-related counters Petronas Chemicals and Petronas Dagangan have shed 22% and 50% in value from earlier this year. Major oil & gas companies Bumi Armada, Dialog Group, SapuraKencana and UMW Oil & Gas have between them lost 30% to 60% of their value.

The sharpest fall in oil & gas stocks came earlier this week after Petronas CEO Shamsul Azhar Abbas said on Friday continued weakness in oil prices could have a significant on government revenue. His announcement came after Opec members decided in a meeting not to cut output to stabilise prices. Experts say excess supply is the main cause of weakness in oil prices.

According to Shamsul, a 37% fall in Petronas dividends paid to the government, petroleum taxes and royalties next year was by no means unlikely. Capital expenditure would be cut by between 15% and 20%, bad news for the oil & gas companies that depend on Petronas jobs.

Some analysts say there is a possibility that the decline is oil & gas stocks is exaggerated, given that some of the oil & gas majors claim that their contractual terms and rates are intact and not tied to oil prices.

On the plus side consumers across the world have been the beneficiaries of lower petrol and diesel prices, directly affecting their disposable income.

This effect has not been felt in significant way in Malaysia as the regulated prices for petrol and diesel were increased 20 sen per litre on Oct 1.

A decision was later made to move to a managed float after the real price of subsidised RON95 petrol fell to below the regulated price. The managed float system, effective Dec 1, resulted in a four sen drop in RON95 pump prices to RM2.26

— By Chan Quan Min