By G. Sharmila
Companies under the umbrella of government investment arm Khazanah Nasional Bhd have been investing in Turkey, the most recent being Tenaga Nasional Bhd, who bought a stake in a power plant there. Tiger is concerned about these investments, given how brittle the Russia-Turkey relationship is at the moment.
Last Wednesday, Russian Deputy Foreign Minister Alexei Meshkov reportedly told Russian-language news agency RIA Novosti that “Turkey’s actions, and on the contrary, its inaction on certain issues pose a real threat to the security of the Russian Federation and its citizens”.
This is just the latest in a series of threatening statements Russia and Turkey have traded with each other. The hostility between the two countries began when a Russian air force jet was shot down by two Turkish F-16s around Turkey’s border with Syria on Nov 24.
Since then, relations between the two countries have been anything but amicable, exacerbated by the fact that Turkey has refused to pay compensation to Russia for the downing of the aircraft.
Russia’s statement on Wednesday has sparked fears and a media frenzy over the disagreement between the two countries escalating into conflict, or even war. Like other Tigers from countries that invest in Turkey, Tiger is very, very worried.
Why, you may wonder, is Tiger so concerned? Well for one, media reports say Malaysia is the fifth largest investor in Turkey after Russia, the Netherlands, China and Qatar. A total of US$317 million (RM1.37 billion) was invested by Malaysia in Turkey for the January- June 2015 period alone, according to reports.
Malaysia signed a free-trade agreement with Turkey in 2014, which came into force on Aug 1 this year and reports say it plans to increase its trade with Turkey to US$5 billion by 2018 (bilateral trade between the two nations was about RM3 billion last year).
Now, what would happen to Malaysian firms invested in Turkey if conflict did indeed erupt in that nation? War is a highly unpleasant thought (not to mention highly inconvenient to investors), but the possibility is very real given the fragile relations between Turkey and Russia currently.
Tiger is most in fear for government investment arm Khazanah, which is heavily invested in Turkey via its investee companies Malaysia Airports Holdings Bhd (MAHB), IHH Healthcare Bhd and more recently, state-owned utility provider Tenaga Nasional Bhd (TNB).
In January, MAHB forked out 279.23 million euro to enable it to fully own a Turkish airport called the Istanbul Sabiha Gokcen International Airport, and in June, MAHB chief executive officer Badlisham Ghazali was quoted by The Star saying that the company expected to break even on the Turkish airport investment this year.
As for IHH Healthcare, through Acibadem Healthcare Group it runs 17 hospitals in Turkey. IHH is the largest shareholder of Acibadem, after acquiring a 75% stake in the Turkish healthcare group in 2011.
Last week, TNB signed a conditional share sale agreement to buy a 30% stake in a Turkish energy firm Turkish Gama Enerji AS from Gama Holding AS, International Finance Corp (IFC) and IFC Global Infrastructure Fund Holding (GIF) for US$243 million.
In a statement, TNB said the partnership will give TNB two seats on Gama Enerji’s board with extensive control rights, as well as the opportunity to place key senior TNB professionals, particularly in finance, operations and maintenance, in the Turkish power company’s management.
Azman Mohd
TNB president and chief executive officer Azman Mohd noted in the statement that Turkey is one of the largest power markets in Europe and power consumption has shown an impressive 6% of average annual growth in the last decade.
“By gaining a presence in this key power market through our investment and long-term strategic partnership with Gama Holding, TNB will be able to significantly grow its power generation assets in Turkey, as well as looking to expand further into Mena,” he added.
That may very well be true, however, with the ongoing conflict with Russia, will Turkey remain as attractive a market if the conflict escalates into war? Likely not, which will leave firms invested in Turkey on shaky ground.
(Note: Tiger sent a list of questions to Khazanah on the prospects of their investments in Turkey, however at the time of writing, has yet to receive a response).
With Turkey-Russia relations as fragile as they are, perhaps it may be prudent for TNB to defer its proposed investment to a later date, although Tiger thinks that is unlikely to happen. Unfortunately for TNB, timing is simply not in its favour. As for IHH and MAHB, they are too invested in Turkey to pull out of the country now, so staying put may be their best option.
It is not Khazanah’s fault, really, because no one could have predicted that things would sour between Turkey and Russia. Tiger thinks that investors from the Netherlands, China and Qatar may also feel threatened by the situation, hence if Khazanah was indeed worried, it would not be the only one.
That said, Tiger believes that Khazanah, as well as its investee firms should eye conflicted countries with caution, as they could easily get their fingers burned if things were to go south in those countries. All that glitters is not gold, as they say, and neither does Turkey, at this point in time.
Government-linked corporations (GLCs), in particular, should be more careful than private firms when investing overseas, no matter what mandate they have to abide by to drive growth. Tiger hopes that in future, GLCs make the right assessments when deciding to invest abroad and withdraw their investments if needed be, to prevent themselves from getting burned. Failure to do so will only hamper their efforts to progress and grow.
GRRRRR!!!
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