EKUITI NASIONAL BHD, which is tasked with growing bumiputera equity participation on the corporate scene through the creation of market-leading companies, has failed to offload the loss-making Burger King franchise in Malaysia and Singapore in which it has invested RM140 million so far.

Two weeks ago, the shareholders of Brahim’s Holdings Bhd (fundamental: 0.35; valuation: 1.2) voted against the proposed acquisition of Rancak Selera Sdn Bhd, which owns the Burger King franchise, for

RM95 million just by a show of hands at an extraordinary general meeting. The board did not even request a poll on the proposal.

This cannot be pleasant news for Ekuinas CEO Datuk Abdul Rahman Ahmad, who was once confident of turning around the fast-food chain with a five-year plan. It has been almost four years now and Burger King is still not making money.

Rancak Selera owns a 95% stake in Cosmo Restaurants Sdn Bhd, the franchise holder of Burger King Malaysia, which also wholly owns Burger King Singapore Ptd Ltd. Both Cosmo and Burger King Singapore were in the red when Ekuinas bought the franchise in 2011.

The fast-food chain is sinking deeper into the red, exerting pressure on Ekuinas to find a buyer for the business. Failing to do so, Ekuinas will have to pump more money into the operation to sustain it.

Set up in 2009 with a seed capital of RM5 billion, Ekuinas has been getting funds from the federal government every year. Based on Budget 2015, it will receive RM650 million this year for investment.

In an email response, Ekuinas says it will stick with its current plan for Burger King Malaysia and Singapore, which is to strengthen the operation in both markets, conduct marketing campaigns to increase the brand’s visibility and roll out a franchise programme to expand its network.

“We drew up a five-year plan after our entry into Burger King in 2011 but now we have revised the plan to three years to make the business profitable. At the same time, we will continue to identify potential buyers,” the company explains.

Ekuinas will also inject capital where necessary to ensure Burger King Malaysia and Singapore achieve their full potential, although it will not reveal the amount needed to keep the business going.

Rancak Selera posted an operating loss of RM50.4 million for the nine-month period ended Sept 30, 2014 (9MFY2014) compared with an operating profit of RM29.8 million in the previous corresponding period, according to Brahim’s circular to its shareholders with regard to the proposed acquisition.

Rancak Selera was only profitable in the financial year ended Dec 31, 2012 (FY2012), when it recorded a gain of RM1.58 million.

Simply put, Ekuinas’ investment in the Burger King franchise has been a test of its ability to manage a business — which other private equity funds don’t do.

Bold though it was in venturing into the fast-food business, Ekuinas should have been aware that it took the franchise holder of the McDonald’s chain 10 years to make a profit. Being a private equity fund, Ekuinas should not hold an investment for that long.

“It [Burger King Malaysia] didn’t develop as fast as we thought it would. We admit that operational capabilities probably need to be better. We may have the best corporate management but in the quick-service restaurant business, it is the frontline that matters,” Rahman told The Edge in a previous interview.

“We have also been affected by intense competition. In the last year or so, because of the boycott of some of our competitors, there has been a price war. That means turning the business around requires a lot more than just growing the outlets like we did.”

Nevertheless, Quantum Angel — the private investment holding company that tied up with Brahim’s to take over the Burger King franchise — is still keen to own the fast-food chain, says Datuk Ahmad Zaki Zahid, a partner in the firm.

“With the right operations, good marketing and more ideal locations, I am confident we can turn Burger King Malaysia around soon. Burger King Singapore has already shown a vast improvement,” he tells The Edge in an email after Brahim’s shareholders shoot down the proposed acquisition.

“Given the financial needs of the business, we will have to find a partner we can work with. But it is, of course, up to Ekuinas to decide.”

Zaki is the former managing director of QSR Brands. He led the privatisation of QSR Brands and KFC Holdings (M) Bhd by Johor Corp, the Employees Provident Fund and CVC Capital Partners.

His remarks bode well for Ekuinas. That said, the private equity fund’s investments are closely watched simply because it is investing the government’s money.

So, stop the bleeding or find a buyer, but hopefully not a government-linked entity.

This article first appeared in The Edge Malaysia Weekly, on March 9 - 15, 2015.  

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