Frankly Speaking

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New national directionWith his maiden budget speech just weeks away, Prime Minister and Finance Minister Datuk Seri Najib Razak has solicited the people’s views on “how the nation could move to become a high income nation” and also measures related to the six National Key Result Areas (NKRA), as indicated on his blog last week. This means action on both policy direction and government performance on the NKRA themes — crime, corruption, quality education, living standards, rural infrastructure and public transport — is promised.Considering that the high-powered National Economic Advisory Council (NEAC), headed by former banker and now Cabinet minister Tan Sri Amirsham Abdul Aziz, had been tasked in May with developing a new economic model to steer the economy from middle income to high income status, the public’s views will be useful, mostly for providing an insight into the people’s expectations of Najib’s administration.Nevertheless, it is important to note that the re-engineering of Malaysia’s growth formula will entail an epoch-making vision to create a nation that belongs in the 21st century. As fate would have it, Najib’s father, second prime minister Tun Abdul Razak Hussien, had launched the nation on its current trajectory when he introduced the New Economic Policy (NEP) in 1971, with the twin aims of eradicating poverty and restructuring society.The NEP’s successes must not, however, blind anyone to the aberrations that it has spawned. To give Malaysia a fighting chance to prosper in the current era, the new economic model which Najib will initiate must be rid of past experiences that are distracting its people. The new dispensation must be exciting and enabling, especially for the young, whose hearts and minds it should capture for the sake of our common future.This is not a time for faint-hearted reservations about the tough journey ahead. It is a time to face the harsh truths about our declining economic vitality, and for a bold response that will unleash the creative energy of the people.Never-ending debtLast week, Lion Corp Bhd announced that its subsidiary Megasteel Sdn Bhd intends to dispose of a 14.3% equity stake, or 102 million shares, in Lion Industries Corp Bhd (LICB) to raise funds to meet its debt obligations.The block of shares in LICB, which has been pledged for loans of about RM1 billion, will be sold to controlling shareholder Tan Sri William Cheng. Considering the carrying cost of investment of RM404 million in LICB, Lion Corp will incur a loss of RM192 million, assuming the shares are sold at RM1.57 apiece. Besides, Lion Corp’s shareholding in LICB will be trimmed to 26.67% after a divestment from 40.98%. As a result, the future earnings of Lion Corp will be lower due to the reduced contribution from LICB.The original investment cost for the block of shares was RM117 million in September 2004. It is not known how the investment cost of the shares has soared to RM404 million over the years. Surely the huge loss from the sales will affect Lion Corp’s balance sheet. Is the share sale deal justified?LICB shares were last traded at RM1.47 last Friday. Cheng, the buyer, will probably argue it is fair that the transaction price is being pegged to the average market price. At RM404 million, LICB’s shares are valued at RM3.96 apiece — a level that has not been seen since November 1997. No one will pay such a hefty price.That said, shareholders will probably ask when Lion Corp will be out of the woods and has a healthy balance sheet. Seasoned investors will recall the group’s massive debt restructuring exercise that was announced with a circular that was as thick as a compact dictionary. That was followed by a slew of restructuring exercises, and along the way, a few companies within the group were delisted from the stock exchange.To put it bluntly, debt problems seem to be a never-ending story in the Lion Corp.Lukewarm response to AS1MLast Thursday, Permodalan Nasional Bhd (PNB) announced that it is extending the Amanah Saham 1Malaysia (AS1M) subscription allocation to all ethnic groups to Dec 31, 2009.PNB’s president and group CEO Tan Sri Hamad Kama Piah Che Othman was reported as saying the extension was to provide more time for people from all ethnic groups to invest in the fund.AS1M, a fixed price fund of RM10 billion units that was launched on July 31 this year by Prime Minister Datuk Seri Najib Razak, is open to all Malaysians, with an allocation of 50% for bumiputeras, 30% for the Chinese, 15% for the Indians and 5% for other ethnic groups.Up to Sept 27, more than 2.5 billion units had been subscribed for by 165,661 investors.This is not the first time the subscription allocation has been extended. In late August, the fund was extended to Sept 30.Normally, the long queues of investors wanting to subscribe for PNB funds would make headlines for days, although the launch of AS1M did look promising at first, with 1.4 billion units sold within the first two days.The relatively poor take-up of AS1M raises a few questions. First, how much longer will the fund be extended? If investors are no longer interested, will they invest in it within the next three months? Granted, some will after accumulating enough funds.Does the lukewarm response indicate that investors are no longer buying into the lack of transparency that comes with fixed price funds? For one, these funds are not required to disclose their daily net asset value as the price is fixed at RM1. There are no monthly updates for unit holders either, whereas private unit trust funds offer this service to investors. Certainly, there is more to the lukewarm response to AS1M than meets the eye.

This article appeared in Corporate page of The Edge Malaysia, Issue 775, Oct 5-11, 2009