Frankly Speaking: Aug 2-8, 2010

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Ekovest’s interesting investmentThe debt restructuring of Konsortium Lebuhraya Utara-Timur (Kesturi) is great news for Ekovest Bhd. Last week, it subscribed for junior Islamic debt paper amounting to RM35 million that yields 11% a year.
The paper was issued by Kesturi in its undertaking to restructure loans taken to complete the Duta-Ulu Kelang Expressway (DUKE). Kesturi is wholly owned by Nuzen Corp, which in turn is 70%-controlled by privately held Wira Kristal Sdn Bhd. The other 30% is held by Malaysian Resources Corp Bhd.
The returns of 11% on the paper are good for Ekovest, which is a construction company. The sukuk is not the only investment Ekovest has in the highway. It subscribed for redeemable preference shares amounting to RM164.5 million that were issued by Kesturi to help finance the construction of DUKE.
Kesturi also has a loan of RM780 million that was taken in relation to the construction of the highway.
What is interesting is that Ekovest does not seem to have any equity in Wira Kristal. It is a contractor and to a large extent, the financier of DUKE. On paper, its role stops there. In fact, in its latest annual report, Ekovest states that contribution from the highway construction work will taper off as most of it has been completed.
Since the highway has been constructed, why did Ekovest subscribe for the junior Islamic debt paper? Was it merely for the 11% yield the paper gives?
Also, what really is the role of Wira Kristal in DUKE? Is it the project manager or consultant?
What’s certain is that Wira Kristal has control of DUKE. That will be the case as long as Kesturi meets all its debt obligations. If there is a default, will Ekovest own the highway?

Crater of graftIrregularities in the sand-mining industry in several states in Peninsular Malaysia has been a hotly debated topic over the last several months. It is quite clear from the hullabaloo that the issue has become highly politicised. Unfortunately, this makes it rather difficult to ensure that the remedies that are being proposed are based on good governance rather than political expediency.
Take the illegal sand mining in Selangor and allegations of graft involving state-owned sand mining company Kumpulan Semesta Sdn Bhd (KSSB). The Selangor government has faced a barrage of criticisms for its apparent failure to solve the problems highlighted. However, it is pertinent to note that illegal sand mining has long been a problem in the state, with various quarters alleging that syndicates have been making millions out of it. Indeed, the Pakatan Rakyat (PR) government had established KSSB after coming into power in 2008 to handle the situation. The question is, has it been effective in curbing loss of revenue?
Selangor Menteri Besar Tan Sri Khalid Ibrahim has revealed that state revenue from sand mining has increased from RM2.9 million in 2007 under Barisan Nasonal rule to RM10.3 million (before tax, until June 2010). However, this is a long way from the RM150 million he said would be generated under PR’s watch.
State opposition leader Datuk Seri Mohd Khir Toyo has sought to attribute the increase in demand for sand to the low-cost carrier terminal project. This is ridiculous, to say the least. Projects in Selangor have always been plenty. The fact of the matter is that profits for the state from sand mining under the previous administration were far less.
Moving forward, politics should be put aside. The state should be left to maximise profits from sand mining.
So far, the enquiry into the allegations of corruption in KSSB has opened a can of worms, with revelations of fat bonuses for its directors while widespread illegal mining was still being reported. The Selangor government’s commitment to curbing corruption will become clear before this episode ends.
Much ado about 7% discountIt is disheartening to learn that Unmo Youth chief Khairy Jamaluddin and others have voiced their opposition to the suggestion for Selangor to abolish the bumiputera discount for purchases of houses costing more than RM500,000 and commercial property costing more than RM2 million.
According to the Umno Youth chief, such a move will lead to bumiputera entrepreneurs having problems setting up businesses at strategic locations, and they will only be able to operate their businesses in the outskirts.
Isn’t it obvious that those who can afford homes and commercial properties at those levels no longer need the 7% discount? They may want it, but do they need it? Shouldn’t the discount be given instead to the poor bumiputeras and those who really need a roof over their heads, irrespective of race? Why, the discount to hardcore poor can be even greater.
It is even more disheartening considering that a few short months ago in March, Prime Minister Datuk Seri Najib Razak unveiled the New Economic Model, which is based on an inclusive and sustainable growth approach irrespective of race.
On his blog, Khairy writes that based on 2007 statistics, bumiputera property ownership stood at 15.7%. Bumiputera commercial property ownership stood at 29.2% while industrial property ownership was 3.5%. Shouldn’t the question be, why is property ownership low among the Malays despite the discount?
How can growth be inclusive if those who are poor continue to struggle to afford as basic a necessity as home ownership while the rich bumiputeras continue to enjoy the 7% discount?
The saving grace here is the emergence of middle-class Malays who reject the 7% discount for luxury homes. If there were more of this group, then there really is hope for the poor and destitute in Malaysia.

This article appeared in Corporate page of The Edge Malaysia, Issue 817, Aug 2-8, 2010