Frankly Speaking: Aug 30-Sep 5, 2010

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Nazir on fellowship, not sabbaticalSome people are newsmakers, and CIMB Group Holdings Bhd CEO Datuk Seri Nazir Razak is one of them. Nazir is synonymous with CIMB Group and has been known to make his views heard when he has something to say. So when he sprang a surprise last week saying that he would be taking up an offer from Oxford University’s Centre for Islamic Studies as a Chevening Fellow for the 2010/11 term, it provided grist for the rumour mill.
Understandably, the main questions were: Why would Nazir take up a fellowship at Oxford when he is so busy building CIMB Group into a regional champion, more so when there is still so much to do? Can he run the bank and do the fellowship at the same time without one or the other not getting his full attention? And is he taking a break because his comments about the NEP three weeks ago and his stand on meritocracy are making the powers that be a tad uncomfortable?
Nazir told analysts last week that he would continue to run CIMB Group, and that the fellowship is an opportunity for him to be plugged into the academic world. It will enable him to be more knowledgeable about the Islamic community and Islamic finance. He will remain CEO, and will still be in Kuala Lumpur most of the time as the stint at Oxford is a visiting fellowship and not a sabbatical, which means he can move in and out of the university freely. He will also operate out of CIMB’s London office.
Sources close to Nazir say that taking up the fellowship at Oxford has nothing to do with his recent comments on the NEP and meritocracy as he had accepted the offer from Oxford in June and only made the comments in early August. Rumours, they say, of Nazir, the youngest brother of Prime Minister Datuk Seri Najib Razak, being under political pressure to take a sabbatical are unfounded.
It is good to know that our top corporate leaders still want to better themselves academically, and more importantly, that they are allowed to speak their minds.

No power in I-PowerACE Market-listed I-Power Bhd’s ambition of going into the mobile wireless broadband market is over. Last week, it provided RM95.6 million for doubtful debts and impairment on its investment in associate company Izzinet Sdn Bhd.
Slightly more than two years ago, I-Power acquired a 25% stake in Izzinet for RM27 million cash. The latter was supposed to drive I-Power’s foray into the mobile wireless broadband market. At the time, Izzinet boasted 58 base stations which covered 85% of the Klang Valley.
But even then, there were doubts as wireless broadband services is a competitive segment and companies with small balance sheets would find it difficult to survive. How true that has become!Apart from providing for its investments in Izzinet, which came up to RM20.38 million, I-Power also had to write off doubtful debts of RM71.4 million.
What’s surprising is that for the past two years, I-Power has registered a total turnover of RM39.28 million, which is much lower than the amount provided for doubtful debts. What does this mean?
Were all the sales it accounted for in the last two years not recoverable? Or were the doubtful debts accumulated from 2008 and 2007 when I-Power showed huge increases in revenue?
In 2008, the company saw RM83.3 million in revenue while in 2007, it was RM57.8 million. The two years were also when I-Power undertook two fundraising exercises — a rights issue and a share placement.
Following the corporate exercises, I-Power had cash and cash equivalents of RM67.4 million as at December 2007. That’s a lot of money for a company listed on the ACE Market. But all that money has not been put to good use. And guess who will bear the brunt of all this? The minorities, of course!

Is the party over?Glove producers have always maintained that they can sustain their profitability because the industry is recession-proof. However, their recent quarterly results, including those of the world’s two largest glovemakers, showed otherwise. Their earnings succumbed to rising latex prices and volatile foreign currency movements.
The glovemakers had argued in the past that any extra costs incurred in their delivery process could be passed on to their customers, hence, they faced no danger of rising raw material prices. However, their recent quarterly financial results showed that this was no easy feat. They would have to take a hit due to the time lag in the process of transferring costs to consumers.
Now the glove producers are boasting that they can pass on as much as 90% of the cost increase to their customers, but will this still be the case when the problem of overcapacity comes into the picture?
The issue of overcapacity is building in the industry, although the players deny it will happen on the grounds that demand growth is faster than supply.
The country’s three largest glovemakers will be raising capacity over the next few years — Supermax by about 70%, Top Glove by 25% and Kossan by 25%. It is said that this new capacity will flood the market that is growing at 8% to 10% annually.
Analysts have estimated that there could be an oversupply of medical gloves as early as next year if there are no new pandemics or health reform schemes.
The problem of overcapacity looms large over the glove producers despite their persistent denial. It may force a price war, which will ultimately drive prices down and shrink profit margins.
Or it may hasten the pace of consolidation in the industry and see the weaker players sell out. So, who says the party for the glove producers will never be over?

This article appeared in Corporate page of The Edge Malaysia, Issue 821, Aug 30-Sep 5, 2010