Frankly Speaking: Jul 12-18,2010

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Kuok’s sweet spot elsewhereJust some nine months ago, Kuok group got out of Malaysia’s sugar business after dominating it for some 40 years. It sold all its sugar assets to government-owned agency Felda for RM1.25 billion late last year.

Today, however, it is well on its way to becoming a key global player in the sugar business after announcing plans that its Singapore-listed flagship, Wilmar International, is buying Sydney-based CSR Ltd’s sugar assets under Sucrogen Ltd.

Sucrogen is Australia’s largest raw sugar producer, accounting for half of the country’s total production. According to reports, Wilmar is using Sucrogen to expand its sugar business in Indonesia where the industry in unregulated.

Kuok group’s latest move is certainly food for thought, especially for our policymakers and when the government is trying to lure back Malaysian investors who have gone abroad.

It has become clear that Robert Kuok, the tycoon behind Kuok group, did not sell his Malaysian sugar assets because he wanted to exit the industry altogether. Rather, it must have been because our country’s tightly regulated industry is no longer worth the effort.

Sugar is a controlled trade and raw sugar import is based on government-set quotas to meet 90% of the country’s refining needs. The retail price of sugar is capped and subsidised by the government.

But in the last few years, raw sugar prices have been volatile and rising while retail prices have remained capped. Thus, it is no longer a lucrative business for refiners.

Perhaps if the government had liberalised the sector at the right time, Kuok would not have disposed of his interest in his sugar assets — a refining plant and sugar cane plantations. He might have used his local arm PPB Group, and not Wilmar, as the vehicle of expansion into the global sugar business.

Policymakers will do well to remember that in a fast-globalising world where competition for foreign direct investments is heating up, investments will go to the sweet spots, where there is money to be made, and leave when the hurdles prove to be too much of a hassle.

We are not the only market in the world. Protectionism, subsidies and price controls run contrary not only to a global landscape that is getting more competitive by the day, but they are not in sync with the New Economic Model that will take the country up the value-add and competitive chain.

The sooner we deal with the stumbling blocks, the better.

Ready to competeLegal eagles who discussed the recently gazetted Competition Act 2010 with corporate representatives last week described the new regime as a journey on which Malaysia has just embarked. The implication is that progress towards a level playing field will probably be plodding.

An official of the Ministry of Domestic Trade, Cooperatives and Consumerism underlined this point, saying that the culture of competition has not made its mark yet on the Malaysian economy. This is mainly because policymakers are rather apprehensive about the implications of adopting a competition law while businesses are quite comfortable with the status quo, she added.

Some 19 years and seven drafts later, the Act is finally in place and comes into force on Jan 1, 2012. With the enactment of the law, Malaysia is positioned to take its place among developed economies like Hong Kong, which have a comprehensive competition framework. The characteristics of these jurisdictions include operational efficiency and fair trading conditions.

It is just as well that companies, including government-linked ones, will have to cast off preferential terms and other crutches as this will help draw more investments into the country and the level of governance will improve over time. Surely, it will be most welcome that anti-competitive practices like price fixing or abusing market power will be prohibited?

Nevertheless, it would be naive to expect enterprises that have had it easy so far to quietly acquiesce to give up their advantages without trying to circumvent the rules. In this regard, the provision for market review under the Act, which will allow for investigations into anti-competitive practices, will encourage businesses and the government to conform to the new rules of the game.

It is commendable that the law has been framed to ensure that it is applicable to all commercial enterprises, including government-linked companies. Khazanah Nasional, reportedly, can take the credit for that.

A lesson to be learntThe exit of Limitless Holdings Pte Ltd, a unit of Dubai World, from a joint venture with UEM Land Bhd to develop a parcel of land in Iskandar Malaysia is a stark reminder that foreign investors are not necessarily the best of joint-venture partners in mega-property development projects.

With Limitless out of Iskandar Malaysia, there really is little Middle Eastern money in projects undertaken by the private sector there. The remaining investments from the Middle East, such as Mubadhala of Abu Dhabi, are primarily in property development projects in which Khazanah Nasional, which is a government entity, is the local partner.

Clearly, foreign investors should not be given priority when it comes to property development projects, especially when it is prime land that belongs to the government, such as the Sungai Besi RMAF base, along Peel Road and Cochrane Road.

It has been reported that the Qatar Investment Authority (QIA) has been chosen as the foreign partner to redevelop the Sungai Besi RMAF Airport, while Mubadhala of Abu Dhabi is the partner for the redevelopment of Jalan Peel. In both property development projects, 1Malaysia Development Bhd is the principal developer.

Apart from the foreign names, some local names have been bandied about as investors who would have the first cut of the mega-property development project.

The reasoning for having big names like QIA and Mubadhala is that these entities have the financial muscle and ability to bring in high-net-worth individuals to snap up the properties that are developed in these prime government parcels.But don’t the local property developers have similar capabilities?

When Limitless could not fulfil its role in Iskandar Malaysia, Bandar Raya Developments stepped in. If a mid-sized developer such as Bandar Raya is able to play a role in Iskandar Malaysia in place of a foreign investor, why can’t the doors be opened to all developers to play a role in the development of prime land in Kuala Lumpur?


This article appeared in Corporate page, The Edge Malaysia, Issue 814, Jul 12-18, 2010