Malaysia: Selling Down the GLCs

Sources of funds must be getting real limited for the current government of the day. First it was the credit card tax;then they went after the 5% Real Property Gains Text-both very unpopular moves.

Now this. I think this is a good thing.

Call it what you will.In political correctness, this is yet another step in its economic liberalisation efforts to sell down stakes in GLCs (government-linked companies) in a bid to raise revenue and encourage the private sector to drive the economy. It came on the heels of PM Najib's fresh meeting with American fund managers last month where they expressed a need for government investment corporations to divest some shares onto the open market.

The first sell-downs will likely involve property and construction companies held by government investment arm Khazanah Nasional. Funds raised from a sell down would also come in useful for the government which is grappling with a budget deficit even while it is committed to an expansionary fiscal policy to buffer against the global economic slowdown.

It is also seen as part of a series of economic reforms being undertaken by the Najib administration which included the lifting of ethnic quotas in selected sectors of the economy and capital markets earlier this year.

According to Finance Minister II Ahmad Husni Hanadzlah, private investment in Malaysia is now at less than half the pre-Asian financial crisis levels and the country is also suffering from a continuous outflow of capital. A full or partial divestment of government holdings in GLCs, which rank as among the largest public-listed companies, will likely be viewed positively by foreign investors who tend to be attracted to companies with large market capitalisations.

"A sell down in the GLCs will be good for liquidity," says Chris Eng, head of research at OSK.

Among the property companies that Khazanah has substantial stakes in include UEM Land, Putrajaya Holdings and STLR. Its collection of infrastructure and construction companies include Plus Expressways, UEM Group, UEM Builders and Opus International Group.

Critics of GLCs have also long argued that the government should not get involved in business and compete with the private sector but should instead concentrate on improving the economic climate and regulatory framework.[No one listened to this in the past.]

While it might make sense for the government to have a stake in companies in strategic sectors such as utilities, critics also point out that the government can still retain control without owning too high a percentage of the company.

In a recent speech, Husni said that other reform measures that can be expected include a strengthening of governing institutions, greater meritocracy and the end of direct negotiations for public projects except for security-related matters.

This I have to see since they have cried " Wolf" all the time!