Plus: First Government Sell Down of a GLC

The recent sale of 90 million Plus Expressway shares by Malaysia's state pension fund Khazanah Nasional could signal moves by the government to accelerate the reduction of its big holdings in government linked companies (GLCs), so say analysts.

Khazanah's sale of about 90 million Plus shares in the last week of November 2009; to coincide with Premier Najib's visit to New York to pitch Malaysia to investment funds — has raised expectations the government is finally committed to paring its stakes to inject more liquidity into the stock market and to give the private sector more room to maneuver.

Earnings from the disposals will also come in handy, given Malaysia's widening budget deficit, which the government aims to cut next year to 5.6 per cent of gross domestic product from about 7.5 per cent now.

US funds said during meetings with Najib that locally listed companies need to be beefed up to more sizeable levels, noting even when they are sufficiently big, they tend to be too tightly held by government agencies and quasi agencies.

GLCs are involved in all of Malaysia's main sectors and comprise more than a third of the bourse's market capitalisation of US$287 billion (RM975 billion).

Many investors have urged the state to gradually exit, pointing to the detrimental effect its large holdings has on liquidity and trading velocity. Malaysia's trading velocity — total market value traded divided by average market cap — is about 40 per cent, compared with 70-plus per cent for Singapore and Thailand and more than 80 per cent for Hong Kong and Indonesia.

The government appears to be taking greater notice of investor feedback that it ought to step back and reduce its role in the local economy, especially if it wants the private sector to take the reins in reviving the economy and boosting growth beyond the expected 2-3 per cent next year.

Corporate chieftains have long urged the state to play a less interventionist role so local companies and the economy can become more competitive.

One example is AirAsia. Owing to the budget carrier's rapid expansion — in many instances providing competition on the same routes plied by Malaysia Airlines — it has often found itself at odds with MAS as well as Malaysia Airports Holdings — both controlled by Khazanah.

In September, Khazanah sold 55 million or 5 per cent of Malaysia Airports but still retains a whopping 67.7 per cent stake in the company. It holds about 69 per cent of MAS.

Although Khazanah now owns a direct 17.7 per cent interest in Plus, it has an indirect 40.2 per cent stake. “It's good the government is beginning to move on this, but I hope the shares aren't being bought by another agency because then it won't make any difference,” a fund manager said.

Such remarks shows how much trust they have in Malaysia-a land known for rhetoric.