Mahathir mulls state control of big Malaysian firms after past moves spooked investors
- Prime Minister Mahathir Mohamad’s administration has sought to make major state-linked firms more efficient to meet promise of lowering living costs
- However, Mahathir walks a tightrope in seeking to overhaul these firms, in sectors such as internet and electricity, without causing an earnings upheaval
Yet Mahathir walks a tightrope as he tries to overhaul state-linked firms that have stifled competition, without causing an earnings upheaval and spooking investors. The US-China trade war that triggered foreign stock outflows across Asia has not helped either – Malaysia’s benchmark index fell 6 per cent last year, the most since 2008.
State operator Telekom Malaysia was the first hit when the country slashed broadband prices as part of an election pledge. That triggered a loss of almost US$1 billion in its market value since May 2018. Now, power firm Tenaga Nasional is bracing for new players as the government moves to open up the retail electricity market. Its shares have slumped 18 per cent since September 2018 when the government first mooted the plan.
“The government’s push for industry specific and procedural reforms aimed at increasing competition and transparency are for the greater good in the long-term,” said Geoffrey Ng, director at Fortress Capital Asset Management. It’s the lack of public education and market engagement that created short-term uncertainty, “resulting in perception of increased policy risk when investing in Malaysia”, he added.
While Malaysians welcomed cheaper internet and the prospect of smaller electricity bills, some of the cost may be borne by state funds Permodalan Nasional and Employees Provident Fund, which are among the biggest shareholders in the companies.
Public pension fund EPF, which owns a 16 per cent stake each in Telekom and Tenaga, said its investment income fell 7.6 per cent to 13.5 billion ringgit (US$3.3 billion) in the third quarter from a year ago due to the decline in Malaysia’s stock market. PNB announced its lowest income distribution since 1990 to unit holders of Amanah Saham Bumiputera, which owns 12 per cent of Telekom and 9 per cent of Tenaga.
“The government should be more cognisant of the impact of policy changes on publicly traded companies and service providers,” said Alexander Chia, head of regional equity research at RHB Bank. That includes consulting stakeholders and giving the market enough time to prepare for the changes “to avoid shocking the system”, Chia added.