KHAZANAH Nasional’s recent acquisition of a 10% stake in OUC for RMB300 million, or RM150 million, raises the question of what exactly Khanazah‘s investment role, strategy and philosophy are.
Is Khazanah a strategic investor meant to play an active role in bringing about and developing key industries and technologies in Malaysia via mega developments such as the multi-billion Iskandar Malaysia project?
Or is it a strategic investor in Malaysian companies to help provide local firms with the necessary capital and financial backing for success — for example, through its holdings in PLUS Expressways, Malaysia Airlines Systems, Malaysia Airport Bhd, Silterra semiconductors, as well as many failed prior projects such as the Langkawi prawn farming project?
Or has it now become Malaysia’s sovereign wealth fund taking up portfolio investments in businesses overseas without a strategic role in them, as with the10% OUC investment? Khazanah is not experienced in the education sector, nor does it have the scale and leverage to manage its Chinese investments.
Khazanah managing director Tan Sri Azman Mokhtar claimed that the latest investment is part of their China and education services strategy, to give “exposure into the exponential growth potential of China’s education services sector”.
What is Khazanah’s “China and education services strategy”? How much funds has Khazanah allocated to its China or education services portfolio? Or is this investment more “opportunistic” in nature, and not really part of any strategy?
When reviewing the entire list of Khazanah’s existing portfolio companies, there is not a single “education services” provider in sight, whether within or outside of Malaysia. This rules out any synergy between its investee companies.
When reviewing the acquisition details, more questions arise. For not only has Khazanah turned itself into some form of portfolio investor, it has also become a “pre-IPO (initial public offering)” venture capitalist.
Its valuation of OUC at RMB3 billion, with 2009 net profit of RMB52 million, meant that Khazanah paid an astronomical historical price-earnings (PE) ratio of 58 times for its purchase. In addition, the acquisition is valued at more than eight times OUC’s net book value. It is clearly a high-risk transaction, for the investment is predicated on a stock exchange listing in 2013.
As a comparison, at today’s prices for substantially lower risk but equally exciting global growth prospects, Khazanah could have purchased Apple Inc for a PE of 24, Google Inc for a PE of 26, or even Amazon.com Inc at the same PE of 58. Why did Khazanah pick an investment in Hebei, which is expensive, high-risk and illiquid?
Should Khazanah not be focusing its energies on ensuring the success of Iskandar Malaysia, which is today threatened not only with declining investments but also investor withdrawals? Shouldn’t Khazanah’s focus be on ensuring that its RM7.6 billion investment in the project over five years will generate reasonable returns to the government and the rakyat?
Instead, its out-of-the-blue investment in an education services provider all the way in Hebei, China drains the confidence of Malaysians in Khazanah’s ability to professionally manage the nation’s wealth.
DAP national publicity secretary
Petaling Jaya Utara Member of Parliament
11 Feb 2010