KHAZANAH Nasional Bhd is confident it will be back in the black this year following a strategic review of its investments, managing director Shahril Ridza Ridzuan told the Public Accounts Committee (PAC) today.

According to a hansard of the PAC hearing on Khazanah’s losses, the fund had refreshed its mandate and set a new course for the future.

“Very clearly, we are essentially looking at a revamp. Basically the vision over the years has been diluted because Khazanah become involved in a lot of things,” Shahril said. 

To set a clear future direction and to move forward with a clean balance sheet, a decision was made to review Khazanah’s investments and clean up the books.

“(What) We have done basically is relook at the balance sheet, the assets of Khazanah Nasional Bhd and we decided basically that for 2018 we will take in all the provisioning or impairments which need to be taken in so that basically the balance sheet and the P&L are clean and can support the activities of Khazanah going forward.” 

Khazanah reported an impairment of RM7.3 billion for 2018, which is a significant increase from the RM 2.3 billion reported in 2017. It registered a pre-tax loss of RM6.3billion in 2018 compared with a pre-tax profit of RM2.9billion in 2017.

Prior to the restructuring exercise, about 80-85% of Khazanah’s investments were concentrated in nine or 10 companies, which exposes the company to high risk. 

Its portfolio value as measured by its adjusted net worth had also declined by 21.6%.

The divestment of its stake in IHH Healthcare Bhd to Mitsui & Co Ltd at a 20% premium helped to raise RM8billion which has allowed Khazanah to reinvest in other sectors. 

Shahril said Khazanah did well in investing in Singapore-based developer M+S Pte Ltd, which has assets such as a hotel and offices lined up for sale. 

Last year Khazanah invested in Ant Financial, a unicorn and an affiliate company of the Alibaba Group last year .

Khazanah also saw two companies in which it has a stake go embark on an initial public offering (IPO) exercise last year. Phunware was listed on the Nasdaq and Farfetch, on the New York Stock Exchange.

“The profit that we’re getting from these IPOs is not reflected in our P&L for 2018 because we’ve not actually disposed of all the shares yet.

“So this is why I say Yang Berhormat, we are fairly comfortable that in 2019 as we go through the cycle of trading out the assets and investing in new assets, we will be able to recognise a better profit. That is why we say it is comfortable that Khazanah will return to profitability in 2019,” he said. 

Khazanah is also planning to slash its operating cost by 30-40% over the next few years. 

This includes closing offices at home and abroad that are no longer necessary.

He said Khazanah is looking to consolidate its two Kuala Lumpur office into one, and at a cheaper location too.

“Right now we are in KLCC as well as KL Sentral. We will probably close down the one in KLCC and move everybody to KL Sentral. That saves us about RM20 million a year just in rental alone.”

Its commercial fund will see some asset restructuring as it moves away from concentrated holdings to a more portfolio-based and asset allocation-based approach to manage risk. 

There are also tourism-related products laid down for the strategic fund which focuses on regulated industries, in which the government has a say via regulation or ownership. 

“So in terms of our catalytic investments, they include things like Silterra, things like Iskandar Investment and Themed Attractions Resorts and Hotels, where we are working with the government to improve tourism products in Malaysia. These are some of the items in the strategic fund,” he said. 

The global economic slowdown, China-US trade war, US interest rate hikes, Brexit and uncertainty in crude oil prices were among the factors that had affected Khazanah’s earnings last year. 

This was further exacerbated by lower dividend returns from long-term investments.

Khazanah was paralysed for almost six months after the 2018 general election while it awaited the appointment of a new board of directors and management. The inability to function fully during the period had also affected its performance. – October 23, 2019.