TWO weeks ago, former prime minister Najib Razak led a chorus of calls asking the government to rescue Sapura Energy Bhd, which is facing imminent collapse due to its huge debt burden. As reasons for the bailout, he cited national interests and the loss of jobs of thousands of workers and suppliers. 

Najib is now set to debate the matter with the leader of the opposition coalition at a yet-to-be fixed date.

But which government in its right mind would risk injecting billions of taxpayers’ money into a private company? 

The government has a woeful track record with almost zero success in rescuing business entities in the past 50 years. 

Federal government bailouts for government-linked-companies (GLCs) have cost taxpayers an estimated RM85 billion over the last 36 years, according to a study entitled “Government Linked Companies: Impacts on the Malaysian Economy” by the Institute for Democracy and Economic Affairs.

The first recorded bailout was of Bank Bumiputra. It had to be rescued by Petronas, not once, but twice, at a cost of almost RM3 billion, in the mid-1980s to early 90s. 

The second known rescue that failed was of Perwaja Terengganu. The company became insolvent in 1988 and a new entity, Perwaja Steel was set up in 1989 to rehabilitate the firm. Bank Bumiputra and the EPF each contributed RM860 million and RM130 million, respectively, to the effort. Perwaja Steel recorded its first accounting profit in 1991. By end of 1995, it was back in the red, having accumulated RM10 billion in debts and losses.

It was sold in 1997 to Maju Holdings and Kinsteel Bhd who formed Perwaja Holdings to acquire 100% of Perwaja Steel. Perwaja Holdings went on to be listed on the Main Board of Bursa in 2008. Six years later, in 2014, Perwaja Steel was forced into receivership. Perwaja Holdings was delisted from Bursa Malaysia in 2017. At the time of its delisting, Perwaja Holdings had outstanding debts of about RM2 billion, of which more than RM400 million was owed Tenaga Nasional Bhd and Petronas Gas Bhd and RM200 million to the government.

Malaysia Airlines Bhd (MAB) continues to require capital injections as the government wonders whether to shut it down, sell it or find a partner for it. In total, the government has injected RM17.4 billion into the ailing airline from 2001 and 2014 and the airline has yet to return toprofitability.

Petronas had to buy automaker Proton from the debt-ridden DRB-Hicom. DRB Hicom was eventually sold to Syed Mokhtar Albukhary, who went on to sell Proton to China’s Geely Holdings from China. 
 
The people had also questioned why public and state-owned enterprises and institutions were used to bail out the Renong conglomerate, once the darling of the Malaysian stock market? Questions were also asked on why Renong could not reduce its debt by divesting its interests in companies that were profitable, particularly those in non-core activities? In the case of Renong, national interest was cited as the reason for the bailout.

Such rescues are now justified as an acceptable strategy. 

Such bailouts are not only a financial burden on taxpayers, its greatest cost to the public is the loss of trust in the government. Unfortunately, the government does not appear to think that is important.

The preferential treatment given to the so-called government-linked companies have social and financial costs.

The growing presence of GLCs is already crowding out private investment. When GLCs are dominant in an industry, investment by private firms is significantly negatively impacted.  

Assuming that capital markets channel funds to their highest value uses and that firms receiving bailouts are firms for which other capital market participants are unwilling to provide capital, the implication is that bailouts of connected firms are even more wasteful than bailouts in generally better developed capital markets to spur economic growth. 

To the extent that bailouts of politically connected firms undermine the role of capital markets in allocating capital, they are likely to have an adverse effect on economic growth.

It is a foregone conclusion from the capitalist’s model that government participation in the ownership and running of a business is a recipe for failure.

Even the World Bank and the International Monetary Fund have canvassed vigorously for outright non-involvement of governments across the world in the business domain, beyond providing the legal cum regulatory framework and environment for promoting private ownership.

The impact of all these has damaged perception of the integrity environment of this country.

With the mounting statistical evidence of the failure of almost every rescue ever mounted by the government, is it necessary to have a company of Sapura Energy’s size as a symbol of the development of Bumiputera capital, especially when it is clear the private firm does not represent the interests of the group? – April 7, 2022.

* FLK reads The Malaysian Insight.

* This is the opinion of the writer or publication and does not necessarily represent the views of The Malaysian Insight. Article may be edited for brevity and clarity.