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Malaysia: Time to invest?

   
Tan Sri Francis Yeoh

Excerpts from:
Malaysia: Time to invest?

FinanceAsia, Vol. 8 Issue 5, February 2004

At a roundtable discussion held at the Marriott Hotel in Kuala Lumpur and sponsored by the KLSE, a group of leading CEOs and CFOs from Malaysian blue chip companies gathered to discuss Malaysia as an investment destination. In a wide-ranging discussion, frank views were exchanged on the outlook for the country under Prime Minister Abdullah Badawi and what policies the new leadership should adopt. The underlying message was that all the corporate executives were remarkably bullish about the prospects for their own businesses and for the country as a whole. If what they say comes true, 2004 could be Malaysia's year.

FinanceAsia: How do you think the transition of power from Prime Minister Mahathir Mohamed to Prime Minister Abdullah Badawi has affected Malaysia as an investment destination?

Tan Sri Francis Yeoh: This country is incredible and we have been blessed with great leadership. Because we have tailored all our ideals to pragmatism and dealing with the realities of race and religion, we have an awesome track record of managing prosperity. However the perception of Malaysia is bad.

Our image is distorted in the eyes of the Western world and we are not seen as we think we are. A lot of this is to do with some decisions such as the imposition of capital controls, which were seen as almost heretical. It was very radical at the time, but now even the IMF says it was the right thing to do. However, we lost a lot of momentum under that cloud of bad publicity and we have a lot of work to do to reverse some of the negative images. It is simply not true that Malaysia is a maverick and anti-West. We need to manage perceptions a little bit better than we have done.

FinanceAsia: What policies would you advocate the new leadership adopt to attract more foreign direct or portfolio investors into Malaysia?

Tan Sri Francis Yeoh: We will lose more FDI to China as China becomes the factory of the world. But we have strategies on getting more service businesses here. The big companies that are already here will stay as the economics of doing business in Malaysia are quite all right. But the model of FDI is being modified. You are seeing deals such a National Power in Malakoff and British Telecom in Maxis. In that form they are investing but indirectly through the stock market, especially in services businesses rather than just setting up manufacturing operations here.

Fixed income investors love Malaysia. Malaysia's corporate bonds always sell very well at a premium. For instance, Wessex Water did a £350 million bond with the YTL brand backing Wessex Water. There were some initial questions about the company having a Malaysian owned parent. But we went out to the market to look for £250 million at 95bp and I hoped and prayed that we would get it. But in the end we got £350 million at 90bp and it was three times oversubscribed. Fixed income investors have no problems with Malaysian risk.

The third group are the portfolio managers and equity people. For these people long-term investment is almost an oxymoron. We will get the best of them, those who really want to understand Malaysia's fundamentals and take part in our growth. But they will come in and out. But Malaysia is definitely not a market you can short, so you have to back the market going forward. So to invest, these people have to fundamentally love Malaysia and I don't see that we will have a problem with them. US investors are very under invested in Malaysia and they don't want to be seen to have missed out on our growth. I think $5 billion to $6 billion will come into our markets in new flows in 2004.

Do you envision the government and the private sector sharing the responsibility of bringing in these investments?

Tan Sri Francis Yeoh: The reality is government fears that when you privatize something it is unequally balanced against the public at large who are both consumers and voters. The government's job is to make sure the balance is there for investors to make money and at the same time consumers are happy. In the UK they have a sophisticated regulatory system, which balances the needs of the consumer with the government's needs and the needs of bankers and investors. Prime Minister Badawi from his first day has been focusing on improving services as consumers are voters. The question is how to do it? I have businesses in regulated assets in the UK and Australia and I think we should introduce a modified version of the regulatory frameworks that are found there. If such a framework is in place then the government can more easily sell down its stakes in government owned companies. It would unleash a whole plethora of new financial instruments and economic activities.

That should be done in every utility and service industry. There should be transparent regulators or commissioners always having a powerful say. Prime Minister Badawi needs to make sure that there are essential quality services make available to the public are competitive prices.

FinanceAsia: What is the standard of corporate governance in Malaysia?

Tan Sri Francis Yeoh: That kind of formal, transparent regulatory system already exists when it comes to corporate governance. The Malaysian regulation of companies always scores very highly in international surveys.

We are all going back to school as directors and there are lots of new rules and regulations. But ultimately it is substance not form that counts.

FinanceAsia: Are the Malaysian capital markets liquid enough for companies to operate and expand?

Tan Sri Francis Yeoh: We have been able to do something in this economy that is different from many other Southeast Asian countries that collapsed in 1997. This economy is not geared in US dollars because entrepreneurs like us use the high savings rates of the country to finance infrastructure projects. We borrow local. By sourcing ringgit loans and bonds we cut out a lot of foreign exchange risk. That is why all the world class hotels in this country can charge $100 a night, because we do not have to service US dollar debt. Our liquidity and savings are very high and our entrepreneurs can tap that for growth. It is one of our greater strengths. We have enough liquidity in the system, and by matching long-term infrastructure projects with long term local money, we avoid systemic risk.

We must make the bond market even more liquid. It has grown in leaps and bounds but it is still quite illiquid as the Employees Provident Fund is holding these bonds and not selling in the secondary market. On the longer term the bond market is being developed with breadth and depth so to prevent the systemic risk of borrowing short term to finance long term. If you have long-term infrastructure with a good concession that is well regulated, it will help the quality of bond issues that are out there. This will be very beneficial.

FinanceAsia: So are local companies investing in projects for growth? If so is the economy doing well at the grass roots level?

Tan Sri Francis Yeoh: There are no major dark clouds in the horizon. People are confident of their future and they are consuming. The economy is growing and we have ample liquidity to grow.

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