Friday, 9 September 2011

Formation of GLCs in Malaysia

GLCs are defined as a company in which the government owns at least 20% of the issued and paid-up capital (Ministry of Finance, 1993). The formation of GLCs was carried out progressively through the process of privatisation and corporatisation. Many government departments were first privatised and later transformed into separate wholly-owned government companies (Malaysia, 1986). The privatisation policy was based on two major objectives. First, the policy would speedily achieve the NEP’s goal of providing more avenues for bumiputra businessmen to participate in the economic activities. Second, privatisation would reduce the government’s burden in providing essential services to the public (for example road constructions, health services, energy and power). As such, these services were privatised to bumiputra private companies, which had the right expertise and resources (Malaysia, 1986). This would allow the government to have more time and funds to focus efforts on other much more important tasks. Under the government patronage, these privatised companies thrived and became very successful. Subsequently, many of them were corporatised through the issuing of a portion of their shares on Bursa Malaysia. As the government maintained substantial ownership in these companies, these corporatised entities have come to be known as Government-Linked Companies or GLCs (Treasury Circular, Ministry of Finance, 1993).

Other than corporatisation exercises, the government also obtains substantial ownership in many PLCs directly or indirectly through its investment holding companies such as Ministry of Finance Incorporation (MOF Incorporation) and Khazanah Nasional Berhad (KNB). The government also controls other major institutional funds such as Perbadanan Nasional Berhad (PNB), Employees Provident Fund (EPF), Lembaga Tabung Angkatan Tentera (LTAT), Pilgrimage Fund Board (TH) and Tabung Amanah Kumpulan Wang Pencen (KWAP). A panel of supervisory boards manages all these trust funds and all decisions on their investment strategies are under the authority and jurisdiction of the government. They are collectively known as government investment portfolios (Treasury Circular, Ministry of Finance, 1993). Besides that, all State Economic and Development Corporation (SEDCs) and other state agencies that have at least 20% shareholding in PLCs are also considered as GLCs (Treasury Circular, MOF, 1993).

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