At Invest Malaysia in March last year, at the launch of the New
Economic Model (NEM), Khazanah had outlined a five-point approach to play their
part in executing the NEM.
First, for the GLC Transformation Programme, to diligently stay the course as they
moved into the seventh year of the ten-year programme. Khazanah have outlined
clearly the various programmes and “rainbow-coloured books” and the use of KPIs and
so on in delivering this first principle. Governance and integrity is also part of this track,
and it is critical as the program grows, and even more so as it gets some successes, that
they must remain vigilant against such impostors that can breed complacency and hubris.
Second, to continue with the gradual regionalization programme of their key
companies so as to benchmark and integrate their national champions to compete to
become regional champions and beyond.
Third, to contribute significantly to private sector investments in new areas of growth
for the new economy, especially in targeted sectors including, inter alia, leisure &
tourism, healthcare, education services, Islamic finance, information and
communication technology (ICT) and creative industries.
Fourth, to intensify the collaboration and co-investments between Khazanah and
GLCs and non-GLCs private sector, both at home and abroad.
Fifth, to diligently focus on core competencies. This means continuing with the
orderly exit of non-core and non-competitive assets at the appropriate time. A
corollary of this is for a better, more level playing field and better regulatory
management to emerge, working with the Government and other industry players in
the process.
These are the five key roles of GLCs that they have charted and are indeed implementing,
to not just produce the “Gold” in the New Economic Model era and the new Malaysia Inc. but, to help contribute towards a new and better economic success.
It is in this regard, GLCs are taking the principle of focusing on core competencies, of taking no free lunch, but to instead build a strong kitchen and develop good cooks, continues to be at the top of our agenda. While those are the five specific roles for GLCs under the New Economic Model, indeed, there is now, in addition, a sixth role, specifically for Government Linked Investment
Companies (“GLICs”)
That is the imperative to better optimize the pools of national savings and funds residing in GLICs through a streamlining of investment styles and mandates. Perhaps an early manifestation
of this is the co-investment and streamlining of ownership between EPF and UEM in the ongoing PLUS acquisition and toll restructuring. In this case, with some careful design and proper execution, khazanah will be able to solve concurrently and balance the interests of minority shareholders, bond holders, toll users, taxpayers and indeed better match the different risk appetites and return objectives of two different GLICs. Khazanah is striving to complete this imminently and this efforts reflect an example of innovative and proper rebalancing that serves the interests of all valid stakeholders.
( Source: Adapted from a speech by Tan Sri Azman Mokhtar, CEO of Khazanah Nasional Berhad )
Monday, 26 December 2011
Friday, 16 December 2011
ACCRUAL ACCOUNTING AND FRAUD
Accrual accounting provides many opportunities for unscrupulous managers or employees to commit fraud.
Accounts Receivable
The accounts receivable number that shows up in the asset section of a balancer sheet is almost always an estimate of what accounts are actually collectable. Why is the number an estimate? Because even if management can identify the precise amount its customers or clients owe the business, usually it is less than certain that this is the actual number that will ultimately be collected.
Sometimes the valuation of accounts receivable goes beyond simply making a good faith estimate of collectability. In some situations management may be tempted to commit outright fraud. Because no cash is collected when sales are made “on account”, a corrupt management can record fraudulent additional sales by simply creating fictitious customers and recording fictitious sales.
Another time honored-means of inflating accounts receivable and sales revenue involves “keeping the books open” at the end of the accounting period. In this case the customers and sales are real, but January sales are recorded as December sales so the end of year financial statements include inflated assets and revenue.
Part of the audit function is to test the existence and collectability of accounts receivable and this can serve as a brake on such fraudulent practices. In the audit of large companies with millions of dollars of receivables and hundreds of thousands of individual accounts, the audit process relies on statistical sampling, which usually provides a reasonable, but not exact, estimate of collectable accounts.
Accounts Payable
Management may have a motive to understate payables, as this understates expenses and overstates net income. Usually the amount of payable understatement is not too great and such understatement can easily be detected.
Deferred Revenue and Prepaid Expenses
A manager can overstate income and understate liabilities by treating deferred revenue as earned revenue. Essentially, this shady practice seeks to recognize revenue before it is actually earned. Such mischief often is not easy to detect, because it is not always clear when the earnings process is fully complete.
A manager also can understate current year expenses by claiming they are prepaid expenses. This amounts to a fraudulent claim that payments for a certain service benefit future accounting periods when, in fact they do not.
Fixed Assets
Management can make a firm appear more profitable than it really is by understating depreciation expense. Depreciation expense can be understated by overstating the useful life of assets. Management can also overstate its assets by keeping obsolete and no longer used assets on its balance sheet. Maintaining obsolete assets on the balance sheet also overstates net income because losses on the disposal of these assets are not recorded.
Inventory
Inventory offers a big opportunity for management to manipulate their financial statements. If they want gross profits and, hence, operating profits to appear higher, the value of ending inventory simply needs to be overstated. There are many ways this can be done.
The ending inventory value can be fudged upward by overstating the amount of inventory on hand. Unit costs assigned to ending inventory can be inflated as well. Or obsolete or damaged inventory can be included in the ending inventory count.
Sometimes for income tax purposes, management may want to show lower gross and operating profits. Ending inventory mis-measurement can be used for this purpose as well. In this situation, management seeks to undercount and undervalue ending inventory. As such, accrual accounting is a golden haven for white collar crime to flourish. All auditors should pay more attention on all the above by optimizing " investigative minds " rather than 'auditing minds'. This approach would lessen fraud and enhanced shareholders wealth. The government would also benefit when corporations pay their taxes accordingly.
(Adapted from an article by Michael Sack Elmaleh, C.P.A., C.V.A.)
Accounts Receivable
The accounts receivable number that shows up in the asset section of a balancer sheet is almost always an estimate of what accounts are actually collectable. Why is the number an estimate? Because even if management can identify the precise amount its customers or clients owe the business, usually it is less than certain that this is the actual number that will ultimately be collected.
Sometimes the valuation of accounts receivable goes beyond simply making a good faith estimate of collectability. In some situations management may be tempted to commit outright fraud. Because no cash is collected when sales are made “on account”, a corrupt management can record fraudulent additional sales by simply creating fictitious customers and recording fictitious sales.
Another time honored-means of inflating accounts receivable and sales revenue involves “keeping the books open” at the end of the accounting period. In this case the customers and sales are real, but January sales are recorded as December sales so the end of year financial statements include inflated assets and revenue.
Part of the audit function is to test the existence and collectability of accounts receivable and this can serve as a brake on such fraudulent practices. In the audit of large companies with millions of dollars of receivables and hundreds of thousands of individual accounts, the audit process relies on statistical sampling, which usually provides a reasonable, but not exact, estimate of collectable accounts.
Accounts Payable
Management may have a motive to understate payables, as this understates expenses and overstates net income. Usually the amount of payable understatement is not too great and such understatement can easily be detected.
Deferred Revenue and Prepaid Expenses
A manager can overstate income and understate liabilities by treating deferred revenue as earned revenue. Essentially, this shady practice seeks to recognize revenue before it is actually earned. Such mischief often is not easy to detect, because it is not always clear when the earnings process is fully complete.
A manager also can understate current year expenses by claiming they are prepaid expenses. This amounts to a fraudulent claim that payments for a certain service benefit future accounting periods when, in fact they do not.
Fixed Assets
Management can make a firm appear more profitable than it really is by understating depreciation expense. Depreciation expense can be understated by overstating the useful life of assets. Management can also overstate its assets by keeping obsolete and no longer used assets on its balance sheet. Maintaining obsolete assets on the balance sheet also overstates net income because losses on the disposal of these assets are not recorded.
Inventory
Inventory offers a big opportunity for management to manipulate their financial statements. If they want gross profits and, hence, operating profits to appear higher, the value of ending inventory simply needs to be overstated. There are many ways this can be done.
The ending inventory value can be fudged upward by overstating the amount of inventory on hand. Unit costs assigned to ending inventory can be inflated as well. Or obsolete or damaged inventory can be included in the ending inventory count.
Sometimes for income tax purposes, management may want to show lower gross and operating profits. Ending inventory mis-measurement can be used for this purpose as well. In this situation, management seeks to undercount and undervalue ending inventory. As such, accrual accounting is a golden haven for white collar crime to flourish. All auditors should pay more attention on all the above by optimizing " investigative minds " rather than 'auditing minds'. This approach would lessen fraud and enhanced shareholders wealth. The government would also benefit when corporations pay their taxes accordingly.
(Adapted from an article by Michael Sack Elmaleh, C.P.A., C.V.A.)
ISKANDAR MALAYSIA’s Fifth Anniversary Review Underscores a Track Record of Investments and Delivery
ISKANDAR MALAYSIA moves strongly into its second phase of development, attracting RM77.8 billion worth of investment commitments during its first stage of its 20-year development plan. As at September 2011, more than RM38 billion or nearly half of the investments commitments has been actualized. A number of important developments have either been completed, nearing completion or getting off the ground, underscoring a strong track record of investments and delivery.
Interest among local and foreign investors remains high, with scheduled launches of significant projects and new investments. At the ISKANDAR MALAYSIA’s Fifth Anniversary event held at Puteri Harbour, Nusajaya recently, 12 new investment commitments amounting to RM1.73 billion were announced, from both domestic and foreign investors.
In addition, it is envisioned that RM1.05 billion in projected investments would be generated from the knowledge-economy over the next 7 years. It is particularly significant as the knowledge economy is envisaged to transform not only ISKANDAR MALAYSIA’s economy, but is also a key pillar of Malaysia’s Economic Transformation Programme.
Speaking at the event, Managing Director of Khazanah , Tan Sri Dato’ Azman Hj. Mokhtar said: “After five years, it is clear that ISKANDAR MALAYSIA has achieved a strong momentum with the timely delivery of major infrastructure, iconic developments and catalyst projects.”
“Stemming from traditional and knowledge economies, the opportunities and benefits for the rakyat and businesses in ISKANDAR MALAYSIA in the near future are very encouraging: increased tourist arrivals are expected from 2012 onwards, thousands of students in a thriving education sector, further improved public infrastructure, more than 55,000 estimated new jobs, and enhanced safety and security overall,” added Tan Sri Azman.
The year 2012 will see major developments such as Legoland Malaysia theme park, Marlborough College and EduCity scheduled to come fully on stream. The realisation of these projects has translated strongly into enhanced investor and public confidence in ISKANDAR MALAYSIA, evidenced by increasing domestic and foreign participation and investment into the region.
( Adapted from Latest News at Khazanah Nasional Berhad website )
Interest among local and foreign investors remains high, with scheduled launches of significant projects and new investments. At the ISKANDAR MALAYSIA’s Fifth Anniversary event held at Puteri Harbour, Nusajaya recently, 12 new investment commitments amounting to RM1.73 billion were announced, from both domestic and foreign investors.
In addition, it is envisioned that RM1.05 billion in projected investments would be generated from the knowledge-economy over the next 7 years. It is particularly significant as the knowledge economy is envisaged to transform not only ISKANDAR MALAYSIA’s economy, but is also a key pillar of Malaysia’s Economic Transformation Programme.
Speaking at the event, Managing Director of Khazanah , Tan Sri Dato’ Azman Hj. Mokhtar said: “After five years, it is clear that ISKANDAR MALAYSIA has achieved a strong momentum with the timely delivery of major infrastructure, iconic developments and catalyst projects.”
“Stemming from traditional and knowledge economies, the opportunities and benefits for the rakyat and businesses in ISKANDAR MALAYSIA in the near future are very encouraging: increased tourist arrivals are expected from 2012 onwards, thousands of students in a thriving education sector, further improved public infrastructure, more than 55,000 estimated new jobs, and enhanced safety and security overall,” added Tan Sri Azman.
The year 2012 will see major developments such as Legoland Malaysia theme park, Marlborough College and EduCity scheduled to come fully on stream. The realisation of these projects has translated strongly into enhanced investor and public confidence in ISKANDAR MALAYSIA, evidenced by increasing domestic and foreign participation and investment into the region.
( Adapted from Latest News at Khazanah Nasional Berhad website )
Tuesday, 13 December 2011
INVESTING INTO FOREIGN PROPERTY MARKETS
The three giant institutional investors(IV) in Malaysia, namely Employees Provident Fund (EPF), Lembaga Tabung Haji (TH) and Permodalan Nasional Berhad (PNB) have been venturing into overseas property market lately. All the three IVs are also known as Government Linked Investment Companies (GLICs). GLICs are an entities that invested most of their funds into GLCs in Malaysia. Like the EPF, both TH and PNB are looking to buy into existing premium properties for their yield. All three IVs had targeted London as their first choice, followed by Australian cities. However, it still isn't clear how much both funds are aiming to spend on overseas properties.
Last year, PNB bought an upmarket office block in Brisbane, Australia, called Santos Place, reportedly for more than A$290mil (RM928mil). The 37-storey building has 373,508 sq ft of lettable space with about two-thirds of that leased to Australian oil and gas giant, Santos. To date, the EPF has been the most aggressive among the Malaysian-based IV with most, if not all, its overseas investments in Britain.
The pension fund has so far confirmed the purchase of four British properties costing a total of 634mil (RM3.1bil). It issued a statement last year that it was putting aside 1bil (RM4.85bil) for its British property investments. Most of Tabung Haji's overseas investments to date have been in Mecca and Madina in the Middle East. It also has property investments locally.
PNB manages a fund size totalling RM150bil while Tabung Haji manages funds totalling RM28bil. Sources said both funds were looking to invest in properties primarily in London, Sydney, Melbourne and Perth, although they were open to other locations.
Unlike the EPF, which was putting aside RM1bil for overseas property investments, both PNB and Tabung Haji did not disclose any figures. The only criteria was that, their property investment must be syariah-compliant and has so far been very firm about this.
However, as responsible IVs in Malaysia, they should observe the main objective of their stakeholders. All investments must be really viable and transparent. Before going into the overseas market, risks analysis should be conducted to ensure that invested capital will not be lost along the way. There must be a short, medium and long term goals on each investment made. At the end of the day, these IVs should be accountable to their stakeholders.
Last year, PNB bought an upmarket office block in Brisbane, Australia, called Santos Place, reportedly for more than A$290mil (RM928mil). The 37-storey building has 373,508 sq ft of lettable space with about two-thirds of that leased to Australian oil and gas giant, Santos. To date, the EPF has been the most aggressive among the Malaysian-based IV with most, if not all, its overseas investments in Britain.
The pension fund has so far confirmed the purchase of four British properties costing a total of 634mil (RM3.1bil). It issued a statement last year that it was putting aside 1bil (RM4.85bil) for its British property investments. Most of Tabung Haji's overseas investments to date have been in Mecca and Madina in the Middle East. It also has property investments locally.
PNB manages a fund size totalling RM150bil while Tabung Haji manages funds totalling RM28bil. Sources said both funds were looking to invest in properties primarily in London, Sydney, Melbourne and Perth, although they were open to other locations.
Unlike the EPF, which was putting aside RM1bil for overseas property investments, both PNB and Tabung Haji did not disclose any figures. The only criteria was that, their property investment must be syariah-compliant and has so far been very firm about this.
However, as responsible IVs in Malaysia, they should observe the main objective of their stakeholders. All investments must be really viable and transparent. Before going into the overseas market, risks analysis should be conducted to ensure that invested capital will not be lost along the way. There must be a short, medium and long term goals on each investment made. At the end of the day, these IVs should be accountable to their stakeholders.
Monday, 12 December 2011
G20 companies are growing strongly
GLCs and government-linked transformation companies are playing significant roles in the country's government transformation and economic transformation programmes. G20 is a selection of 20 largest government-linked companies (GLCs) where currently there are 19 companies in the list due to mergers, demergers and other corporate restructuring exercise.
Khazanah Nasional Berhad reported that the G20 under the government-linked companies (GLCs) transformation programme, which is at the final stage now, are on a strong growth trajectory where key financial indicators for 2010 have actually exceeded the highs recorded in 2007.G20 companies net income is expected to grow to RM22.1 bil this year from RM17.3bil last year. In 2010, G20 net income grew 49% year-on-year (yoy) to RM17.3bil. G20's total shareholders return generated a compounded annual return of 16.4% from May 14, 2004 (start of the GLCs transformation programme), outperforming non-G20 FBM KLCI by 1.9%. As at April 1 this year, its market capitalisation has more than doubled to RM353bil since 2004.
G20 delivered return on equity of 10.5% in 2010, up from 7.7% in 2009 while economic profit increased to RM765mil last year compared to an economic loss of RM647mil in 2009.
The GLCs transformation programme that started in 2004 is a ten-year programme where it is now at phase four, the final phase of the programme.
The final phase of the GLCs transformation programme coincides with an exciting period in the Malaysian economic landscape as we charge towards Vision 2020.
Khazanah Nasional Berhad reported that the G20 under the government-linked companies (GLCs) transformation programme, which is at the final stage now, are on a strong growth trajectory where key financial indicators for 2010 have actually exceeded the highs recorded in 2007.G20 companies net income is expected to grow to RM22.1 bil this year from RM17.3bil last year. In 2010, G20 net income grew 49% year-on-year (yoy) to RM17.3bil. G20's total shareholders return generated a compounded annual return of 16.4% from May 14, 2004 (start of the GLCs transformation programme), outperforming non-G20 FBM KLCI by 1.9%. As at April 1 this year, its market capitalisation has more than doubled to RM353bil since 2004.
G20 delivered return on equity of 10.5% in 2010, up from 7.7% in 2009 while economic profit increased to RM765mil last year compared to an economic loss of RM647mil in 2009.
The GLCs transformation programme that started in 2004 is a ten-year programme where it is now at phase four, the final phase of the programme.
The final phase of the GLCs transformation programme coincides with an exciting period in the Malaysian economic landscape as we charge towards Vision 2020.
Saturday, 10 December 2011
RESTRUCTURING OF PROTON HOLDINGS BERHAD
The Star reported today( 11/12/11) that it is all good for Proton Holdings Bhd as its share price put on 89 sen or 24.6% to close at RM4.50, amidst talk that its largest shareholder, Khazanah Nasional Bhd, is divesting its stake in the national carmaker. It was also reported that Khazanah was likely to ask for business proposals from parties interested in its 42.7% stake in Proton.
Last Friday, Proton's shares and warrants were also actively traded with the counter closing 51 sen higher than the previous day. Its share price has shot up by 66% over the past three weeks, reaching a intra-day high of RM4.60 yesterday with 20.16 million shares traded. This is due to the fact that Proton is looking into the possibility of a partnership with an established auto manufacturer with technological capabilities. With Khazanah's entry price of around RM8 and Proton's net tangible asset per share of RM7.62 as of end September, the offer price for Khazanah's 42.7% stake should very well be above the last closing price of RM3.61, which works out to be about RM2bil.
If VW could benefit from DRB-HICOM's acquisition; this would give the German marque exclusive access to Proton's Tanjung Malim plant, accelerating its current Asean manufacturing timeline of producing 50,000 units of VW by 2018. CIMB Research motor analyst Loke Wei Wern said that a restructuring could take place, which could ultimately lead to a strategic partnership between VW and Proton. If this is true, it would be a very positive development for Proton. DRB-HICOM closed 20 sen higher at RM2.20 with 31.754 million shares changing hands.
In 2006 and 2007, Khazanah was in talks with VW to acquire a stake in Proton but the negotiations broke down in 2007 after the Government called them off. Last year, VW expressed interest in re-negotiations with Proton for a potential strategic partnership to localise the production of VW cars, but the deal fell through. Instead, VW partnered with DRB-HICOM.
Last Friday, Proton's shares and warrants were also actively traded with the counter closing 51 sen higher than the previous day. Its share price has shot up by 66% over the past three weeks, reaching a intra-day high of RM4.60 yesterday with 20.16 million shares traded. This is due to the fact that Proton is looking into the possibility of a partnership with an established auto manufacturer with technological capabilities. With Khazanah's entry price of around RM8 and Proton's net tangible asset per share of RM7.62 as of end September, the offer price for Khazanah's 42.7% stake should very well be above the last closing price of RM3.61, which works out to be about RM2bil.
If VW could benefit from DRB-HICOM's acquisition; this would give the German marque exclusive access to Proton's Tanjung Malim plant, accelerating its current Asean manufacturing timeline of producing 50,000 units of VW by 2018. CIMB Research motor analyst Loke Wei Wern said that a restructuring could take place, which could ultimately lead to a strategic partnership between VW and Proton. If this is true, it would be a very positive development for Proton. DRB-HICOM closed 20 sen higher at RM2.20 with 31.754 million shares changing hands.
In 2006 and 2007, Khazanah was in talks with VW to acquire a stake in Proton but the negotiations broke down in 2007 after the Government called them off. Last year, VW expressed interest in re-negotiations with Proton for a potential strategic partnership to localise the production of VW cars, but the deal fell through. Instead, VW partnered with DRB-HICOM.
Malaysia's Capital Market 2012
Reuters reported that the Malaysia's capital market will stay healthy next year (2012) despite the global downturn, led by consolidation in the energy and property sectors and fund-raising by banks to meet heftier capital requirements This was confirmed by JPMorgan's local investment banking head.
However, analysts expect capital market activity to slow to a trickle worldwide in 2012 due to Europe's deepening debt crisis and a lacklustre US economy.
Bursa Malaysia saw 27 listings so far this year which raised RM6bil compared with 29 in 2010 when economic growth accelerated to a 10-year high of 7.2%.
The country's Economic Transformation Programme (ETP), a RM1.4 trillion government initiative to boost investment and raise national income, would offset external weakness and help invigorate the market. This indicates that the government Economic transformation Programme would play a major role in uplifting the country's economy.
Meanwhile, consolidation in major sectors such as oil and gas and property would spur domestic merger and acquisition activity, while banks would look to raise funds to meet Basel III capital requirements, he said.
Recent Malaysian merger and acquisition activity has been led by property, energy and banking firms. UEM Land Bhd took over rival Sunrise Bhd last year while government asset manager Permodalan Nasional Bhd made a bid for SP Setia Bhd in September.
However, analysts expect capital market activity to slow to a trickle worldwide in 2012 due to Europe's deepening debt crisis and a lacklustre US economy.
Bursa Malaysia saw 27 listings so far this year which raised RM6bil compared with 29 in 2010 when economic growth accelerated to a 10-year high of 7.2%.
The country's Economic Transformation Programme (ETP), a RM1.4 trillion government initiative to boost investment and raise national income, would offset external weakness and help invigorate the market. This indicates that the government Economic transformation Programme would play a major role in uplifting the country's economy.
Meanwhile, consolidation in major sectors such as oil and gas and property would spur domestic merger and acquisition activity, while banks would look to raise funds to meet Basel III capital requirements, he said.
Recent Malaysian merger and acquisition activity has been led by property, energy and banking firms. UEM Land Bhd took over rival Sunrise Bhd last year while government asset manager Permodalan Nasional Bhd made a bid for SP Setia Bhd in September.
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