Khazanah Nasional, the sovereign wealth fund of Malaysia, has been instrumental in driving some of the country’s businesses to expand beyond their own borders since before the idea of “regional champions” became fashionable.
Today, with more than US$40 billion in assets from investments that span the globe, Khazanah is reaping the rewards of its regional strategy.
CIMB Bank, the telecoms operator Axiata and the hospital colossus IHH Healthcare are examples of companies that Khazanah has helped, realising that a home market of 29 million would limit the scope of their growth.
“We do not see our companies as Malaysian companies anymore but as regional players, and to be a regional champion one has to figure out where you can add value. If you cannot figure that one out then you will not be successful,” said Tan Sri Azman bin Hj Mokhtar, the fund’s managing director.
But expansion has to be selective and carefully thought out, he said in a talk with Asia Focus. Entering a market that has too many players or is saturated is not productive. Khazanah only enters a market if it sees a need there for its expertise.
Although the company has extensive holdings in Malaysia, outside the country it carefully evaluates the pros and cons and only then makes a decision.
A good example was its interest in bidding for a telecom licence in Thailand recently, but after a careful study and visit, the company decided not to participate. It reasoned that Thailand’s telecom market was relatively competitive and on a good footing, and Khazanah would not have been able to contribute much that was new or different.
“Outside Malaysia, what we do is write things out on a whiteboard: what does that particular country need, be it Indonesia, Thailand or India?” said Mr Azman.
“If we don’t give a country what it needs, then it will not be a lasting thing.”
But Khazanah, which operates through various entities and subsidiary holding companies, is still keen to expand its network across the region in all fields it operates in, be it telecoms, healthcare, the financial sector or others.
Many of Khazanah’s holding companies are familiar names across various parts of the region, but its exposure to Thailand is low with only visible exception of CIMB.
Khazanah has been rumoured to be part of the bidding consortium for two big assets up for sale in Thailand: more than a quarter of Bank of Ayudhya Plc by GE Capital, and a 20% stake sale to a foreign investor by Thai Life Insurance.
Mr Azman would neither confirm nor deny the planned bids, saying only that Thailand was an interesting market that was on the radar screens of the Malaysian fund.
He also noted that in the past his company acquired Bank Lippo in Indonesia and later merged it with Bank Niaga (owned by CIMB), to create a bigger financial player in Indonesia.
He added that even though Khazanah had a minimal presence in Thailand, it was open to discussions with companies that are looking to tap the region’s potential through the nearly 60 companies under the Khazanah umbrella.
For example, a Thai company might seek part of a stake in Axiata in exchange for a regional telecom footprint, and that’s something he would be willing to discuss.
But there are certain criteria that need to be met, apart from the purely financial conditions. Mr Azman uses the phrase “two-way street” to describe the benefits Khazanah or its subsidiary can reap from collaboration between two companies.
“Generally we think that it is a two-way thing, and a long-term relationship. We should be able to work on other things when we look at partnering with someone,” he said.
This was not the case when the company looked at the telecom assets in Thailand where, as Mr Azman put it, “We are looking for where we would get the best bang for the buck”.
Thailand’s telecommunication market is saturated and Axiata currently has a stake of just over 24% in Samart i-Mobile Plc, a distributor of mobile handsets and mobile content.
He commended various Thai companies for their ability to be “regional champions”, such as Minor International Plc, Siam Cement, PTT and others, saying that Thailand’s industries were well advanced in being good regional companies.
So does this mean that Khazanah is not keen on Thailand?
Not necessarily, he says. It simply means that his company has “the patience and the holding power to be patient and wait for the opportunity”.
“We have shown in many instances where we been very competitive in bidding situations across many sectors and geographies,” he explained. “The key is the amount and quality of due diligence and discipline in bidding.
“When that is done, we are quiet cool. If we don’t win, it’s okay. Experience has taught us it’s often a blessing not to win certain bids.”
How many companies are under Khazanah’s umbrella altogether? The answer is complicated.
“That’s a great question. It depends how you count this, but I can tell you that we have 60 major companies under us,” replied Mr Azman.
Those 60 companies are those over which Khazanah has direct control. A company such as Samart i-Mobile in Thailand is not counted as a company in which it holds any stake because SIM is an indirect holding through Axiata.
Citing the example of Celcom, one of Malaysia’s leading telecommunication providers, Mr Azman said that although Axiata owns 100% of Celcom and Khazanah owns 44% of Axiata, the only company that Khazanah accounts for in its books is Axiata, not Celcom.
But managing 60 major companies is not an easy task and keeps the 450 people at Khazanah headquarters, and especially its managing director, fully occupied.
“The job of the CEO is not to enter the kitchen. If I enter the kitchen then that is not a good sign,” he joked when asked how he finds time to manage some of Malaysia’s largest companies with a small team.
The secret is active M&M – management and monitoring – by the team whose role is to do the work that needs to be done and then report to Mr Azman.
In any given situation, he notes, the 80:20 rule always applies: 80% of the revenues are generated by 20% of the company’s assets and 20% of the company’s holdings take up 80% of the management’s time.
But these days Khazanah is devoting a lot more time to incubating businesses that can grow in the future.
This is the way the fund has grown over the years and it hopes to replicate similar successes in the future.
Many of the companies it has at the moment started off small. The outstanding example is IHH Healthcare, which today is the world’s second-largest hospital operator and the biggest in Asia, having expanded its reach from Malaysia
to Singapore, India and Turkey.
Explaining the expansion into Turkey, Mr Aznan said that the local player there wanted exposure in markets across Asia and Khazanah wanted exposure to Turkey; therefore the idea of partnership came about, and the local champion in Turkey got access to Asia’s growing market through a deal that helped both sides.
It is not easy for a company of this kind to avoid being involved sometimes in areas in which it has no expertise. But so far Khazanah has managed to steer clear of businesses it doesn’t understand or are performing poorly.
Because it is a sovereign fund, there are times when there is pressure to take up assets on behalf of the nation, and Khazanah has had its fair share in the past from the handling of Proton (Malaysia’s national car) to the postal services and the national carrier.
Mr Aznan’s policy is to manage the assets by establishing a set timeframe for them to meet certain performance targets — and he can be a very stern taskmaster.
He believes that if Khazanah cannot manage a company and someone else can do a better job, then he is willing to give up control to that new partner. The disposal of the postal services was a prime example.
“In our view if someone else can do a better job than us, then let them do it, for the right price, of course. Our divestment programme out of non-core and non-competitive assets has yielded good returns for us in that regard.”