Khazanah posts RM6.3b loss as sovereign fund purges books

The unexpected move to clean its books comes as the new management seeks to embark on a refreshed mandate


Khazanah Nasional Bhd posted a RM6.27 billion loss before tax last year, the first negative earnings in a decade as the state-owned fund purged its financials and provided a total of RM7.3 billion for impairments.

The unexpected move by Khazanah to clean its books of all its loss-making activities came as the new management sought to wipe the slate clean and embark on a refreshed mandate.

About half of the RM7.3 billion impairments were due to Khazanah’s wholly owned subsidiary, Malaysia Airlines Bhd (MAB). The 2018’s impairments were RM5 billion higher compared to the RM2.3 billion recorded in 2017.

Khazanah unveiled a RM6 billion turnaround plan to save the loss-making national carrier in August 2014 with the aim of returning the ailing airline to profitability in three years.

However, the carrier remained in the red as of last year despite axing thousands of workers, shelving unprofitable routes and renegotiating hundreds of contracts since the turnaround began in 2014. It is not known why the state-owned firm did not make higher provisions for MAB in the previous reporting years.

Khazanah MD Datuk Shahril Ridza Ridzuan said the fund’s performance in 2018 was impacted by several key global and domestic developments, including fewer divestments, reduced dividend income in an unfavourable market and the impairments.

“Looking at 2019, we’re comfortable with the fact that we should be able to see profitability, given that a lot of clean-up done for 2018 has gone through the books,” he said in Kuala Lumpur yesterday.

Shahril Ridza, who was appointed to helm the sovereign wealth fund in August last year, has been tasked to restructure the state-owned firm which has a realisable asset value of RM136 billion as at the end of 2018.

The move to clean the books is expected to return the fund to profitability this year.

Looking ahead into 2019, Shahril Ridza is optimistic that the fund will be able to return to profitability, given the fact that it had cleaned-up its books in 2018.

“We don’t expect any more large impairments that we have to go though again in 2018,” he said.

A source familiar with the fund told The Malaysian Reserve (TMR) that Khazanah is projected to reverse the loss and register a profit before tax of RM4 billion this year, after their kitchen sinking financial cleansing.

Khazanah is also embarking on a reset of its mandate, with significant changes made to its investments.

For the January-December 2018 period, the fund recorded RM2.8 billion in dividends, down from RM3.1 billion recorded last year. Divestment gains were halved to RM1.4 billion for the year.

Khazanah’s realisable asset value declined to RM136 billion last year from RM157 billion in the previous year, while its net worth adjusted (NWA) dropped to RM91 billion at the end of 2018 from RM116 billion recorded on Dec 31, 2017.

Khazanah had declared a dividend of RM1.5 billion to the government.

Meanwhile, Khazanah has tasked MAB to produce a strategic plan on how it can deliver better returns.

Shahril Ridza said MAB’s review has to address the reality of the competitive aviation industry and that the injection of new funds into the ailing carrier must be based on the review.

“We expect them to have a better realisation of what their core strengths and concerns are. That is what we want, so that we can advise the government properly on what the cost of running a national airline company is, versus the other spin-offs that you get in tourism, business and connectivity.

“If the shareholders decide that this is an activity that they want to support and they are willing to accept the cost, then that’s fine. But it needs to be an informed decision,” Shahril Ridza said.

Meanwhile, Datuk Seri Mohd Najib Razak who was the fund’s chairman, said Khazanah did not report a loss under his watch and the fund’s net asset value had increased 244% to RM82.3 billion in 2017 from RM33.7 billion in 2008.

Najib says Khazanah did not report a loss under his watch (Pic: TMRpic)

“After Pakatan Harapan took over, Khazanah’s value has drastically fallen RM25 billion to become RM91 billion,” he said in a Facebook posting, referring to the NWA. Najib did not touch on the high provisions made by Khazanah or why (was there) absence of such huge impairments during his period as the chairman.

Meanwhile, Institute for Democracy and Economic Affairs CEO Ali Salman said Khazanah’s performance must always be reviewed in light of its dual mandate.

“Khazanah has to invest overseas as a sovereign fund, but also to invest in Malaysian economy, and hence, its financial performance is exposed to risks inherent in the local economy of which a significant chunk comprises government-linked companies (GLCs) such as MAB.

“This year’s loss reminds us that while the social objectives of GLCs are laudable from an equity perspective, ultimately, the government’s role as an investor in businesses is fraught with systematic risks, which amplify during times of political transition,” Ali told TMR.

He said this year’s loss can be used as a reference point to reignite the debate on the role of the government in doing business.