More impairments on the cards as GLICs, GLCs clear their books

An expert expects the revamp of GLCs will facilitate the govt’s effort towards creating an effective economic policy


State-owned companies are expected to continue to make provisions for impaired assets, dragging their financials and hitting their shareholders, including fund managers, in the near future.

Khazanah Nasional Bhd surprised the market with a massive RM7.3 billion in impairments — more than half of which was contributed by its wholly owned subsidiary, the loss making national carrier Malaysia Airlines Bhd.

The state-owned fund reported a loss before tax of RM6.27 billion in 2018 as the sovereign wealth fund removed the assets which had plummeted compared to its book value.

In the final quarter of 2018, FGV Holdings Bhd and Axiata Group Bhd made hefty provisions, dragging the companies into the red for the full-year results.

FGV, the world’s largest crude palm oil producer, posted a net loss of RM1.07 billion for the financial year ended Dec 31, 2018, after recording total impairments of RM966 million.

Axiata, which has Khazanah as a major shareholder, posted a net loss of RM5.03 billion for the January through December 2018 period after impairments and amortisation of RM7.64 billion. Its shares also took a beating from a 52-week high and erasing billions in market capitalisation.

But impairments are required to reflect the true value of the assets owned by the companies. Stateowned energy company Petroliam Nasional Bhd (Petronas) recorded billions in net impairments after the 2014 crude oil price rout.

Industry experts expect more government-linked companies (GLCs) to clean their accounts and provide for net impairments, as almost all of these firms are being helmed by a new management team.

“All of the problems are now coming out of the woodwork,” Universiti Malaya political economist Prof Dr Edmund Terence Gomez told The Malaysian Reserve.

He said the recent financial disclosures offer insights into the problems and complications of government-linked entities.

“This is why we have been calling a review of the whole government-linked investment companies (GLICs)/ GLCs framework which comprise a complex ensemble of not only state-owned companies, but statutory bodies and agencies as well — all these institutions are classified as GLCs.

“There are many issues that need to be addressed. One is a reform or even a review of the decision making process at GLCs, and second, is what are the roles of these different institutions? We need a complete review now,” Gomez said.

He expects the restructuring of GLCs will facilitate the government’s effort — led by the Economic Action Council — towards creating an effective economic development policy.

However, Gomez said he expected this plan to be realised sooner with the Council of Eminent Persons.

“This was supposed to be done within 100 days,” he said.

Asian Strategy and Leadership Institute’s Centre for Public Policy Studies chairman Tan Sri Dr Ramon Navaratnam (picture) said the losses posted by Khazanah and others point to a need for a major review of the government’s involvement in the private sector.

“The government’s attitude towards GLCs has to be reviewed. Do we need them in this shape, size and form, or should we review our policies on the goverment’s involvement in the private sector?

“We can’t continue this way. If it was a private company, it would have gone bankrupt,” Ramon said, adding that it is imperative to move away from the protective mentality of GLCs.