The debt reduction programme has allowed Khazanah to strengthen its net balance sheet despite the value of its assets remaining at RM130b

By MARK RAO / Pic By RAZAK GHAZALI

KHAZANAH Nasional Bhd aims to slash its mounting debt to about RM40 billion within the next three to five years, largely on asset divestments of non-strategic shareholdings.

Its MD Datuk Shahril Ridza Ridzuan said this is the medium-term plan for the state-owned sovereign wealth fund which had been approved by the board.

“It is really about providing a more sustainable balance sheet for Khazanah for the long term,” he said after Khazanah’s Megatrends Forum in Kuala Lumpur yesterday.

Shahril Ridza, who took the helm at one of the country’s largest funds with major shareholdings in government-linked companies in August last year, had kitchen sinked the fund’s account, embarked on a major restructuring and readjusted its assets and disposals of non-strategic assets.

In the over 12 months under him, the fund had managed to pare down its debt to acceptable levels.

But the former Employees Provident Fund (EPF) CEO said Khazanah would still have some borrowings.

“(This is) not to say that we are not going to have debt at all, but you need to make sure that the debt is correctly positioned to support the assets and entities of Khazanah,” he said.

He added that Khazanah is targeting an approximately three to 3.5 times asset-to-debt cover from the fund’s current level of just over two times.

Shahril Ridza had earlier announced that the sovereign wealth fund managed to pare down its debt from RM55 billion to RM47 billion within a year through asset and investment sales.

The debt reduction programme has allowed Khazanah to strengthen its net balance sheet despite the value of its assets remaining at RM130 billion, he said in an interview with RTM last week.

Khazanah has been making headlines after a slew of asset disposals, including the divestment of its entire stake in an Indonesian toll-road operator for a reported US$500 million (RM2.1 billion) offer.

The fund’s wholly owned unit, Pulau Memutik Ventures Sdn Bhd, has also agreed to sell its entire stake in Prince Court Medical Centre Sdn Bhd to IHH Healthcare Bhd for RM1.02 billion cash.

Khazanah had also disposed of a 16% stake in IHH to Japan’s Mitsui & Co Ltd for RM8.42 billion in November last year.

The fund also entered a stake sale agreement with Malakoff Corp Bhd to sell its entire shareholding in Desaru Investments (Cayman Islands) Ltd for RM288 million in July this year.

That same month, the fund sold the office and retail portion of its Singaporean property investment, namely the Duo project, for RM4.7 billion. Khazanah is the majority holder of the assets via its 60%-owned joint-venture company, M+S Pte Ltd.

Economic Affairs Minister Datuk Seri Mohamed Azmin Ali (picture) said the proceeds raised from these stake sales will be reinvested to generate better returns for the fund and the government.

“The money we generate from these sales of assets will be reinvested into other assets and we want to make sure that it will give a better return and profit to Khazanah and, subsequently, to give a better dividend to the government,” he said at the same event.

He added that divestments are normal business deals for Khazanah which has been selling over 100 assets worth approximately RM65 billion over the last 10 years.

Azmin said a debt level of between RM35 billion and RM40 billion is manageable for Khazanah and the fund will identify potential asset sales to achieve the target as soon as possible.

Meanwhile, Shahril Ridza said Khazanah is on track to meet its medium-term strategic and annual business plans, but details of the fund’s performance will be announced at the end of the year.

“But I think where we are today in terms of our debt reduction programme and profit return programme, we are well on track,” he said.

Khazanah targets a return that is at least equal to the Malaysian Consumer Price Index plus 3% on a five-year rolling basis for its commercial fund. This includes stakes in Axiata Group Bhd and CIMB Group Holdings Bhd.

Khazanah’s strategic fund, which includes shareholdings in Tenaga Nasional Bhd (TNB) and Telekom Malaysia Bhd, aims to generate a return that is at least equal to the yield of the 10-year Malaysian Government Securities on a five-year rolling basis.

This target is set by Khazanah’s board and may be reviewed from time to time.

Khazanah has stakes in 14 listed equities domestically and abroad, with its shareholdings in these companies valued at approximately RM57.3 billion as of last week.