A challenging year for EPF
Tunku Alizakri Alias took over the Employees Provident Fund (EPF) as CEO in August last year, a challenging time globally. He advises against comparing the fund’s current performance with that of last year.
EPF has a reputation for delivering above-average returns, to the delight of its millions of active contributors. But recently, its lacklustre performance caught the attention of many.
The fund reported a decline in total investment income for the third consecutive quarter in 2019. According to news reports, it recorded a total investment income of RM13.5 bil for the third quarter ended Sept 30, 2019, down 7.6% from a year ago.
The weak market sentiment and uncertainties surrounding events like the US-China trade war have cast a gloomy outlook over the capital markets and no doubt made a dent on the fund’s investment income.
A breakdown of EPF’s portfolio shows that equities make up 38% of total investment assets while fixed income instruments including loans and bonds take up 51%. Equities continued to be the main driver, contributing RM7.47 bil in revenue, followed by fixed income instruments with RM5.33 bil.
EPF is obligated to declare at least a 2.5% dividend each year and has managed to offer dividend rates above 5.5% annually since 2009. But the volatility this year has likely proven difficult for the fund and market sentiment is not improving any time soon.
Already, there are certain segments of people who look at the fund as a tax, lamenting that it reduces their take-home pay.
The rise of the new economy is also a challenge. The informal sector is growing rapidly and people are dropping off the formal sector to set up their own businesses. How can the fund attract them to contribute? If dividends continue to decline, the fund may soon lose its appeal as a golden nest.
There is no doubt that there’s growing concern over the EPF dividends this year but perhaps we need to remember that as a pension fund, its concern has always been to achieve long-term results. Shouldn’t we set our sights further as we do with any long-term investment?
It is, after all, a saving fund and it should focus on delivering stable returns and not expose itself to investment that promises high returns but comes with high risks. Strategic growth with safe returns should remain priority No. 1.
Tunku Alizakri says that looking back at 1Q 2018, the fund “was breaching record highs and was doing very, very well” but also “the US-China trade war hadn’t really brewed and exploded” at that time. In such a scenario, the fund has to take a careful approach to investment.
Its obligation remains to preserve the value of capital from members’ contributions and to maintain stable and consistent returns over the long term within tolerable risk limits.
It should keep its portfolio diversified and balanced as investment income from overseas assets can help to cushion the decline in income from the domestic equity portfolio.
Most global equity markets saw a recovery from the lows seen in 4Q 2018, partly due to some indications of progress in the US-China trade talks, steadying the income contribution from international equities.
EPF could also continue to leverage on good buying opportunities that will arise during any market downturn, looking out for assets with sound fundamentals and good cash flow that can add long-term value to its portfolio.
Recently, the fund’s involvement in plans to sell off highway operator PLUS Malaysia Bhd has also been hogging headlines.
EPF was dealt an unexpected turn when the government decided to reduce average toll charges by 18% across all highways owned by PLUS. The government had also announced plans to study offers to take over PLUS.
Khazanah owns 51% of PLUS and the EPF 49%, following a takeover exercise in 2011 in a transaction valued at RM23 bil. PLUS has contributed significantly to the EPF in terms of financial returns and is considered a strong asset.
The fund needs to ensure that any final resolution protects its members’ interests in its discussions with the government and Khazanah Nasional Bhd and come to a conclusion that recognises the actual worth of this asset as soon as possible. – by Chee Jo-ey
Can Axiata regain trust after failed merger with Telenor?
As Axiata Group Bhd’s chief, Tan Sri Jamaludin Ibrahim was at the front and centre of a potential (and then failed) merger with the Asian arm of Norway’s Telenor ASA.
If the union were realised, Malaysia could have witnessed the birth of a telecommunications juggernaut (MergedCo). Axiata would have consolidated with rival Digi.com Bhd as Telenor is Digi’s largest shareholder with a 45% equity interest. And the MergedCo would see Telenor hold a 56.5% stake while Axiata would get 43.5%.
But this was “an abnormal deal. This is the single biggest M&A transaction since 20 years worldwide except North Asia. The biggest that we have seen,” Jamaludin told the press on Aug 29.
The creation of a complex beast reverberated beyond the investment fraternity. Punters were equally divided. Proponents argued the merger was necessary. There was nowhere else to go but big. The landscape was tightly regulated and competitive. Pricing had become a race to the bottom. Growing average revenue per user demanded consolidation of sorts.
Further, the merger would have been a catalyst for Bursa Malaysia which had already been languishing in the dumps since last year. Once the MergedCo listed, foreign investors would snap up and become net buyers instead of sellers. Or that is what some believed.
Detractors, on the other hand, raised the spectre of anti-competition. Here were two giants with a possible set of “pre-nuptial agreements” that would leave consumers at the mercy of the MergedCo. Competition would no longer exist.
Other factors arose along the way. Geopolitics had to be considered as the MergedCo would operate in a few countries across the region. National and staff interests cropped up, too.
The lunatic fringe, armed with deft social media skills, also weighed in and politicised the entire merger. Some even whispered that Prime Minister Tun Dr Mahathir Mohamad had a heavy hand on the part of Axiata.
And in the front seat, throughout the entire MergedCo rollercoaster ride, was Jamaludin. Everything seemed fine on Aug 29. After a build-up of negative stories on the merger hitting a snag, Jamaludin finally addressed the media. “We are on target. I am optimistic that it can be concluded by early November,” he said that day.
A week later, on Sept 6, he dropped the bomb. The merger was off. The market showed no mercy. Axiata’s share price dove 15% from RM4.88 on Sept 6 to RM4.11 on Sept 10. A combined RM9.28 bil in market capitalisation was wiped off from both Axiata and Digi; the latter taking a softer blow.
Distrust had crept in. Can the market believe him in the future? Jamaludin, during an interview with FocusM right after the merger, took that question head on. “Look at our performance. Sure, we were slightly wrong in our calculations when I said on Aug 29 that we were optimistic. But our performance sells by itself,” he said.
To be fair, Jamaludin has paid his dues. Ever since he took over the reins in 2008, the man had cleaned and scrubbed Axiata of its legacy problems. He also helped arm Axiata with an arsenal of attractive subsidiaries such as edotco, its tower business and long the subject of either an acquisition or an IPO.
Maybe there will be forgiveness. Maybe Axiata’s share price will climb again. Jamaludin’s next move will be one to watch – provided his contract is renewed in March next year. – by Emmanuel Samarathisa
Whipping telcos into shape
Connectivity in Malaysia has always been a sore spot for the people, whether it is due to spotty reception, unstable mobile data, or slow office internet (“Stop downloading large files at the office!”).
To address this, Communications and Multimedia Minister Gobind Singh Deo (pic) has spearheaded the National Fiberisation and Connectivity Plan (NFCP), with the aim to provide a nationwide connectivity that is robust, pervasive, high-quality and affordable to all Malaysians.
The NFCP is targeting a provision of internet connections with an average speed of 30Mbps in 98% of populated areas and Gigabit speeds in selected industrial areas by 2020 and in all state capitals by 2023. It covers satellite connectivity and wireless networks utilising technology such as 5G as part of that plan, to supplement connectivity in areas where fiberisation would not be as efficient.
This, according to the ministry, is in line with the Shared Prosperity Vision 2030, and will allow Malaysians in rural areas to enjoy high-quality, high-speed internet as well, thus helping to bridge the digital connectivity disparity between the urban and rural areas.
As with all initiatives, the NFCP comes with its own price tag, a cool RM21.6 bil over the next five years (ending in 2023). The immediate question here is usually: “Who’s paying? The taxpayers?” and the answer is actually surprising.
The Universal Service Provision Fund will actually be footing roughly half of the bill, which comes up to between RM10 bil and RM11 bil, depending on the split.
“The breakdown for the estimated RM21.6 bil will be roughly 50-50 or 60-40. It’s not really fixed because it’s a rolling action plan and the estimate of the RM21.6 bil comes from our database on the USP fund,” said Malaysian Communications and Multimedia Commission (MCMC) chairman Al-Ishsal Ishak.
The remainder of the bill will be paid by the industry players (i.e. Maxis, DiGi, Celcom Axiata, Telekom Malaysia, TIME, etc) through commercial means.
One particular point of the plan is that it will see the sharing of infrastructure between telco providers. According to Gobind, this will optimise current expenditure and enable the provision of services in a shorter time.
The minister also noted that infrastructure operators have agreed in principle (whatever that means) to implement the sharing of their infrastructure, which covers passive infrastructure like poles and fibre optics.
This pushes a point that Gobind has been making for a while, the need for all quarters to work together to bridge the digital divide.
“To ensure that the NFCP targets can be achieved, there is a need for collaboration among all quarters including the service providers, state governments, ministries and relevant agencies,” he said.
The minister said all menteris besar and chief ministers have already committed to facilitating digital infrastructure development so that all projects planned under the NFCP can be implemented effectively at a lower cost.
Hopefully, the days of stable high-speed internet will arrive soon for Malaysians everywhere. Until then, please be nice and do not download large files in the office! – by Xavier Kong
People and events in 2020 – Part 1
People and events in 2020 – Part 2
People and events in 2020 – Part 3
