Tuesday, October 21, 2008

EPF to lend the RM5b to fund Valuecap

The Malaysian Insider reports, Finance Minister Datuk Seri Najib Razak said today the government will borrow RM5 billion from the Employees Provident Fund to fund government investment agency Valuecap Sdn Bhd.

"It's not part of the Consolidated Fund. It's a loan from EPF," said Najib.

The Deputy Prime Minister pointed out that the loan would not be part of the Budget 2009 allocations for spending announced last month.

Really, this is too much. While I'm certain that the so-called loan from EPF will be guaranteed in full by the Malaysian government (together with KLIBOR++ interest, I should hope), I cannot help asking again and again, Is this RM5 billion for main saham really necesary?

A few questions need to be answered by Najib:

1. Will the RM5 billion be used to buy ONLY shares of GLCs?

2. Is the move intended to prop up and window-dress the financial results of Khazanah Nasional?

3. Please explain the multiplier effect that this move will have on Bursa and/or the real economy.

4. How is the EPF loan secured?

5. What are the default clauses to be put into the EPF loan?

6. Will there be a formal loan document?

7. Will the loan document be made public, since ALL non-government employed Malaysians are stakeholders of EPF?

8. When will the loan be repaid?

9. Will there be any interest payable on the loan? If so, how is the interest calculated?

I'm sure there will be more questions by everyone else. For more on Valuecap, see my earlier post Calendaritis there are many informative links there.

UPDATE: Read also this report in The Edge Financial Daily. But do take the initial paragraphs containing the views of fund managers with a huge shovelful of salt since they have a vested interest in seeing more market activity. It is a RM5 billion question whether it is safe to enter the shark-infested cesspool of the stock markets, not just in KL but anywhere.

FURTHER UPDATE: MOF II, Nor Yakcop made a statement that EPF will make a profit from the RM5 billion that it is to lend to Valuecap. But have a look at the the view offered by blogger, MYOP 101, on the returns to Valuecap since 2003.

9 comments:

walla said...

MIA pointed out that since January, Bursa's market value had lost RM357 Billion. It added that 'RM5 billion may be too small and we may need more than RM20 billion to have the synergy for such a task to have an impact on our exchange'.

Meanwhile the Edge reports: 'based on filings with the Companies Commission of Malaysia, Valuecap is very much in the black despite the bearish stock market. As of Dec 31, 2007 it had total assets worth RM7.56 billion and posted an after-tax profit of RM1.1 billion for the year.

As for returns to its shareholders, it has been reported that since its inception to September 2007, Valuecap had paid out a total of RM135 million in dividends...

Nevertheless, based on industry information obtained by The Edge Financial Daily, Valuecap is believed to have about RM4.9 billion worth of investments in 70 companies currently.

These companies are from a variety of segments and include the YTL Group, the IJM group, Malayan Banking Bhd, Hong Leong Bank Bhd, Public Bank Bhd, Tenaga Nasional Bhd, Malaysian Oxygen Bhd, Amway (M) Holdings Bhd and PLUS Expressways Bhd. The list also shows that Valuecap has interest in Real Estate Investment Trusts (REIT) such as Axis REIT and Quill Capital Trust REIT. (See table)

Meanwhile, an exchange-traded fund launched last January by Valuecap’s wholly owned subsidiary, i-Vcap is feeling the effects of the sharp drop in equity prices.

The MyETF Dow Jones Islamic Market Malaysia Titans 25, an exchange-traded fund established in Malaysia, was valued at RM488.28 million (net-asset value of 58.9 sen per unit) on Oct 17, down 40% from its initial value of RM814.6 million (NAV of 93.523 sen per unit) on Jan 28.

The fund, which was billed as the first syariah-compliant exchange-traded fund in Asia, tracks a benchmark index which has fallen 42% for the same time frame.

The fund’s baskets of investments include blue-chip stocks such as Sime Darby Bhd, IOI Corporation Bhd, Gamuda Bhd, KNM Group Bhd and TM International Bhd.

At the fund’s launch, i-Vcap CEO Zainal Izlan Zainal Abidin said the goal of the fund was to allow government-linked investment companies to reduce their direct exposure to the shares.

It is unclear whether the parent company, Valuecap, will be adopting this scheme to invest the RM5 billion from the government indirectly through the MyETF fund or if it would go directly into the market.'

A year ago Business Times opined: '"They have acted as stabilisers more than anything else," he said.

This is done by buying when the market dips. Fund managers said Valuecap probably has a core portfolio of stocks that it bought in 2003 when the market's main barometer was around 600 points.

This was the time when global stock markets were worried about the effects of the US-led war against Iraq.

The Kuala Lumpur Composite Index has more than doubled since then.'

And apparently in August last year: 'Government-linked companies’ (GLCs) stocks came under selling pressure after a government official said it would not prop up the market through its state-run asset management company, Valuecap Sdn Bhd. (Edge)'

So the question is:

if not then, why now?

Anonymous said...

Looks like Dr M is back.

He has got his hands on our hard earned EFP money again.

People what are we to do? Will some one please help us poor hard working Malaysians before we end up paupers in our old age ...please leave our EFP savings alone!!! Hands off!!!

myop101 said...

I think it will be a big mistake. i did a simple evaluation of value cap based on publicly available resources i.e. press releases and did some comparison with CAGRs from KLCI and Temasek.

The last RM4 or so billion invested doesn't look too good I am afraid.

If you are interested, you can check out my entry below.

http://myop101.blogspot.com/2008/10/value-investment.html

Patricia said...

OMG OMG OMG! I just knew it! This is exactly what I was worried would happen, and it has. Sigh.

You know what CT? I am a dumbo about the economy and stuff like that. But your 'tutorials' have kept me abreast with what's going on, so much so that I can not only follow it, but I'm making cool predictions, too.

Ok ok, this one was a no-brainer ;) But, you know what I mean, don't you? It's a compliment lah! Hahahahah!

Pat

TheWhisperer said...

Our money at their mercy again.

5B is for their hanky-panky.

What's new?

Once bitten, Twice shy.

Are we going to keep quiet on this?

myop101 said...

update!

since Nor Mohamed decides to allay our concerns that Valuecap can make good returns from undervalued companies, it makes one wonder why can't EPF do the same since they are allowed to buy shares in the stock market....

again, i did a little analysis on my own... if you are interested that is...:)

http://myop101.blogspot.com/2008/10/why-big-e-why.html

myop101 said...

update!

since Nor Mohamed decides to allay our concerns that Valuecap is such a good investment, it makes one wonder why can't EPF do it on their own?

Did another analysis and I can't help but wonder why...

http://myop101.blogspot.com/2008/10/why-big-e-why.html

ben said...

This is bad news..having cold sweat. Remember when Timedotcom IPO was underscribed, who did they turn to...EPF. Read Corporate Malaysia: Falling from grace
and In Debt?
Just make yourself a dotcom


They're treating EPF like how a 'kedai runcit' manage the cash. When a family member needs, he'll pull the bucket down and take whatever money he likes!

It's bad enough that the present dividend of less than 5% is negative return with inflation at 8%. Now we're DIRECTED to take such risky position.

I would rather that EPF use the money to buy the whole PLUS highway concession which is less risky and gives us better return for our orang tua age.

The question is what right do we have to preserve our hard earned money.

Anonymous said...

Can't we all take legal action to stop this? How can the board of trustees for EPF pass this loan?? How can anyone be so stupid to give out a loan to non-performing companies??? Our hard-earned money is Simpanan Hari Tua, not for Najib to play shares!

donplayplay