Sunday, March 22, 2009

EPF Aims to Recover Foreign Investments when Dow Hits 9,000


THE Employees Provident Fund (EPF), the country’s largest investment fund, is targeting to break even on its overseas investments possibly by next year when it can write back the bulk of its provisions.

“The Dow Jones was 14,000 at its highest. Today, it is around 7,000. We expect to recover the bulk of our investments when the Dow Jones goes to 9,000,” said EPF CEO Datuk Azlan Zainol.

The EPF has, so far, invested RM16bil overseas on a staggered basis in the five major financial markets – the US, Britain, Australia, Singapore and Japan.

Datuk Azlan Zainol

However, he expects the markets to possibly recover only next year. Yields for Malaysian Government Securities (MGS) have also come off. In 2009, about RM16bil to RM17bil of MGS will mature and be replaced at today’s rate.

Last year, in July-August, it was possible to get 4%-5% for 10-year money, but that has dropped to 3.5%. Companies are also scaling back on dividends.

This year, he said, would continue to be difficult and the fund hopes to be able to maintain its dividend payment of between 4% and 4.5%. “Our policy is to give out everything we earn in the form of dividends. We do not have any reserves,’’ he said.

As far as gross income is concerned, the EPF, which manages RM340bil of funds, performed better than 2007 – gross income was RM19.96bil compared with RM18.24bil.

The big increase is in provisions which was RM515mil in 2007 compared with RM4.69bil last year.

Out of that amount, about RM3bil is provided for overseas investments. “Our policy is to provide in full for every diminution in value in our investments overseas,’’ Azlan said in response to queries from StarBiz.

In Malaysia, if there is a stock with more than 50% loss, the EPF will provide for 25% of it, spread over a four-year period.

“We are more conservative abroad because that is everybody’s market ... anything can happen. Locally, we roughly know (the local conditions),’’ said Azlan.

He expressed disappointment at some of suggestions posted on the blogs. “There is a blog that says the RM4.6bil provision that we made was because we lent to ValueCap Sdn Bhd. That is a gross accusation ... very, very unfair. That is not the truth,’’ he said.

Last year, the EPF had provided a RM5bil loan to government-controlled ValueCap which was set up to undertake investments on the stock exchange.

“As far as our investments are concerned, we are strong internally. What happens outside is a global issue. Our risk management and people are in place. There will be no major changes this year or the next,’’ he said.

In terms of EPF’s asset allocation, it is based on advice from its consultants and its proportion of investments in equity to fixed income is, according to Azlan, a proven formula.

Currently, Azlan as the CEO, assumes direct oversight of the fund’s investments. He is looking for a new head of investments who would probably be an outsider. The former deputy chief executive of investments, Johari Abdul Muid, has moved on to head the strategic planning unit.

“Johari will be responsible for looking into the second phase of transformation for the EPF,’’ said Azlan. The division also looks into retirement benefits and pension fund reforms in the country.

“The retirement money for Malaysians will not be enough. It has been three weeks since he is at the new position and he has done a very good job,’’ Azlan said in response to queries from StarBiz regarding Johari’s move to strategic planning.

Insiders added that it was part of a reorganisation to strengthen certain divisions that also saw new heads for property, withdrawals and call centre.

The dividend of 5.8% for 2007 has come down to 4.5% for last year.

Due to the large provision made, net income has slipped from RM16.87bil in 2007 to RM14.3bil last year. Costs have also gone up – to pay 1% dividend cost RM2.89bil in 2007 compared with RM3.18bil currently.

Gross income from investments in MGS and equivalents was higher by 5% at RM5.75bil last year. Investments in private debt securities and loans yielded a higher gross income of RM5.59bil or 13%.

With the lowering of fixed deposit rates, gross income from the money market went down by 25% to RM694mil.

Gross income from external managers for both domestic and global equities dropped by 43% to RM767mil and by 254% to a loss of RM194mil respectively. External managers were more prepared to cut loss.

However, income from internal managers showed an increase of 33% to RM6.27bil and 123% to RM439mil respectively.

The EPF is heavily invested in local banks with stakes ranging from 13.6% (Malayan Banking Bhd) to 2.8% (Affin Holdings Bhd).

“In Malaysia, big caps like Sime Darby, IOI Corp and Public Bank have all experienced huge drops in market cap. Tell me, how do we pay 7% or 8% dividend?’’ he asked.

Monday, March 9, 2009

Forbes Global 2000 (Year 2008) - Malaysian Companies










Malayan Banking








Tenaga Nasional








Sime Darby
















Telekom Malaysia


Telecommunications Services






Public Bank


















Hotels, Restaurants & Leisure






IOI Corp


Food Drink & Tobacco






PPB Group


Food Drink & Tobacco






RHB Capital








Cahya Mata Sarawak








AMMB Holdings








Hong Leong Financial Group








Petronas Gas


Oil & Gas Operations





Note: The two bold companies' names are ones that I have interest and invested into.

Don't blame the NEP, says EPU

The New Economic Policy (NEP), which sought to achieve growth while addressing socio-economic imbalances, is being wrongfully blamed for only benefiting certain people and contributing towards poor economic growth, a top policymaker said.

Economic Planning Unit (EPU) director-general Tan Sri Sulaiman Mahbob, who was directly involved in formulating the NEP in the 1970s, said critics have confused the policy itself with procedural issues such as the procurement system for projects.

And on that particular issue, the government is addressing the matter, where since March last year all projects must go through the tender process, except those that involve national security.

"So, it's not the NEP which is wrong here. Don't blame the policy. I believe in open competition and transparency. I don't believe in a few individuals getting the projects," he said in an interview.

Sulaiman said the NEP, which ended in 1990, and the subsequent growth distribution policies have contributed towards rapid economic growth, employment creation, narrower income disparity, higher income level and poverty reduction.

The NEP (1970-1990) is also not unilateral, he added, because it was implemented in consultation with other stakeholders through the National Economic Consultative Council (Mapen).

Sulaiman said when government projects are implemented, they benefit everybody in terms of higher production and greater pool of skilled manpower. The projects also generate direct benefits to construction material and hardware suppliers, as well as service providers.

"The non-Bumiputeras, who control this supply chain, are also benefiting from the government projects," he said, adding that about 60 per cent of the project cost is the supply of construction materials and hardware.

Sulaiman said some people, without the correct perspective of the policy, are saying that it creates cronyism and dampens foreign investments.

"This is a baseless allegation because hundreds of thousands of wholesalers and small traders exist through the policy. People have also forgotten that many farmers have been freed of poverty through Felda, Felcra, Mada and other programmes," he said.

As for attracting foreign investment, he said, this should be done through greater efficiency, lower cost of doing business, faster decision-making and higher productivity of workforce, and not by doing away with the growth distribution policy.

Sulaiman acknowledged that there were some mega projects such as independent power producers and privatisation of highways that were awarded to only a few Bumiputera and non-Bumiputera companies. This was because at the time, Malaysia's capital market wasn't that strong and not many in the private sector were capable to estimate the risks for such large and long-term projects.

"Since the government needed to upgrade the public infrastructure and utilities, we've had to help those who were involved in the construction of those projects," he said.

Sulaiman said it should be noted that similar growth distribution programmes are being implemented by other countries under different names. In the US, the policy is called Affirmative Programme, it is Regional Development in Thailand, Development of South in Italy and Trans-Migrasi in Indonesia.

The 30 per cent Bumiputera share ownership and the Foreign Investment Committee (FIC) ruling are the only two instruments under the NEP which still exist. The shareholding ruling is only applicable when the company wants to access capital from the public.

"It doesn't cause poor shareholder value. If the stock is not good, even non-Bumiputeras won't buy it. So it has got nothing to do with the 30 per cent Bumiputera shareholding, it's the value of the stock," he stressed.

Sulaiman said the FIC ruling, which was drawn out when foreign ownership in the 1970s was about 70 per cent, is now being liberalised because foreign shareholding has dropped to about 30 per cent.

Sulaiman said the NEP ended in 1990 and through consultation (Mapen 1), the National Development Policy (NDPP) was launched covering the 1990-2000 period. The NDP has given way to the National Vision Policy (2000-2010), which was the resulting consensus of Mapen 2.

Vision 2020 and National Vision Policy also address the same issues that recognise the need to continue to eradicate poverty irrespective of race, and restructure the society.

"The 30 per cent Bumiputera shareholding target has now become a long-term target, until 2020," he said.

Friday, March 6, 2009

The real cost of credit cards



LET’S say you have an outstanding balance on your credit card of say RM100. And you just forgot to pay your bill on time. What do you think your charge will be on an annual basis? Would you believe 10,000%?

The answer is very illuminating but you have to read the fine print to find out. I just did when I saw a late payment charge of RM40 on my bill because a payment of RM4,000 was late by a few days.

First, you have to pay up to 18% a year on the outstanding amount. Second you pay a charge of 1% or RM10 on the outstanding amount the moment you go beyond the repayment deadline. You have 20 days free credit but only if you pay on time. Otherwise, it is 18% from the date of purchase even if you choose to pay in instalments plus your penalty charge if you are late.

Let’s say you are late by a week, which is very normal for a lot of people – in other words, by a week you failed to pay a minimum 5% of your outstanding amount or RM5 in our example of RM100.

For that one-week delay on that RM100 outstanding you pay the minimum charge of RM10. Let’s calculate the charge in percentage terms per year. That’s 10% (10/100X100) for one week or 520% (52x10) for one year, not compounded! Total interest charge: 520+18 or 538%. You pay RM10 because you are late with your instalment payment of RM5 and you still have to pay that instalment.

But hang on a second? Are we calculating this right? No, it’s not quite accurate – in fact we have made a terrible, horrible mistake. You see, you are being charged RM10 on the RM5 instalment that you did not pay on time, not on your outstanding balance of RM100 on which you are already paying 18% a year.

Yes, it’s becoming mind-boggling. If you are a week late, you pay 200% (10/5X100) a week or 10,400% (200X52) a year!! I don’t often use double exclamations but you must admit that it is deserved here.

Oh, I can hear what the banks say – the RM10 is a minimum charge. But you don’t need a minimum charge in this age of computerisation when the machine does the calculation with no people involved in the automatic generation of the charge.

Perhaps you think that’s an extreme example. Let’s take my case of an outstanding sum of RM4,000 for which the late payment charge is 1% or RM40. I think I was late by less than a week but let’s just say it was one week. My minimum payment is 5% of RM4,000 or RM200. The RM40 is 20% of RM200.

That 20% a week translates to 1040% a year, not compounded. If I were a mere day late, it would be 7300% (20X365 days in a year).

I have heard the argument that the late payment charge should be imposed to encourage people to pay the minimum amount and maintain discipline for using credit cards. I suppose then one has to believe that banks will play this role well when they stand to benefit more the more miscreants there are. I prefer to suspend belief.

My bank, a large foreign bank with a long presence here shall remain unnamed because it will be unfair to single it out, but it tells me in the small print that the interest rate on outstanding amounts is 18% a year. But it omits to explain how much in percentage terms its late payment charges (1% or RM10, whichever is higher) on a yearly basis are.

Here’s what I suggest and I hope Bank Negara and the Association of Banks will pay attention. Late payment charges are punitive especially when you are already paying punishing interest rates of up to 18% a year.

So simply do away with the late payment charge and charge the interest, as long as I am under my credit limit. If I have just RM1,000 outstanding on a credit limit of RM80,000 should I be charged for not paying the minimum monthly maintenance? No! I should be penalised only if I go above my credit limit.

If banks still want more, give them the liberty to charge higher rates for outstanding amounts not already paid as required by instalments, a more punitive rate of a reasonable 25%, on the minimum instalment not paid

Let’s see what I would have paid if that was done. I was a week late on RM4,000. But if I had paid 5% or RM200 of it, there would have been no punitive rate. So I would pay 25% a year on RM200 for one week. That works out to 96.15 sen, yes sen. (200x25/100/52), instead of the RM40 I paid.

Really, charging a penalty of RM10 because I missed my instalment of RM5 or even RM25 just is too much. So is having to pay up to 7300% a year in charges because I was late in payment.

And while Bank Negara is looking at these things, perhaps they should take a closer look at the entire penalty rate system and see how bad they really are.

It baffles me how such high charges were permitted in the first place.

l Managing editor P. Gunasegaram has no doubts that credit cards are the worst form of legal financing.