Highlight Jala says govt should sell MAS stake

Highlight Jala says govt should sell MAS stake
Business & Markets 2013
Written by Esther Lee of theedgemalaysia.com
Wednesday, 14 August 2013 08:33

KUALA LUMPUR: The government should only sell its stake in Malaysian Airlines System Bhd (MAS) if the price is right and not at a loss, said Pemandu CEO and minister in the prime minister's department Datuk Sri Idris Jala.

"The government should sell its stake in Malaysian Airlines but it should not sell it at a loss because there is public money involved," he said on the sidelines of the third instalment of the Malaysia Global Series organised by Pemandu yesterday.

He was asked whether the government should sell a company such as MAS.

Jala later issued a statement to clarify that the government does not have any plans to sell MAS.

"Under the New Economic Model, we are currently implementing the recommendation to rationalise the government's role in business. As part of this Strategic Reform Initiative, 33 companies have been identified but MAS is not one of them," he said.

The government investment arm Khazanah Nasional Bhd is currently the largest shareholder of the national carrier with a 69.37% stake.

The Employees Provident Fund (EPF) has been paring down its stake over the past year from 8.86% on Aug 15, 2012 to only 1.04% currently.

Jala, who was MAS CEO from end-2005 to August 2009, said earlier yesterday that if the government were to sell (its stake), it could have pared down its stake in the national air carrier when its share price reached a high of RM6.20 — when he was the CEO.

Note that after adjusting for three rights issues, MAS had closed at the highest of RM2.07 in June 2007 during the period when Jala ran the airline.

Speculation has been rife about Khazanah looking to cut its losses from its investment in MAS, including a sale to non-government entities owned by influential individuals such as Tan Sri Syed Mokhtar Al-Bukhary and a privatisation.

This arises especially after Khazanah's bill for the troubled airline has mounted over the years. For instance, the latest rights issue last year, which raised some RM3 billion, was the third in just five years launched by the airline.

To facilitate the rights issue, MAS embarked on a restructuring exercise last year that involved a capital reduction of its ordinary shares to 90 sen from RM1.

Being the largest shareholder of MAS, Khazanah is also hit by the tanking of airline's share price to as low as 29.5 sen. The stock closed at 31.5 sen yesterday.

MAS also issued a RM2.5 billion perpetual sukuk last year, which was mostly taken up by pension fund Kumpulan Wang Persaraan (Diperbadankan).

Idris also said at the event yesterday that the government should facilitate airline businesses instead of being involved in them.

Nevertheless, he said there are three business areas — defence, infrastructure and TECHNOLOGY [] with long gestation period — which are is important for the government to be involved in.   

"The government should be involved in industries where there are strategic reasons for it to do so, like defence, large infrastructure and also technology which have a long drawn gestation period, because the private sector will not have the stomach for it," he explained.

The closest MAS has ever been significantly owned by private investors was in 2011 when Khazanah and Tune Air Sdn Bhd swapped a part of their shareholdings in MAS and AIRASIA BHD [].

Although Tune had then owned 20.3% of MAS, Khazanah remained the controlling shareholder with a49% stake.

However, barely a year after the share swap, Prime Minister Datuk Sri NajIb Razak called to unwind the deal following strong resistance from MAS' strong unions.

When asked if AirAsia would buy MAS now at the current low price of 31.5 sen, Air Asia Group CEO and major shareholder Tan Sri Tony Fernandes said no.

It is worth noting that the share swap between MAS and AirAsia was just one of the many attempts to turnaround the national carrier.

Much has already been written about MAS' former head Tan Sri Tajudin Ramli's stint at the airline and how after years of losses, the government was forced to buy back his 32% stake at a cost of RM1.8 billion.

What rankled skeptics was the fact that the shares were bought back at the price of RM8 per share — the same price that Tajudin had paid for them — which was more than double the RM3.62 the stock was trading at the time.

Then in 2002 the Ministry of Finance (MoF) via Penerbangan Malaysia Bhd (PMB) initiated the Widespread Asset Unbundling Exercise (WAU). Under the exercise, PMB assumed RM7 billion of MAS' debt and its fleet of 73 aircraft.

There was also a sale and leaseback of eight aircraft from MAS to PMB for a total consideration of RM3.867 billion.

The WAU served its purpose of making MAS asset-light, and cutting its gearing ratio of 700% as at March 2002, bringing the company to a net cash position.

At first, the initiatives seemed to work, with MAS unburdened from its legacy debt and reporting a net profit of RM339.1 million for the 2002 financial year (FY02) ended March 31.

But even after the WAU, MAS was still struggling as the airline, bogged down by heightened competition and volatile fuel prices.

For FY05 ended Dec 31, 2005, MAS reported a net loss of over RM1.3 billion, but its regional competitors reported strong profits at the same time.

Khazanah then brought in Idris to help turnaround MAS in 2006.

Idris identified low yield, an inefficient network and low productivity as the culprits of MAS' dilemma.

Apart from cutting headcounts, he also initiated a very unpopular disposal exercise of MAS' non-core assets after warning stakeholders that MAS would run out of cash by April 2006.



This article first appeared in The Edge Financial Daily, on August 14, 2013.