KUALA LUMPUR: Khazanah Nasional Bhd’s move to divest some of its foreign investments will allow the sovereign wealth fund to reap ‘ripe’ returns that have reached maturity.
Managing director Datuk Shahril Ridza said it was normal for sovereign wealth funds to ‘buy and sell’ assets as part of their investment activities.
“At Khazanah this year, we have been focused on more actively managing our portfolio of assets to generate better returns and to reduce our debt levels, which have not been rising over the last few years,” he told the New Straits Times yesterday.
Shahril said Khazanah made about RM1.5 billion of new investments from the proceeds of its divestments, and would continue making new investments this year.
“We anticipate making more investments throughout the rest of the year. Probably, we will allocate more than RM2 billion depending on opportunities,” he said, adding that a lot of the new investments this year will be local but timing will vary.
He said Khazanah has also pared down about RM6 billions of debts.
On July 29, Khazanah had disposed the office and retail portion of its Duo property development in Singapore for RM4.7 billion from its joint-venture company with Singapore state investor Temasek Holdings Pte Ltd, M+S Pte Ltd.
Shahril said M+S was a developer for the land, which was also tasked to sell the properties they build.
“The Duo project has been a success with nearly 100 per cent sales of the residential component. The office has been tenanted out and as a developer, you sell it to an insurance company and property fund who are looking for stable returns.
“We make a decent development profit that is used to pay off the loans taken out for development and the excess is dividends back to Khazanah and Temasek for future new investments,” he said.
Khazanah had also disposed of its entire stake in Desaru Investments (Cayman Islands) Ltd to local power producer Malakoff Corp Bhd (Malakoff) for RM288 million in early July.
In March 2019, Khazanah had completed its asset disposal, representing 1.4 billion shares or a 16 per cent stake, in IHH Healthcare Bhd (IHH) to Mitsui & Co Ltd of Japan for RM8.42 billion.
Reiterating Khazanah’s divestment exercise this year, Shahril said the fund manager’s exit in Saudi Arabia was normal. It had started the project as a way of helping Tenaga Nasional Bhd and Malakoff to penetrate the Saudi independent power producing market.
“Now that the asset has been built and is generating a steady return, we should sell and reinvest the proceeds into other assets,” he said.
Meanwhile, Invesco Asset Management Singapore Ltd investment director Jalil Rasheed said every fund undertakes divestment from time to time, to lock in gains and to reinvest those proceeds elsewhere.
“It is normal for funds to do this. In Khazanah’s revised mandate, they have indicated desire to have more liquid assets.
“It is important to understand this new mandate of theirs, and the fact that Khazanah does not receive any capital injection from the government. If they want to invest elsewhere, cash must be raised either through divestment or debt,” he told the New Straits Times.
Jalil said Khazanah made a tidy gain on the most recent transaction, having been the joint founders in the Duo project.
“Having cash at hand to deploy when the right opportunity emerges is important. It is not easy to sell only when you need money as deals take a long time to conclude,” he said.
Meanwhile, Sunway University Business School economics professor Dr Yeah Kim Leng said Khazanah’s divestment was somewhat wise, as the property market in Singapore has reached its historic peak.
“Some may argue that the value is not captured, but it has been five years since the investment was made, and the property market has been stable. It’s now in the easing phase, and while it has not corrected sharply and could still appreciate, it can also easily tank.
“The market also cannot be timed, more so under such uncertain economic conditions,” he told the New Straits Times.
Some critics of the Khazanah sale claim the move was ill-timed as the value of the assets had yet to be realised.
Ultimately, Yeah said, the decision would be gauged by how the returns from the sale would be used by Khazanah.
Universiti Malaya economics Professor Dr Mohd Nazari Ismail said it was a good decision given the context of the government wanting to avoid further borrowings.
“It wants to make sure that debts do not increase unnecessarily, so it prefers to obtain money from selling assets. To me that’s a good decision,” he said.