KUALA LUMPUR: Economists see the combined RM2 billion investment by Permodalan Nasional Bhd (PNB), the Employees Provident Fund (EPF) and Kumpulan Wang Persaraan (Diperbadankan) (KWAP) related to ams-Osram AG's semiconductor business in Malaysia as a masterstroke, calling it a "unique, strategic and smart" way to encourage foreign investment.
Economists believe that the strong support from the three government-linked investment companies (GLICs) will help boost foreign direct investments (FDI) here.
Such cooperation will not only make investors more confident but will also create an environment that encourages more FDI, they added.
Late last week, Permodalan Nasional Bhd (PNB), the Employees Provident Fund (EPF) and Kumpulan Wang Persaraan (Diperbadankan) or KWAP signed a sale and leaseback agreement valued at RM2 billion with Osram Opto Semiconductors Sdn Bhd for its manufacturing facility in Kulim Hi-tech Park, Kedah.
Osram Opto is a wholly-owned subsidiary of Austria-based ams Osram AG, a leader in intelligent sensors and emitters.
The three co-investors said the sale and leaseback transaction is expected to conclude in December 2023, and the co-investors will each own 33.3 per cent equally.
Economists contacted by Business Times said investing in well-established international companies with a good track record like Osram is a smart move as this shifts toward safer, high-return investments.
Ultimately, this will not only make pension funds and government investment companies financially stronger but also send a strong message to international investors that Malaysia is open for business and eager to welcome FDI, Nusantara Academy for Strategic Research senior fellow Azmi Hassan said.
"It is a good strategy not only to attract future FDI but for these three entities to enhance their profits in the future.
"In the Madani economy, this specific public-private partnership (PPP) places a significant emphasis on the involvement of private entities, as the government alone may find it challenging to make the necessary investments."
Malaysian Institute of Economic Research economist Dr Shankaran Nambiar said it is an interesting model as institutions like the EPF need to invest and grow the funds that are at their disposal.
They continually seek opportunities to generate returns on their deposited funds, making it a prudent choice to invest in well-established multinational corporations with robust business operations, he said.
Osram, in particular, stands out as a reliable company, he said, adding: "As long as pension funds and other GLICs invest in enterprises offering a low risk premium and a relatively predictable return, such a move should be greeted with enthusiasm."
Taylor's University philosophy, politics and economics programme director Prof Ong Kian Ming said the investment signifies the government's dedication, along with the Ministry of International Trade and Industry to enhance FDI inflows, particularly those offering high guaranteed returns.
"This approach deviates from traditional equity investments, which expose GLICs to the volatility of stock prices. Instead, it offers a more stable and predictable income stream," said Ong.
This public-private partnership, while not a first-time occurrence in the country, marks a significant milestone, he added.
The EPF previously engaged in similar leasing deals involving residential and commercial properties, but this collaboration is one of the first instances in which all three GLICs have joined forces for an industrial real estate venture.
The potential success of this endeavour sets a promising precedent for future opportunities in this dynamic landscape, indicating that Malaysia remains committed to exploring creative approaches to boost its FDI profile, Ong said.
Tradeview chief executive officer Ng Zhu Hann said local institutional funds will inject substantial capital upfront to secure long-term leases with global companies, fostering a win-win scenario that aligns with the National Investment Management Plan (NIMP) and bolstering the nation's FDI landscape.
The innovative strategy aims to lower international investors' initial capital expenditure, enhancing Malaysia's competitiveness in attracting global names, while encouraging their long-term presence in the country, he added.
For this to work, trust and commitment from both institutional funds and foreign investors are crucial components of this approach, offering an alternative to traditional tax incentives and investment tax allowances schemes, said Ng.
Beyond the economic benefits, the partnership is poised to create a positive ripple effect in terms of job creation, technology transfer, and elevating the country's position on the global value chain, benefiting talents and industries in Malaysia.
Independent economist Julian Suresh Sundaram said the deal allows pension funds to earn higher returns while managing risks effectively, offering a 10-year exit plan and complying with Islamic finance principles.
He said the deal offers a stable cash flow, lower risks, and potential returns compared to bonds, making it attractive for future projects and enhancing environmental, social and corporate governance credibility.