Silterra Selling Local Or Foreign Where Is Khazanah S National Objective



Back in November 2018, after the fall of BN government and under the early part of PH government, there was news report by Malaysia Reserve that a Chinese microelectronic producer selected SilTerra as a key strategic partner to produce 8-inch wafer. 
Wafer is a thin slice of semi-conductor used for fabrication of integrated circuits and in photovoltaic, to manufacture solar cells. 
Despite facing heavy critique as one of the many big idea failures of Tun Dr Mahathir, the Khazanah owned wafer fabrication plant in Kulim was being acknowledged by China for its 20 years experience for independently running a fabrication plant. 
It is a testimony of Malaysian can do spirit. SilTerrra inked a technology transfer partnership with a Singapore based technology developer in December the same year. They are exploring at opportunities in life science. Money pumped under Najib administration was beginning to generate profitability.   
However, the financial side have accumulated more losses to the billions left by Mahathir administration and it has been haunting Khazanah. In his departing statement that same year, former Khazanah CEO, Tan Sri Azman Mokhtar highlighted SilTerra as one of his many failure to fulfill his turnaround assignments. 

The other being Malaysia Airline. 
For that matter, Khazanah also failed to operationally turnaround Proton, and UEM. The problem seemed to be Khazanah. It was only expected because expertise of Khazanah is not in the operation but purely in financial. 
The turnaround route undertaken by Khazanah for UEM and Proton are usually via debt and corporate restructuring. In the case UEM, the troubled company was delisted and a profitable subsidiary tookover its listing status. While, for the case of Proton, Gealy was brought in as JV partner. 
For MAS and UEM, the accumulated problem remained unresolved. Proton has a better fighting chance with R&D input from partner and hopefully, upgrading its marketing ability could eventually turn it into profitability and rid off its losses. 
However, Najib administration faced a barrage of critique for "selling out" national asset to China. Ironically, it was under PH that there was massive sales of national assets. They faced problems arising from foreign investors bailout across all financial markets that led to marked to market accounting compliance issues, and exacerbated by political witch hunting. 
As PH Economic Affairs Minister, Dato Seri Azmin Ali politicised the losses faced by Khazanah. It brought a strong response by Dato Najib who criticised Azmin for failing to understand that the return from Khazanah other investments helps to keep sustain operations like SilTerra as turnaround effort are being undertaken.  
Divesting SilTerra
Since February this year, new CEO Dato Shahril Ridza Ridzuan began his divestment program on SilTerra as part of their new strategy to sell non-core assets. Since 2016, Dato Najib said government then was open to having foreign partners. 
The Star reported two local companies - Dnex and Green Packet have put their bids, but late entries by two semi-conductor giant, Foxcomm from Taiwan and X-FAB from Germany have brought about a change of thought on the part of Khazanah and government. 
The two bids came at a higher price but with different conditions than the one that attracted the two local bidders. It seems the significantly higher bid could be changing Khazanah's mind from minority stake by foreigners to majority control. 
Geeen Packet minority shareholder is Dongfang Huijia, a China state owned central financial enterprise. While DNex partner is a fund manager that is a proxy of the China's IC industry.     
Public uproar for the sales of another national asset to foreigner is beginning to emerge again. Perikatan Nasional led government should reconsider and not repeat the mistake of the failed PH government.   
Two newspapers reported to express opposition to the sales. NST titled the article with a title outrightly demanding to keep it local. 


The argument put forward is the replacement cost of US$1 billion to build another wafer fabrication plan maybe out of reach for Malaysians in the future. Malaysia could be left out completely from the electronic sector. 
Berita Harian puts it as wafer fabrication plant is essential to remain relevant in the electric and electronic sector. The sales would mean Malaysia will be out of the industry and miss out on the development in the IoT (Internet of Thing), 5G, and increasing digitalisation. 
The current pandemic crisis have led to a new normal living condition or precisely abnormal condition in which human interaction and travel will be significantly lessen and ICT will play a more significant role in every aspect of life.           
Both newspaper argued that Malaysia stand to benefit more through the two local bidders with minority partners from China than direct foreign bidder. Both will purchase Khazanah's equity and inject  working capital and payoff debt. For instance, Dnex will be pumping RM500 million.     
Unlike the other turnarounds undertaken by Khazanah, SilTerra is a technology company in which Malaysia had always a leading position. Malaysia was one of the largest exporter of high-end semiconductor chips. 
There was a slack in the 1990s as new countries begin to catch up. SilTerra was part of the effort to revitalise the industry. To stay ahead, Malaysia need to develop it indigenous technological capability. 
The initial problem with SilTerra was "a revolving doors of CEOs" and that hampered its progress. It has actually begin to turn the corners. Despite the ups and downs, Malaysia still have a flourishing semiconductor industry. It would be foolish to bailout of SilTerra to purely address Khazanah inability to turnaround companies but cause a big loss to the nation. 
An interesting trend in semiconductor, said by SilTerra CEO, Firdaus Abdullah last year, is the opportunity to go into physical domains such as life science. Malaysia has lots of IC design engineers. SilTerra could enable SMEs to develop new technologies. With the political will for nationbuilding and allow the technologist to innovate and develop, an ecosystem from researchers to chip makers, could be developed. 
Policymakers and financiers must shift their mindset from marketing someone else's technology to thinking more about real technology. Foxcomm and X-FAB are still contract manufacturer for major companies. There is no added value to Malaysia. 
Rethinking Khazanah
Khazanah was originally established to acquire and develop technology needed to increase the nation's technological capability to remain relevant and give it the edge. 
At the end of Mahathir's first term as Prime Minister and under Tun Abdullah, it was made into warehouse to store forced acquisition of privatised companies and the term GLC became the buzzword. Come Najib administration, Khazanah was transformed into a sovereign wealth fund. 
Azman Mokhtar's annual report repeatedly emphasised its asset growth and highlighted its return. The accountants and investment bankers were unable to appreciate the nation building emphasis on capability, capacity and growth potential. 
The overemphasis on meeting set numbers for return, asset size and quality, and return on investment will not reflect the benefit to the nation in term of jobs, expertise, SMEs, industry development, and local and national economic spillover. 
Khazanah become more myopic in its role to be merely revenue for government coffer. Still it hardly compares to other smaller GLC and fund manager. 
The planned implimentation of 5G in Malaysia is expected to generate RM12.9 billion to GDP growth and generate 39,000 new jobs. Without platform such as SilTerra to retain the money spent in the country and increase national wealth, it is an effort that will only benefit other countries. 
The claimed Foxcom valuation of US$125 million looks attractive but it is short termish and myopic to merely sell SilTerra away. Since Khazanah failed to do it, let them take the hit. Pass SilTerra to other locals with the capacity and capability to carry it through and make it beneficial to the nation. Khazanah should not deny Malaysia of SilTerra's potential benefit.
Khazanah is wholly owned by the government, thus the new administration as shareholder need to look beyond the financial of only Khazanah but the nation interest as a whole. 
Tan Sri Muhyiddin should set his eye beyond the current problem and challenges directly related to the health issue arising the Covid Corona virus. Whether the pandemic is over or not soon, he should have a plan to face the long drawn crisis, keep the economy chugging and continue the nation's development.  
If the pandemic will be around as WHO predicted to be for the next 4 to 5 years, Malaysia must be thinking of being self sufficient and self reliant. It means the trading nation economic model that prospered the Malay archipelago since the Melaka empire need a rethink.  


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