Some Notes On Business Last Year

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 Here are some notes on business happenings that took place last year, some of the more interesting ones which may or may not have caught your attention, with my thoughts and comments on them.
1. A proliferation of data centres
In 2024, large-scale investments by tech giants were announced by the likes of Google, Amazon, and Nvidia for data centres in Malaysia.
While the first line of beneficiaries will be the construction sector, the concern is whether we can overcome resource constraints, mainly electricity for data management and water for cooling.
ADSThere seems to have been insufficient planning to ensure that electricity and water supply are sufficient for this.
The investments are being made on the back of cheap electricity, water, and land, precious resources which we need to conserve and make available for other purposes as well.
2. The Johor-Singapore economic zone
Many of these data centres will be based in Johor and there is much hype about the planned Johor-Singapore Special Economic Zone, which was announced about a year ago but for which no concrete plans have emerged.
No doubt this will be a topic of discussion during the current visit by the Singaporean prime minister.
Probably, Singapore is looking for cheap land, utilities and labour while Malaysia is looking for investments. It is hard to see how it can be configured such that there are common benefits for both.
Singapore drives a hard bargain and there has been much past acrimony over agreements. For example, the one on the sale of water to Singapore and claims for a piece of rock we call Batu Puteh.
There is bound to be a lot of wrangling and hand-wringing on both sides before any agreement is reached.
Also, there is no reason why Malaysia can’t go it alone. It is hard to see the benefit of working exclusively with Singapore on this. Why can’t it be opened to anyone interested, foreign or local, with the same incentives?
It is pretty difficult to see how this can be done in a manner where there is a true win-win, a rare situation in practice.
3. Forest City and the China connection
Another happening in Johor is the Forest City Special Financial Zone. One has to wonder if there is really a business case for such a city. I mean, would family offices even bother to set up there with a zero percent tax carrot?
ADSThis is also complicated further by the king having a stake in the project and the person who sold the area in which the development took place.
The government still has to deal with this at arm's length. Anything else will lead to questions.  There is no strong reason for companies to set up there. 
Forest City was going to be developed with China’s demand for the properties. That collapsed when China’s capital controls resulted in demand for the largely residential project to collapse.
Now, tax incentives are being provided to make it succeed. Is that desirable or fair? These questions will need to be honestly answered.
4. U-Mobile and the award of the 5G contract
Perhaps the biggest controversial deal last year was the award of the second 5G network to U-Mobile. There are serious concerns about this deal. Spectrum for 5G has already been awarded to U Mobile - for free.
It may be worth as much as RM15 billion - this will be reflected in the valuation. Now it transpires that U-Mobile is over 70 percent owned by Singapore - yes they are going to reduce the stake to 20 percent but surely after spectrum is awarded, the valuation of the new entity will reflect this. 
If RM15 billion is reflected in the new value, by selling down 50 percent Singapore will gain half of RM15 billion or RM7.5 billion without doing anything!
Surely there can be no such concessions even if U-Mobile’s largest Malaysian shareholder is the king - arm’s length is again important.
The problem is there was a change, the first plan was for a sole operator, but it was turned to two operators after the Madani government came to power. What happens to the first operator then, which is fully government-owned? This has not been explained.
Why give spectrum to the least qualified of the others - with CelcomDigi and Maxis being far stronger and in a much better place to carry this out, both financially and in existing roll-out costs?
Costs will definitely be higher because of infrastructure duplication and the need to produce returns. The sole network model would be cheaper for the public because there is no duplication and costs will be lower. 
Also, all the telecommunications companies would have stakes in the sole network operator, ensuring fairness. But for some reason, it was felt necessary to abandon this approach.
5. MAHB and infrastructure development
We seem to have a problem with infrastructure implementation. For instance, the privatisation of Malaysia Airports Holdings Bhd (MAHB).
It seems to be badly thought out. It has been valued at between RM12.61 and RM13.71 per share. The offer price for the privatisation is lower at RM11 per share. 
The investment bank adviser says it is unfair but reasonable and therefore advises accepting the offer!
The last traded price was RM10.40 per share before the offer, a mere five percent premium - not much. Meanwhile, the independent directors have advised shareholders not to accept the offer, a confusing, confounding situation indeed.
There is a consortium behind the offer - Khazanah Nasional, the Employees Provident Fund, and BlackRock through GIP. 
But GIP is not a great airport operator. It manages London Gatwick, ranked 48th by Skytrax, Sydney Airport (55th), and London City Airport (82nd).
KLIA, operated by MAHB, is ranked 67th and was once in the top 10, according to reports.
Surely then we must have the expertise to take it back there. Is there a need to privatise at below valuation when it is low? And is a foreign partner needed?
Part of the problem is that the government differentiates against GLCs - yes, against. GLCs are easy pickings and therefore, not given the tariffs and agreements they were promised.
This happened with the 5G contract when the government blatantly broke an agreement with the sole network operator, with Tenaga Nasional Berhad for electricity tariffs and with MAHB for airport charges.
If GLCs are often not allowed to reflect market rates and if their sole operator status is arbitrarily reversed, it is bound to depress profits and valuations. The government will have only itself to blame.
And it’s not only airports or 5G operators or the electricity utility. The YTL group got a contract worth RM3.46 billion for a multi-lane free flow system for the nation’s toll roads - two days before elections by a caretaker government in 2022, according to reports.
Why is it that the toll operators are not allowed to provide this? It is not as if YTL has expertise in this area. They have protested but will it be heard? The main toll operator is, of course, Plus, equally owned by Khazanah Nasional and EPF. Who suffers? Us.
When the privatised party is commercial, compensation is built into contracts if increases are not given. However, GLCs suffer in silence because they are government-owned, unable to take legal action or protest because the major shareholder is the government.
6. Leadership changes
We saw leadership changes in Telekom Malaysia, Maybank, CIMB, and Top Glove… but perhaps the most important were Ahmad Zulkernain Onn as EPF CEO and Abdul Rahman Ahmad as Permodalan Nasional Bhd CEO.
The former was CEO of PNB before that while the latter returned to PNB from CIMB.
Both of them are great names and have good track records. PNB manages the largest fund in the country after EPF, which is several times larger - RM300 billion plus vs RM1 trillion plus for EPF.
Both roles are similar but different in some key ways. EPF is complicated by safeguarding retirement savings - they need to be more careful that they don’t lose money - risk must of necessity be low.
Sometimes the government uses EPF money to stimulate the economy - patently wrong. When only some lost employment during Covid-19, all EPF members were allowed to withdraw money, eroding their retirement savings needlessly because the government felt this was needed to stimulate the economy.
A political decision to get public support. Retirement savings must not be used for that - it is highly irresponsible.
7. Passing of Daim Zainuddin and Ananda Krishnan
We would be remiss if we did not reflect on the passing of Daim Zainuddin and Ananda Krishnan, really towering figures in corporate Malaysia.
Daim would be remembered for developing a coterie of bumiputera businesspersons - all of whom were close to him and supported the government - sometimes too much. And for amassing wealth in his own right too.
But he was a finance minister, twice, who listened and actually solved serious economic ills.
The late Daim ZainuddinUltimately, he will be remembered as Dr Mahathir Mohmad’s hatchet man, providing finance and other wherewithal to keep him in power when needed.
Ananda is an astute businessperson who was also powerfully connected to the top, especially to people like Mahathir and Tengku Razaliegh Hamzah, which helped him get a strong foothold in key businesses in Malaysia
The late Ananda KrishnanHe was hard-nosed and hard-driving but rewarded his people well. And he contributed a huge chunk of his income to charity. Apparently, much of his wealth will go into charitable trusts.
I hope you enjoyed this quick wrap-up, which came from an interview I had on BFM radio yesterday. - Mkini
P GUNASEGARAM has followed corporate and political developments in Malaysia for about half a century now.
The views expressed here are those of the author/contributor and do not necessarily represent the views of MMKtT.

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