The Malaysian Insight

KHAZANAH Nasional Bhd posted record profits of RM7.36 billion during its first full year of operations under a “refreshed mandate” from the Pakatan Harapan government in 2019.

This is compared to a loss of RM6.27 billion in 2018 and RM2.896 billion in profits in 2017, the sovereign wealth fund said in its 2019 annual report.

“Khazanah, in the first full financial year of our refreshed mandate, reported a turnaround in overall performance for 2019 with record profits from operations contributed by higher divestment gains and lower impairments, and robust portfolio returns,” said the fund’s managing director Shahril Ridza Ridzuan.

Profits were boosted by robust divestment gains, which increased to RM9.9 billion compared to RM1.4 billion, and lower impairments at RM4.9 billion compared to RM7.3 billion in 2018.

These achievements allowed Khazanah to declare a dividend of RM1 billion for 2019, the report said.

In addition, the costs of running Khazanah fell by 28.2% to RM484 million, while gross debt was reduced by 17.0% to RM45.8 billion.

Khazanah’s Realisable Asset Value cover, which refers to the market value of all its assets, also improved to 3 times from 2.4 times.

As part of the refreshed mandate introduced in 2018, Khazanah pursued two distinct objectives through a dual-fund investment structure, the annual report said.

After it won the 14th general election in May 2018, PH announced that it was restructuring Khazanah’s priorities as the administration felt that it had “strayed from its core mission” of holding shares allocated to the bumiputera community.

This new strategy saw the resignations of Azman Mokhtar as managing director and the entire management board.

As part of its “refreshed mandate”, Khazanah said it pursued a dual investment structure where it separated its assets into a Commercial Fund and Strategic Fund.

“Our Commercial Fund generated a time-weighted rate of return of 8.3%, surpassing the long-term targeted rate of return equivalent to the Malaysian Consumer Price Index + 3% on a five-year rolling basis,” Shahril said.

“We also made significant strides towards diversifying the Commercial Fund, as we continue our portfolio rebalancing efforts.”

The Commercial Fund’s net asset value (NAV) stood at RM73.1 billion as of December 31, 2019.

The Strategic Fund, which is a developmental fund to meet Khazanah’s strategic objectives, achieved financial and strategic outcomes for specific assets despite a sluggish market in 2019.

“The Strategic Fund generated an overall return of 2.9%, against the targeted 10-year Malaysian Government Securities yield,” Shahril said.

“In particular, we engaged productively with the government to enhance the regulatory landscape, refreshed and strengthened the leadership bench at investee companies, and commenced restructuring initiatives to improve financial performance and unlock value.

“Against a backdrop of uncertainties in the global landscape, coupled with the continued low returns environment and generally slow economic growth, Khazanah managed to achieve significant progress in delivering on our mandate to grow Malaysia’s long term wealth.” – July 7, 2020.