KUALA LUMPUR: Tan Sri Azman Mokhtar has left an enduring legacy at Khazanah Nasional Bhd, the government strategic investment fund he had helmed for slightly more than 14 years.

In a five-page farewell letter released today, Azman shared his views and thoughts on his journey with Khazanah and cleared the air on some recent controversies.

During his tenure, the most widely used measure of the fund’s size had trebled to RM115.6bil as of the end of last year from a modest RM33bil in May 2004.

The RM82.3bil increase in net worth adjusted (NWA) value translates into a compounded annual growth rate (CAGR) of 9.6% per annum over that period. 

This was achieved with an appropriate level of portfolio risk of an asset cover of more than three times.

“A great privilege, of course, but more so, a most heavy duty and trust,” he wrote about being at the helm at Khazanah.

Excerpts from the letter.

On Khazanah’s strategic achievements

- The GLC Transformation Programme, the development of Iskandar Malaysia, the profitable expansion overseas especially to China, India, the Middle East and Turkey.

- Companies such as CIMB Group Holdings Bhd, Axiata Group Bhd and IHH Healthcare Bhd became regional champions, while the position of domestic powerhouses such as Tenaga Nasional Bhd, Telekom Malaysia Bhd, PLUS Malaysia Bhd, Malaysia Airports Holdings Bhd and UEM Group Bhd was enhanced.

- Technology investing platform in the US and Europe, support of Islamic finance and the development of several catalytic sectors.

- On the bumiputra economic empowerment agenda, Khazanah is the secretariat for GLCs.

Gaps and areas for improvement

- There were companies which he had failed or not been able to turn around completely - Malaysia Airlines Bhd and semiconductor company Silterra Malaysia.

- In January, Khazanah launched the Transformation 2.0 programme that includes digital and innovation program TIDE, that Azman said should continue for future value-creation. “While steady progress has been made, we also need to follow through on the development of the catalytic sectors which by their nature takes long gestations and much stamina and perseverance.”

- A notable bumiputra success story, he said, was Time dotCom Bhd. “More of this can and should be done as we rebalance Malaysia Inc under the new government,” he said.

On the investments in UBS through Olivant

- The losses incurred were RM1.7bil and not RM3bil as widely reported.

- At all times, proper provisioning and recognition of the losses was made in line with accounting and prudential standards. At one point, 97% provisioning was made of the RM3.6bil total investments. Through diligent recovery work, more than half or 53.5% of the value of the investments or RM1.9bil was recovered.

- An internal review by independent board members with input from KPMG found that the case was clear of wrongdoing, and investment processes and board approvals were complied with.

- A significant factor in the losses resulted from the negligence and breach of the shareholders’ agreement by the fund managers, Olivant; a charge that they, through a legal process, ultimately admitted to, apologised and assumed responsibility for.

On Khazanah’s RM80mil investment in Zivame, the online lingerie firm based in India

- Khazanah owns a 22% stake in Zivame.

- Last December, the investment was provided for in full in its 2017 accounts as a conservative measure.

- Zivame remains a going concern and had its best ever quarter.

- Khazanah is “quietly confident” that it will be able over the medium term to recover all or almost all of what it had provided for.

On Khazanah’s investment performance during his tenure

- Total gains over the period is roughly RM100bil (with the top-ten gainers making up RM92bil).

- The ten largest losses total up to about RM19bil (MAS at RM8.4bil, Silterra at RM5.5bil and Olivant at RM1.7bil).

- In investment terms, gains outnumbered losses by a factor of 5:1. Azman described it in footballing terms, as like winning a game 5-1!

Project Billion

- Investment in the consumer sector in India - ranging from the sale of paints for houses to jewellery. Generated more than RM1bil realised and unrealised gains to date.

- Investment in Alibaba alone, another online e-commerce company, generated more than RM6bil.

Parting words

In our world as we discharge our mandate at Khazanah, it is at one level about investments and cashflows, about allocation of financial resources, deployment of people, assigning roles, refereeing disputes, about due diligence and estimating valuation to pay for a company, and about measurement of risk, among others.

This may well be so, and is technical in nature but these decisions big and small are ultimately about putting the right things in the right place at the right time – the very definition of what is just and fair in itself.

It is ultimately a question of whether we have been able to be fair and therefore, as I leave, I ask myself if I have been able to live up to this very high bar of absolutely rendering trust to where it is due and to judge between people with justice.

The answer is almost always likely to be no, or at least to have fallen short; be it a big decision that was later proven to be wrong or a seemingly small word that was unkind and hurt someone. For that and more I humbly seek your forgiveness; it was never intended as such. - Azman Mokhtar 

https://www.thestar.com.my/business/business-news/2018/08/02/azman-farewell-letter/