Is Terengganu leaving the Federation......

News flash.....bold emphasis added

Malaysian Insider

KUALA LUMPUR, Dec 12 — History will be made soon when the Terengganu state government sets up its own RM10 billion sovereign wealth fund, the first state in Malaysia to do so and a move aimed at ensuring steady revenue after the oil and gas money dries up.The decision to set up the Terengganu Investment Authority — a body to be run solely by professionals — is also an indictment of the unsatisfactory manner royalty funds from oil and gas have been used by politicians for the last two decades. The Malaysian Insider has learnt that the proposal for a sovereign wealth fund was put forward by the Yang di-Pertuan Agong, Tuanku Mizan Zainal Abidin, who is also the Ruler of the east coast state. The state exco endorsed the proposal at its weekly meeting yesterday. Political observers say that the decision to set up the authority is probably driven by the desire to ensure that royalty from oil and gas is spent wisely and in the long-term interest of the state, and not squandered on flashy projects. While the oil and gas resources in the state have not been tapped fully, concerns have been raised that insufficient emphasis has been placed on how to maximise the royalty payments.

Under the TIA, the Sultan of Terengganu will be the chairman of the Board of Advisors. The Menteri Besar of the state will also be represented on this board. But the Board of Directors will comprise only professional managers. The idea here is to ensure that investment decisions are made by professionals and without the interference of politicians. Sources in the state said that RM10 billion will be invested both within Terengganu and also the rest of Malaysia. But the TIA will also have a mandate to invest globally. The RM10 billion will be sourced from the local and foreign capital markets with a proposal for the Federal Government to provide a government guarantee of up to RM5 billion. As a measure of long-term sustainability, TIA will continue to reinvest its profits to generate higher growth. Dividends will be declared to the state of Terengganu and its partner investors.

The Edge

KUALA LUMPUR: Fed-up with years of abuse on the annual oil royalty it gets, the Terengganu state government is channelling its share of the oil money to a proposed RM10 billion fund that will invest in and outside the country. The fund, called the Terengganu Investment Authority (TIA), is styled after the sovereign wealth funds in the Middle East. It will be managed and supervised by a team of professionals and the chairman will be the Sultan himself. Under the proposal, which was approved by the state exco two days ago and mooted by the Sultan who is also the King, the funds that are to be raised will be backed by cash flow from the oil royalty the state gets from Petronas annually. The amount of royalty that Terengganu gets from Petronas is not disclosed publicly. Based on reports, between March 2004 and 2007, the state government had supposedly received RM7.3 billion. However, it has been brought up in parliament that the amount received by the state is only RM5.2 billion.

Sources said that under the proposal, the fund will also get a RM5 billion guarantee from the federal government, which should further reduce the risk of the papers raised.“By virtue of the funds being raised are backed by cash flows from Petronas, the papers to be issued by TIA should get good ratings. The cost of raising the funds should be low despite the challenging environment,” says a source, adding that TIA would also be declared a tax-exempt company. Investors for the RM10 billion fund are expected to be drawn from local and foreign capital markets.

To ensure that the state’s development budget is not severely impacted by the channelling of the oil royalty to TIA, a portion of the dividends would go to the state. “Apart from investing locally and abroad, the fund will also be tasked with luring strategic international investment back to Terengganu,” said the source. It is learnt that TIA was mooted by the Yang di-Pertuan Agong Tuanku Mizan Zainal Abidin to ensure that the state channels sufficient funds to long-term ventures that would provide sustainable income to continue to drive economic growth, even when revenue from oil royalty drops.“The ruler wants the state’s wealth to be managed prudently and professionally so that the future prosperity of the state can be safeguarded,” said the source.

Holy Cow!!!!

Lets start with some basic facts first.

1. Terengganu is not Sovereign from a Credit Risk Perspective, try getting a rating and see if the state can get a AAA to start with......in the world of finance only the Federation of Malaysia holds the sovereign risk in the peninsula and a Sovereign Wealth Fund is a fund created typically when you have EXCESS funds that can be managed and you want to diversify from low risk assets into equities and other class of securities...... Conflicting Reports from the Malaysian Insider(Sovereign) Vs The Edge (“styled” as A Sovereign).....huh u either dont know what u talking about or you fail to listen properly to your source...main bantai aje....or your source is bingai...

2. You want to pinjam Petronas Risk via the Securitisation of your future revenue payments which is tied to a very volatile commodity and not only that you want to ask for a Government Guarantee of HALF the Fund size just in case you LOSE money is it?

3. And then you want to raise funds say via the bond market...lets assume you can do a 5 year paper....say if you are lucky to get a Quasy Government risk which should be trading around 3.5%(Khazanah) to 4.7%(Cagamas)........Armed with 10B your "proffesional" team (with what track record???) go around the world (including Terengganu) to invest...and find people to come back to Terengganu to invest. ..... at minimum you must get 5 % per annum to service the bond and pay for expenses....assuming no capital losses.....mmmm .......folks ever heard of ValueCap???? and the various state government mutual funds in the mid 90's.....on top of it you also want to invest in long-term ventures with long gestation period....phew.....lu biar serious beb

4. Why do you want to allow other investors into the Fund?....only rakyat should be allowed What is your investment/portfolio allocation strategy? How will the profit distribution rule be? Entry and Exit Clause to the Fund?...can you supplement our future income instead of us relying on govt-pension or EPF benefits? 

Its an interesting idea no doubt but please do not provide any form of Guarantee...i’ve written about this before...its a ticking time bomb

This i think is a good initiative to spur up local state government bond market but may crowd out the local investment scene especially in the areas of private equity with 10Billion potential investable funds, tell you what why dont you do this instead.........

1. Federal Government begins a policy of financial decentralization whereby local governments are given more responsibility in economic management........state governments should no longer be put in an economic “hostage” situation......literally choked of their financing......no can do thats not right.....these are people ....your rakyat who needs them....... 

2. State Government are allowed to invest in a number of instruments but must put a cap on Cash (operational cash requirements only) and they should never be allowed to buy Government Bonds as this would technically bring the money back to Federal goverment and it shows that they are not managing the cashflow properly as per their local domestic budgets proposed to the federal government...

3. The economic “freedom” of local governments will also reduce the potential amount of money politics, as people would really vote for the overall capacity of the potential candidates......... especially the economic management capacity which is a key criteria to have the ability to lead our country

4. People in general will then “connect” more with the candidates as his or her performance can be monitored much more closely in the well functioning of a smaller “system”...the good ones among them should then compete at the National Level of Politics.....the best of them should lead the country

5. Start investing in National Unity Programs executed through our “Micro” Society Based Institutions..who knows you and your family and potentially your mother as well...something like a Mosque, Church, Temples....and other apolitical community based organisation......we need to seriously think about finding a solution to the level of polarisation in our society..blogger de minimis mentions of reigniting the rukun tetangga to help solve the escalating crime rate

6. If Terengganu really wants to invest .......start small..just use what you have..do not borrow to invest....let the managers prove to you that they are capable.....or best part do not start your own.....farm out or outsource the money to the BEST MANAGERS IN THE WORLD.....you then evaluate them annually in their portfolio allocation strategies, investment returns and risk profiles.....measure their performance against the original mandate of the Fund.....you only need the Sultan and The State Government to decide on this.....plus you can save some money on hiring “proffesional” managers........invest the local domestic capacity....of if your are really serious find a couple of capable Anak Terengganu to be trained in London or New York with the funds.....sorry this one i cannot apply.......ambo ora kelate.......  

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Fill in the blanks folks.......................................let me know what you think..........i wanna build a nation.............................what about u?

DAULAT TUANKU MIZAN ZAINAL ABIDIN !!!! its been a wonderful few years in seeing how the Royalty play its role in the Nation......thank you, thank you