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.
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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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
satD
ReplyDeleteI think we can all understand the honourable intention for the fund. It is to preserve the Common Wealth of the state rather than to see it frittered away on dubious projects.
I agree that the proposed structure looks unwieldy at several levels:
a. The need for another "partner" for the fund is surprising given that the source of funds is supposed to be the oil royalty from Petronas. Why is there a need for additional funding?
b. Federal government guarantee of RM5 billion. This is a risk issue. The necessity for such a guarantee obviously stems from the fact that, as you have pointed out, Malaysia's federal constitutional structure does not give states any standing to borrow without central government involvement. But what I see is risk exposure for the federal government.
The intention is good. And, a successful workout for the fund will set an interesting precedent for the other states.
This may be another step in the evolution of the federal system in Malaysia. A positive step?
thank u bro de minimis....
ReplyDeletelets wait for more "official" details on this....
yes i do hope that this will be a positive step.......right now i think hope is all we have.....
hav a nice weekend bro..
salam satD,
ReplyDeletejust a note from an average guy
from Kuala Terengganu...
did i read right - from 2004-2007 the state govt already received 7.3 bil ?? or was it 5.2 bil ? whatever la... but even 1 bil is 'out of this world' number for most of us. And the govt, tak kirala state atau federal, already spend ALL of it within 4 years ??? On what ??
OK la the new airport, the new sports complex (already becoming a white elephant)...apa lagi ? please la dont mention Masjid Kristal and Monsoon Cup, most locals dont want them in the first place... but what else ??
That was aLOT of money, at least the number of mega projects should be as many as there are zeroes there !
My suggestion - put everything on hold first ! ( masih terbayang Matsaid drooling while holding the mock up cheque or whatever )Make every RM spend accountable first. Pastikan semuanya 'bersih' dahulu dan tunjukkan yang kita serius dan jujur dalam misi memakmurkan Negeri Terengganu. in the mean time, buka je fixed deposit dalam Bank Islam !Gerenti faedah yang diperolehi melebihi apa juga pelaburan yang bakal di laksanakan..seperti lazimnya kalau state govt involved. At the end of the day, we still have the capital untouched. sorry, might not be a good investment plan, but i never trust politicians with wang rakyat.
If they say they know what they are doing, then show us what they have spent billions on in just 4 years
salam dinturtle
ReplyDeletenok buak lagu mano din, tamok halobo semuo, pahtu gi bui project ko cindian patrick tu...
ambo denga Pok loh bengong tu kalu gi ganu naik kereto patrick tokse paka kereto kerajae...silap protocol tu nampok sangak...
sedih duit rakyat ni....diut ore susoh....sapa hati demo buat gitu
hok project taman tamadun islam tu ambo raso menghino Islam..ado ko buat masjid kecik...perabih duit sungguh...sia ko ora ganu...
salam satD,
ReplyDeletesebelum mata ngantuk, just a few more thoughts on how to invest/spend the newfound wealth.
- apa yang Terengganu amat perlukan sekarang adalah peluang2 pekerjaan bagi rakyatnya. Dirikan kilang2...and please, other than kilang memproses keropok lekor, batik songket. Keluarlah dari tempurung minda sikit. (hmm..peluang pada exco2 buat field trip oversea ni) Beri anak2 muda kerja, bukannya sogokan wang ehsan rm200 tiap kali dekat pilihanraya ( it's true ! )
- hold dulu projek membangunkan Bandaraya KT buat sementara. Buat yang diatas dulu, pastikan taraf hidup orang Melayu dinaikkan. Saya risau jika pembangunan terlalu cepat dan orang Melayu Terengganu belum bersedia, pastinya kawasan bandar KT akan menjadi sepertimana bandar2 besar lain - didiami bangsa lain dan Melayu hanya dikawasan pinggir saja.
- Laluan keretapi KL-Ktn-KT-KB. Personally i think this is more urgent than LPT..berapa sangat volume kenderaan yang menggunakan LPT Ktn-KL sekarang? and the trafic between Ktn-KT is less than half that.Terlalu banyak cerita tentang self interest ahli2 politik BN supaya LPT disegerakan. Tapi heran juga, dengan 5-7 bil at disposal dulu, seharusnya LPT ke KT dah halfway.
- FREE education to all in Terengganu. Termasuk segala yuran2 PIBG, buku2 teks wajib maupun tambahan/buku kerja, uniform, percuma makan minum pada semua murid, bantuan basikal kepada semua murid2 miskin. Supaya tidak ada lagi kedengaran murid2 miskin tidak mampu ke sekolah walaupun dikatakan free sekarang. Bukankah ini juga pelaburan?
- biasiswa penuh kepada semua pelajar Terengganu yang layak ke IPTA/IPTS, maybe with a contract to work in the kilangs as per above. Maybe dirikan specialised IPTA yang lebih banyak bersesuaian dengan arah tuju kemajuan
- Pendahuluan/pinjaman tanpa interest kepada mereka yang mahu menunaikan haji
Agak kampung cadangan2 diatas, tapi apa yang pasti, rakyat Terengganu benar2 merasai hasil royalti minyak, dan memastikan rakyat Terengganu bukan lagi antara yang termiskin di Malaysia walaupun punya royalti berbillion2. Dan yang lebih pasti, BN akan memenangi hati rakyat Terengganu.
salam dinturtle
ReplyDeleteGood ideas you have there but i think these ideas should be common goals either by the BN or the opposition, i think we have the maturity to decide and swing the vote either way based on their performance...
If i may add, tourism is another sector which requires some mini small scale approach....what i mean by that is not "once a year" ORang Kaya Tourism crap like Monsoon Cup, but more environmentally frendly activities like diving, white-water, fishing, etc etc......you have the landscape and the cultural/historical aspects...maximise that to have an all year program.....the turtles especially bro...i could still remember the first time i saw these majestic beings came to shore to "bertelur" when i was small....just simply amazing.....
take care dinturtle , thank you for your tots....
salam satD,
ReplyDeleteSince u mentioned tourism and what Trganu has to offer.. yes, u are spot on. Used to work in the tourism industry here for almost 10years, 6 of them working for resorts of Tganu islands. Those days when the corals were still untouched ....WOW ! different world man ! used to dive up to 3 times per day for several months, covering almost all the main dive sites off Redang, Lang Tengah and Perhentian (and got paid for it too)- the best times in my life!
earned the nick during those days..whenever guided customers for snorkelling, 90% would came across turtles swimming.
last went there was 2 years ago, felt so sad finding dead/bleached corals everywhere. They should have more budget for the marine dept for education programmes on conservation, maybe introduce Rakan Marin.
sorry...berleber panjang pulok doh..
wah, kalau semua negeri-negeri yang ada Raja-raja Melayu tarik diri dari Persekutuan, apa agaknya akan terjadi?
ReplyDeleteThen i'll have paspot kelate...no renewal fees
ReplyDeleteit's not about 10b or how many billion involved.
ReplyDeleteat the end of the day, is the money going to be intended as it's supposed to be excluding the risk of having half past six govt officers in running the program.
there are just too much money to make out of Terengganu. but look at the terengganu folks, they are like poor victims being raped for god knows how many years.
Good story lah ...
ReplyDeleteI baca STAR today...TIA CEO baru appointed 2 months ago after intense persuasion by Tg Mizan ..tu not good start cos tak ada real passion.Lagi he's from Accenture..bukan seasoned investor pun?Bukan ada exposure business sangat pun?
But yang most "pelik" is dia kata TIA and partners READY to go...on execution mode cos projects planning etc sudah ONE year>>so it seems ada very powerful invisible hands orchestrating the deals and this CEO is only an administrator to polish the plans to make it acceptable???
Projects like developing value add worldclass resorts in the islands with villas and retirement homes are pure "consultant geekspeak" for construction contracts.
Why don't they just spend a billion ringgit to develop medium sized factories..banyak lg consumer products kita boleh buat>>and tak payah gi cari overseas..pergi Johor,Penang,Selangor dah banyak dapat idea.Go and cakap dgn orang2 yang in the business..ni asyik2 talk dengan orang baca buku,tengok bloomberg..and nak jadi worldclass sokmo.Jadi Malaysia class dulu lah,,if it can create 50,000 jobs kurang lah budok terenung kena gi KL.
thank you kuldeep for your tots..
ReplyDeletei sudah lupe about this post so long back in blogyears...thank you for reminding of the issue.
yes was a bit surprised when i saw the picture of the guy last week...
yup agree with u masih budak hingusan..unless the dude got global and local investment banking and venture capitalist experience....
and whats up with having a foreign in the picture.....?
Hi satD,
ReplyDeleteHappened on your blog while looking for write ups on TIA. I was working with a Terengganu state linked company for 7 years. The TIA concept is interesting but I would say kind of overlaps with the many agencies and companies that Terengganu State already have. Wherefore art thou Terengganu Inc and what is their role here or has their role been taken over by TIA?
Sustainable growth? Simple and straight forward. In Terengganu's stable they already have 3 PLCs doing fairly well (apart from the overdone political interference).
All they need to do now is to ensure that these companies are able to deliver
1. jobs
2. expansion of current businesses
3. new businesses relevant to current businesses (i.e. no unnecessary diversifications)
4. sustainable profitable ventures
5. attraction for additional investors, local and foreign
6. further migrations, local and foreign
7. change of culture and mindset
Having the big bucks just won't do. But having the arteries i.e. roads, highways, railway, shipping helps.
TIA or whoever need to ensure that the infra for the above is ready for investors to come in. Or else you can bring in as many prospective investors as you want but they will take one look at what's on offer and they will look elsewhere.
The main entrance to Terengganu still goes through Kemaman (without the highway) and that place is so congested and having to go through nearly a dozen traffic lights. Kuala Terengganu takes a near 2 over hours from Kemaman itself and without any discernible attraction to make people stay.
For God sake when I was there the highlight of the week is grocery shopping in Mydin and Giant. What's on offer is unclear and the number of hotel rooms is still few and far between.
Anyone that were to drive along the way would think that keropok lekor grow on trees by the sheer number of stalls that sell it. But will that make the Terengganu economy sustainable? What's on offer in Pasar Payang itself is sad apart from the Songket and Batik, the rest are mainly from Thailand.
Start an industry that is able to rival Thailand and replace their goods with Terengganu made goods and not merely the Songket. Even some Songket now comes from Bangladesh and India. The people are capable but their mindset need to change, the State need to show them how to quadruple their income and in the process establish a sustainable industry that is really Made in Terengganu.
Have a good day,
Shah