Azman Sets the Record Straight over Khazanah Controversies

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The truth on losses and gains, and the whole big picture.

  • Loss in investment in Swiss bank UBS – RM1.7 billion, not RM3 billion as widely reported
  • Investment in online e-commerce purveyor of women’s undergarments – a going concern which just had its best ever quarter
  • 10 largest losses – about RM19 million, the biggest loss being Malaysia Airlines’ RM8.4 billion
  • Top 10 gainers – some RM92 billion
  • Net gain over nine-year period from 2008 to 2017 – RM82 billion
  • Net worth increase from 2008 to 2017 – RM33.7 billion to RM115.6 billion
  • Total gains over the period – about RM100 billion (meaning gains outnumbered losses by a factor of 5:1; in footballing terms, like winning a game 5-1)

In a five-page farewell letter released yesterday, former Khazanah Nasional Bhd managing director Tan Sri Azman Mokhtar shared his thoughts on his journey with Khazanah spanning over 14 years and two months, clearing the air on some recent controversies particularly its colourful online undergarment investment in an Indian firm and a private banking venture.

He also shared his 42-minute exit meeting with Prime Minister Tun Dr Mahathir Mohamad on July 31.

Azman said Khazanah had recorded more than RM82 billion worth of net gain over a nine-year period between 2008 and 2017. The fund’s net worth adjusted rose from RM33.7 billion in December 2008 to RM115.6 billion in December 2017.

“In fact, as I have mentioned in our staff dialogues recently, it should be noted that our total gains over the period are roughly RM100 billion.”

He added that its top 10 gainers had made up some RM92 billion, while the 10 largest losses amounted to about RM19 billion. Of the big losses, Malaysia Airlines’ stood at RM8.4 billion and Silterra at RM5.5 billion.

“In investments terms, it means our gains have outnumbered our losses by a factor of 5:1. In footballing terms, it’s like winning a game 5-1,” he said.

Azman said while the losses over the years are indeed large, it was incurred as part and parcel of investment operations which were always subjected to investment risks.

In this case, he said many sovereign wealth funds suffered much larger losses than Khazanah did on investments in global banking stocks.

Azman said the losses incurred in Khazanah’s investment in Swiss bank UBS was RM1.7 billion and not RM3 billion as widely reported.

He said an internal review by independent board members with inputs from KPMG found that the case was clear of wrongdoing and, investment processes and board approvals were complied with.

“At all times proper provisioning and recognition of the losses were made in line with accounting and prudential standards with even at one point 97 per cent provisioning made of the RM3.6 billion total investments.

“Through diligent recovery work, more than half or 53.5 per cent of the value of the investments or RM1.9 billion were recovered,” he said.

He explained that a significant factor in the losses had resulted from the negligence and breach of the shareholders agreement by the fund manager Olivant – a charge that the fund manager, through a legal process, ultimately admitted to, apologised and assumed responsibility for.

“A related matter to note is that as the matter was a legal case, legally binding confidentiality clauses effectively restricted the amount of public disclosure that could be done, notwithstanding that, the confidentiality clauses helped with facilitating an orderly recovery process,” he said.

On Khazanah’s investment in Zivame in India, Azman said the online e-commerce purveyor of women’s undergarments was a going concern and had just had its best ever quarter.

He said Khazanah remained quietly confident that it would be able over the medium term to recover all or almost all of what it has provided for.

“We also know that India is a market of more than billion consumers, half of them women, with rising incomes and even faster-rising Internet and mobile penetration, a male-dominated physical retail sector and hence a generally bad retail experience for women looking to buy undergarments,” he said.

Azman said Khazanah has invested US$19 million (RM80 million) for a 22 per cent stake and last December, it has decided to prudentially provide in full in its 2017 accounts as a conservative measure as it sometimes does for technology investments.

“In any case, again, as with all our overall investment assessment we need to look at things in perspective in that the same risk-taking in India for the consumer sector in companies ranging from the sale of paints for houses to jewellery, under what we call Project Billion have generated more than RM1 billion realised and unrealised gains to date.

“Further, lest we forget that in Alibaba alone, another online e-commerce company we have made more than RM6 billion gains and in fact, these gains alone are funding a multitude of technology investments, including in Zivame. So again, a sense of perspective would be helpful in this regard,” he said. – NST


Earlier reports:

Aug 2, Khazanah Lost RM80M on Online Lingerie Venture

Jul 30, RM3B Loss Caused Khazanah Ouster