Malaysia says not ready to sell down state equity

Kuala Lumpur, Dec 8: Malaysia is not yet ready to sell downstate equity, the prime minister said today, despite claiming successso far in reforming state-linked firms.

The government controls or partly owns 50 listed firms making up36 per cent of the 220 billion dollar local market, but they havehistorically performed poorly against the rest of the market.

''We should be proud of the successes and achievements that wehave attained thus far,'' Prime Minister Abdullah Ahmad Badawi said ingiving an update on his two-year-old reform drive.

But asked if the government was now ready to sell down its stakes,he replied: ''Not yet.'' ''I have always held a view that we do nothave to have too high equity in these companies. When it's time toreduce them, we will reduce them. That's all,'' he added.

Malaysian state-linked firms, such as Telekom Malaysia and lendersMalayan Banking and Bumiputra-Commerce Holdings, have been buying upfirms overseas, but their own equity is still tightly held.

The reform drive began in May 2004 with one of the ultimate aimsbeing a sell-down of some state equity, but so far state investmentagency Khazanah Nasional, which is leading the drive, has effectivelyonly written some call options against holdings in Telekom androad-toll firm PLUS Expressways It has done this through convertiblebond issues.

In giving a report card on the reforms, Prime Minister Abdullahsaid 20 state-linked firms inside the market's benchmark Kuala LumpurComposite Index had generated shareholder returns in line with the restof the index since reforms began.

But the report card, compiled by a special multi-agency committeeoverseeing progress, noted that state-linked firms were still lessproductive than their non-state peers.

In the next phase of reform, the third, the government wants eachstate-linked firm to produce a business-transformation plan by April2008. Some troubled firms, such as car-maker Proton Holdings Bhd andMalaysian Airline System Bhd, have already begun work on transformationplans.

''The road ahead will be a bumpy one,'' Abdullah said.

''Globalisation and increasing competition will lead to a tougheroperating environment. Successful transformation will not come easy, infact most companies that attempt it will be tested to their verylimit.'' Asked if this meant the government would allow somestate-linked firms to fail, Abdullah told reporters: ''I don't believethat we should allow them to fail.

''We must help first and, if we find that, of course, there is noreason why they should continue, then we will have to think that wecreate another company and wind it (the failed firm) up.'' Malaysia'sstock market has surged 21 percent this year to nine-year highs, partlydriven by a rash of state-inspired mergers, which are linked to thereform process. But relatively high dividend yields and strong foreigninterest in regional bourses have also played a large part, brokers say.

Reuters