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POS Goes Public: Is Privatisation Necessary
By D. Shahrir
1/6/2001 11:12 am Fri
POS GOES PUBLIC: IS PRIVATISATION NECESSARY?
My friends are not restricted to politicians; some of them are businessmen.
A few of them are successful enough to try to list their businesses on the
KLSE. And to these few, my question to them has always been: why share your
profits with others when you are doing well as a private limited company?
And the answer that keeps coming back to me is that they do not wish to
continue carrying the burden of guaranteeing the loans taken by their
companies. The debt burden of a public company is carried by the company and
not by its directors, and as in most cases with private limited companies,
jointly and severally. In short, in addition to all the reasons in your
business school textbooks why a company goes public, one that is not often
enunciated (though really is the real reason) is that private liability also
becomes public liability.
So why does Pos Malaysia have to go for a back door listing through Phileo
It was not to save Phileo Allied since it is flushed with cash after selling
off its banking business to Maybank. About RM 1.18 billion of it, making it
just about the richest public listed company on KLSE and ever since that
sale, attracting a lot of attention from some would-be buyers. There is also
nothing in Phileo Allied's track record that could contribute to Pos
Malaysia's efficiency and profitability, and thus necessitating the merger.
There is also no urgency for Pos Malaysia to opt for a backdoor listing
although the Treasury's Secretary-General maintained that a public listing
was something that had always been planned for Pos Malaysia. And judging by
its track record, Pos Malaysia could easily have qualified for a listing on
So why does Pos Malaysia have to go for a back door listing through Phileo
Allied? The answer, I think, is in the cash hoard that Phileo Allied has.
But first, a bit of history. I have always been fascinated by Phileo Allied,
beginning with its sudden (to me, at least) emergence as a bank and
financial powerhouse at a time when it was said that getting a bank license
was next to impossible. Then there were rumours of Datuk Seri Anwar's
closeness to the owner of Phileo Allied. And even a foreign journalist
friend was taking up a job in Washington, ostensibly working for Phileo, but
in reality, positioned to make Malaysia (at that time!) accessible to the US
politicians. Later on, there was talk that the wife of Anwar's private
secretary was being employed by Phileo Allied, and on generous terms of
remuneration too. That was all pre-1997.
Then things started to change when Anwar was sacked as Deputy Prime Minister
and Finance Minister. As the bank mergers got underway, suddenly a new
personality emerged at Phileo Allied. Mokhzani Mahathir became the company's
public spokesman on whether its bank business was to be sold for Maybank
shares or cash. He said that he preferred cash to shares. That Phileo Allied
changed from a business entity controlled by an Anwar business ally to one
headed by the Prime Minister's son intrigued me enough to ask the Prime
Minister himself when he chaired one of the UMNO Supreme Council's meetings.
I got my explanation at the next meeting, but the company still continued to
fascinate me. I was beginning to wonder how its over-a-billion-ringgit cash
hoard would be used. Or, who would eventually be in control of all that
It is common knowledge that companies with cash hoards are attractive to the
acquisitive businessmen. It is as though you cannot call yourself a
businessman if you do not have a nose for money. Especially a large hoard of
it, and preferably in a company that you could buy for less money than what
it had. PNB, for example, sold MMC to a well-known but low profile
Bumiputera entrepreneur because PNB reckoned that MMC was not paying
dividends at an acceptable level according to PNB's investment criteria. The
new owners of MMC were not adverse to sell off its assets (RM 800 million
for its stake in Ashton Mines alone) and utilise those proceeds plus MMC's
cash holdings to finance his related businesses. And this is nothing new for
this particular Bumiputera entrepreneur. Having earlier acquired Johor Port,
some RM 120 million was borrowed from the company in 1999 for the ostensible
purpose of purchasing Pelabuhan Tanjung Pelepas Sdn Bhd. But when MMC's
funds were used for the same purpose, the amount borrowed was until lately
not repaid to Johor Port. Cash-rich companies will attract many suitors, and
Phileo Allied generated its fair share of stories.
According to one version, Mokhzani Mahathir was in negotiations to sell off
Avenue Assets' controlling stake in Phileo Allied to a Malaysian businessman
based in Hong Kong but the deal was blocked at the top. It is quite
difficult to ascertain whether there was in fact any truth to this story,
but like all rumours in Malaysia, nothing can be certain or untrue until it
happens. However, this story was overtaken by the subsequent decision by
Mokhzani to quit the corporate scene although the events that preceded his
sudden decision were said to be more linked to accusations and speculation
that he was involved in Kamunting Bhd. This part was cleared up by the Prime
Minister himself when he remarked that his son's shareholdings in Kamunting
was too miniscule to constitute control and influence. Anyway, that is
another story. Phileo Allied's cash hoard seemed to yet be up for grabs to
the right bidder.
Now that Phileo Allied is buying Pos Malaysia, a substantial part of its
cash holdings will go to the government. Since the government loan to Pos
Malaysia of RM 259.3 million has been converted to a 5% convertible loan of
RM 250 million from MoF Inc. to Phileo Allied, and the government will hold
a special preference share in the company as part of the deal, effectively
Phileo Allied will be controlled by the government. In a sense, the
government has ended up in control of Phileo Allied's cash hoard and not
some other fast moving businessman. Of course that Mr. Tong, the owner of
Phileo Allied Bank who is said to be close to Anwar Ibrahim, seems to be out
of the picture completely is seen to be the price paid for keeping the wrong
friends, no matter how powerful at that particular time.
It is also fortunate that Mokhzani had earlier announced his sell-out of his
corporate interests, which presumably included his company's holdings in
Avenue Assets which has a controlling stake in Phileo Allied. Otherwise, the
Phileo Allied-Pos Malaysia deal will be seen as Mokhzani benefiting from the
privatisation of Pos Malaysia. It will give more ammunition to the
opposition parties that are quick to zero in at any opportunity to accuse
the ruling party of impropriety. So the businessman who had bought Mokhzani'
s corporate interests now owns a substantial part of Pos Malaysia. Compared
to PNB that had a stake in Pos Malaysia at the time of its corporatisation
but sold it back to MoF later on, this businessman is a lucky man indeed. I
would be more comfortable knowing that PNB, rather than the individual, has
now a stake in Pos Malaysia and has access to the remaining cash in Phileo
Allied. But strange things are known to happen in the Malaysian business
It will be hard to unravel the way things work out in these kinds of deals
and know for certain just who owns what. Even the docile Utusan Melayu,
which sort of sat up at news of the deal, has later decided instead to
tackle just the issue of whether a privatised Pos Malaysia will benefit the
consumers. I can imagine that the particular newspaper was as intrigued as I
was as to the actual beneficiary of the deal since it really came out of the
blue. Already the track record of privatised services has not been too good
in as far as maintaining the same cost of their services to the public. And
now another public service has been privatised. Is it really necessary?
A civil servant in Johor once complained to me that the local authority that
he is heading has now to pay higher charges to Southern Waste, the company
that has taken over the waste and rubbish collection services in the whole
of that state. His argument was very simple why a privatised rubbish
collection service is more expensive. For the same kind of work, an employee
of Southern Waste is paid about twice more than a government employee and
that does not immediately mean that the company is twice as efficient. In
fact, complaints abound over the company's performance in Johor Bahru.
Obviously now that Pos Malaysia is privatised and is a public company as
well, the employees will be paid at the prevailing corporate rate in
salaries and other emoluments. It is well and good for the management and
staff of Pos Malaysia, but what will be the impact on the cost of its
services to the public?
One argument for privatisation of public services is that the public is
being subsidised since the real cost of the service is not paid for by the
consumer but is absorbed by the government. The argument for public services
had for a long time been that a monopolistic situation will make the
services more economically priced and government, as a natural monopoly, can
provide such services better than a private company which will instead pick
and choose the profitable market segments. Now the private companies vying
for privatization of public services ask for bigger territorial concessions
so that there will be so-called economies of scale.
That is why Southern Waste as a company has the whole state of Johor plus
Malacca as its territory and if Johoreans are seen as an always complaining
lot, the state government of Malacca has not been so forthcoming in its
praise for Southern Waste either. If ever one was to believe that
bureaucracy was faceless, one should stop and consider just how even more
faceless the private company undertaking the public services has become. And
in the business world, companies change hands (and faces) even faster than
the civil servants change their jobs!
But it was not entirely a period with good news for 'privatisationeurs'. The
re was also news that the proposal to privatise school canteens all over the
country has been abandoned. That was good news indeed because those small
and localised businesses would have been displaced if that plan had gone
ahead. It makes one wonder what else can be privatised, for that eventual
KLSE spin-off for the select business circle. It is sad that there are
businessmen that find difficulty to create business wealth and value through
entrepreneurship but prefer instead to privatise government-owned assets.
Pos Malaysia has gone the same route, and along the way PNB had lost out in
owning a stake in it, whereas a businessman who had just acquired Mokhzani's
corporate interests has suddenly become a major stakeholder in Pos Malaysia.
It seems that the fascinating saga of Phileo Allied is far from ever.