GLCs: Time to feed the lion?
Forget about the politics of fuel price protests The feel-good moods are fast thinning out even in the corporate circle.
We had been led to hopefully hope that reforms would take place when the GLC revamp started more than 18 months ago. S. Shanmugam of The Edge Weekly looked at events in the past week and concluded that recent major decisions made by Putrajaya have not shown that things are going to change soon.
Shanmugam's article is congruent with an earlier Screenshots entry (March 4) where I said minister Shafie Apdal has evidently beaten Minister Dr Lim Keng Yaik to get the PM's approval for a fuel price increase. Tenaga Nasional, which has been asking for quite a while to increase the electricity tariff, and the rationale is well justified, will have to wait for its turn.
As it is, Tenaga has certainly been made to bear the full brunt of the crunch when the 30 sen/litre increase of fuel prices was announced, which triggered grassroots protests only made worse by rounds of costly wrong-spins by the mainstream media.
Is the "G" that's the root cause of all problems at the GLCs? Quote Shanmugam (Big Money: It's the 'G' in GLC that counts — negatively):
The market showed its disappointment, with Tenaga losing almost RM2 billion in market capitalisation. But that would only be a superficial injury if one considers the wider implication of the tariff deferment on the Khazanah-led revamp of government-linked organisations (GLCs). It's not only a blow to the utility company but also a severe setback to the reform of the GLCs.Why? Because it reaffirms the general view that the "G" in GLC has not demonstrated anything to show that it will be able to make tough decisions when it comes to the crunch.
But is that really the case?
No, it is not. The fact that the government increased the petrol price by 30 sen to reduce its subsidy bill is ample evidence that it can make tough decisions. But why was the same resolve not applied in Tenaga's case?
Obviously, the decision-makers still view GLCs as government entities and not private bodies with private shareholders. They do not view GLCs as companies where decisions should be commercially driven or there would be repercussions. Factors such as GLCs losing a few billion in market capitalisation do not count for much.
More quotes from Shanmugam:
Khazanah can initiate numerous plans, and come up with countless papers and various strategies to reform GLCs. But the over-riding determinant is the 'G" and not the "C" in GLC. Only when the interests of the "C" supersede that of the "G" will the GLC revamp be effective.
Until then, not many will take seriously all the plans and papers churned out on the reforms.
Yesterday, analyst Noor Azwa Mohd Noor from Avenue Securities Sdn Bhd released an equity update to investors, asking the loud question: GLCs: Are We Behind Schedule?
The loud question asked: Where are the Execution Books (as mentioned in the GLC Transformation Manual) that were supposed to be released end of 2005?
Stop the lousy movie. Isn't it time to feed some MoF and Khazanah head-honchos into the lion's cage?
Excerpts of Avenue Securities Sdn Bhd's equity update to investors March 10, 2006
If the latest Hollywood movies with “G” flavour like Brokeback Mountain, Capote and TransAmerica have received so much praises this year despite their controversial theme, our GLC revamp somehow have not obtained much “Gee” lately from the investment community.
Few investors’ key wish-lists for the GLC revamp have been put on-hold, while more GLCs suffered severe earnings cut after recorded disappointing 4QCY05 financial results. But what is more worrying is the absence of the Execution Books (as mentioned in the GLC Transformation Manual) that were supposed to be released end of 2005. Are we behind schedule? What happened to the execution books?
As highlighted in the GLC Transformation Manual (released on 29 July 2005), 10 initiatives (covering key areas of GLC operations and governance) have been identified to be developed, launched and implemented across GLCs between July 2005 and December 2006. These 10 initiatives are organized into “Execution Books” (a total of 8) that detail “how” selected Policy Guidelines are to be implemented.
However, the market has yet to get hold on the 2 Execution Books (“Green Book” and “Red Book”) that were initially targeted to be distributed in 4Q2005. As these 2 books will cover part of the 10 initiatives, i.e. the guidelines on procurement policies (“Red Book”) and enhancing board effectiveness (“Green Book”), further delay in the implementation would undeniably affect the whole GLC revamp process.
No sign of earnings delivery yet; but more downgrade!
Most GLCs have failed to impress the market during the recent financial results for 4QCY05 – blamed it mostly on the higher operating costs, etc. To make things worse, few leading GLCs have even registered disappointing numbers (MAS, Proton, Tenaga, Telekom and Sime Darby).
Although the GLC Transformation Manual has clearly highlighted that the GLCs are required to show tangible results only in Phase 3 (2007-2010), we reckon that as we are approaching the latter part of the year in
2H06, initial signs of improvement for FY07, both operationally and financially (based on the consensus estimates), are very crucial to convince investors that the whole revamp process is on the right track.
Consensus earnings estimates of most public-listed GLCs for FY06-07 have not showed many upgrades over the
past 6 months (except for VADS and UMW). In fact, some of them have even suffered severe earnings downgrades (MAS, Telekom, Proton and PLUS). Not surprisingly, most big-caps GLC have performed poorly in 2006.
Final thought.
As we pointed out in our 2006 strategy “Every Dog Has Its Day?”, most GLCs would have a difficult time to impress the market this year given the current tougher business environment (higher operating costs, rising interest rate, etc). The slower pace of GLC revamp could further delay the GLCs from delivering any tangible results. Hence, investors would continue betting on GLC stocks with M&As theme for higher returns. We look forward for more positive developments ahead with regards to the GLC revamp.
In the meantime, we will continue searching for the box-set DVD of our all-time favourite G-movie, The Godfather.
Comments
TNB has been named most improved company in Malaysia in terms of corporate governance by Deutsche Bank. To me the award by Deutsche Bank is dubious and it is equivalent to Tom Cruise takes the 26th Annual Golden Raspberry (Razzie) awards. All the GLS fail to show their report cards and as the headmaster of the school of GLS, Pak Lah fails to show his commitment too.
Refer to STAR dated 10/03/2006.: "Asked whether Public Accounts Committee (PAC) chairman Datuk Shahrir Samadwas satisfied with the running of GLCs, Shahrir said: “Now, what is happening is the transformation of GLCs.” ". NO direct answer to the question posted. In another word , "transformation" means NO PROGRESS AT ALL.
Now the government start to talk about KPI for GLS, it takes another few years to implement ? Haven't been all the KPIs ready before we talk about monitoring ?
When will TNB president and chief executive officer Datuk Che Khalib Mohamad Noh meet up with Tom Cruise to share all these dubious award ?
Posted by: Pentiumboy![[TypeKey Profile Page]](http://www.jeffooi.com/nav-commenters.gif)
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March 11, 2006 11:09 AM
My company went through a Strategic Management course. For a small company, it took nearly a year to implement. And one needs to understand and know English well in order to understand what are KRAs, KPIs, objectives, activities and annual action plan. Even after that there is no guarantee it will done. The chances of failure are as high as 90%. What more with GLC like Tenaga where command of English is perhaps low or poor, poor understanding of workflow, poor quality etc, etc. It will take years to come up with a KPI for CEO, all management staff and executives before it can even be implemented. Otherwise its not complete. Even when completed, there is no guarantee it can be implemented successfully esp if you have a bozo as a CEO, nothing will work. Its really sandiwara than anything else. Thks.
Posted by: bystander![[TypeKey Profile Page]](http://www.jeffooi.com/nav-commenters.gif)
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March 11, 2006 06:30 PM