Response to EPU's letter on bumi equity
Little StarsPublished: Jan 8, 2015 1:00 AM | Updated: Jan 8, 2015 9:55 AM
COMMENT We refer to Economic Planning Unit's response to our two articles published in Malaysiakini Dec 3 and 4, 2014.
It is gratifying that there is no rebuttal from EPU against our main conclusion that the 30 percent bumiputera equity target has already been achieved.
EPU does not dispute the two major flaws in the government's existing methodology of computing equity ownership highlighted in our articles:
- Flaw no 1, par value was the basis of valuation of share capital; and
COMMENT We refer to Economic Planning Unit's response to our two articles published in Malaysiakini Dec 3 and 4, 2014.
It is gratifying that there is no rebuttal from EPU against our main conclusion that the 30 percent bumiputera equity target has already been achieved.
EPU does not dispute the two major flaws in the government's existing methodology of computing equity ownership highlighted in our articles:
As a matter of fact, similar findings were reported by a group of researchers from Asian Strategy & Leadership Institute (Asli), who undertook their own survey of selected companies in 2006. It was most unfortunate that the prime minister then and the government were misled into rejecting the Asli report outright and key members of the research team were unfairly penalised. For this, the government owes the team members an apology.
This time, we are glad to note the following points indicated in EPU's response:
1. It promises to uphold the importance of ensuring that the methodology in computing corporate equity ownership must reflect the actual scenario;
2. It is currently reviewing its methodology with a view to ensuring its relevancy and accuracy;
3. Market value of public-listed companies is being considered and will be reported in the Eleventh Malaysia Plan (11MP); and
4. It admits that government-linked companies (GLCs) belong to all Malaysians regardless of ethnicity.
As far as data on equity ownership is concerned, it is high time for EPU to redeem and re-establish its long-lost credibility and professionalism. If it is not clearly seen to do so during the preparation of the 11MP, its reputation and integrity will be completely damaged beyond repair.
Independent task force
We are of the opinion that market price of public-listed companies must be the only basis for the valuation of equity capital in the 11MP. If the real measure of wealth (market value) is not adopted, it is meaningless to talk about credibility and professionalism.
In order to assist the government to regain its credibility with regard to equity ownership data, it is advisable to set up an independent task force headed by the Securities Commission to undertake the equity computation job in a transparent and professional manner.
For unlisted ‘sendirian berhads’ whose shares are not traded in the open market, we concur with the suggestion by a Malaysiakini reader (whose pseudonym is Fair Play) that as an alternative, ‘par value’ should be replaced by shareholders' funds as the basis to determine the ‘market value’ per share of individual company.
This is done by taking the total paid-up capital, all reserves and undistributed profits and then dividing the sum by the total number of shares issued.
Such a new method will be very close to what EPU attempted to achieve, i.e. to measure "corporate equity ownership of all types of companies using the same value indicator".
Unfortunately, the additional information required for this new method is currently not readily available with the Companies Commission of Malaysia. The additional information has to be extracted from the audited accounts of companies and further computation is required to obtain the shareholders' funds. And this involves a very huge number of ‘sendirian berhads’.
For practical reasons, as the 11MP document has to be ready by mid-2015, it may still be necessary to rely on par value for the valuation of ‘sendirian berhads’. If the new method cannot be applied in time during the preparation of the 11MP, concrete steps must be taken immediately so that par value will not be used again for ‘sendirian berhads’ in the preparation of the Mid Term Review of 11MP a few years from now.
The use of par value for ‘sendirian berhads’ must not be manipulated and turned into an excuse not to use market price for public-listed companies. The use of par value for listed companies is totally unacceptable. The continual use of par value for publicly-listed companies as a basis to compute equity ownership will be construed as sheer desperation on the part of politicians and incompetence on the part of government servants.
Although the total number of companies listed in Bursa Malaysia is just about 1,000 while that of unlisted ‘sendirian berhads; is almost one million, the majority of ‘sendirian berhads’ are small companies whose shareholders funds are relatively small compared with the market capitalisation of listed companies.
For instance, the market capitalisation of Malayan Banking, the largest listed company in Bursa Malaysia, in December 2014 was more than RM80 billion. It may take as many as 100,000 or 200,000 small ‘sendirian berhads’ to have a total shareholders' funds of RM80 billion.
GLCs owned by all M’sians
As for government-linked companies (GLCs), it is insufficient to merely state that they belong to all Malaysians. Lip service will not be acceptable. The total equity value held by GLCs should be apportioned among the ethnic groups proportionately according to the population mix.
More importantly, the GLC apportioned values (proportional entitlements of the various ethnic groups) should be added to the equity ownership of the various ethnic groups. The resultant figures should be reflected accordingly in the table of the 11MP document that shows ‘Ownership of Share Capital of Limited Companies’.
After the proportionate allocation of GLC equity, the government does not have to straight away dish out and transfer the shares to the various ethnic groups. The government can still hold the shares on behalf of the various communities. We believe Khazanah Nasional and other professional institutional investors have better expertise to create value than individual shareholders.
EPU should take the initiative to utilise the 11MP (the last Malaysia Plan before year 2020) as a platform to remind and re-educate all Malaysians that the 30 percent bumiputera target refers to share capital of limited companies only, and not to ownership of all properties, buildings, houses, shops, factories, cars etc.
Ownership of share capital of limited companies is not a perfect indicator of ownership of wealth, but, we must admit that there is no such thing as perfect indicator. We do not need a perfect indicator, but just a good indicator. As an indicator, ownership of share capital of limited companies is comprehensive and good enough because it covers both public-listed companies as well as ‘sendirian berhads’.
Malaysia must not be turned into a regimental quota-based country where ownership of all types of wealth is rigidly regulated along ethnic line. Such a quota-based system will be stifling to one party and stultifying to the other. If adopted, it is the surest way to grind the Malaysian economy to a halt.
When the 30 percent target in limited companies was set by the founding fathers of the New Economic Policy, the understanding was that crutches must be thrown away when they were no longer needed. It is irresponsible to introduce a new set of crutches by using new terms such as "effective control of equity".
We are confident that in the future bumiputeras have the ability to achieve share ownership in the corporate sector above 30 percent through fair competition, without the assistance of a quota system. In fact, a prolonged quota system will have the unintentional retarding effect which is detrimental to bumiputeras.
EPU should remind all Malaysians that the original objectives of the New Economic Policy were to eradicate poverty regardless of race and to restructure society with a view to achieving national unity.
The overriding objective of national unity can only be achieved if the wisdom and noble intentions of the founding fathers are respected and accepted by all ethnic groups in Malaysia.
LITTLE STARS is pseudonym of a group of professionals.
THE BUMI EQUITY DEBATE
Has 30pct bumi equity target been achieved?
Major flaw in computing bumi equity target
30pct bumi equity is Umno’s raison d'etre
In defence of article on flaws in bumi equity target
EPU reviewing how it measures bumi equity
It is gratifying that there is no rebuttal from EPU against our main conclusion that the 30 percent bumiputera equity target has already been achieved.
EPU does not dispute the two major flaws in the government's existing methodology of computing equity ownership highlighted in our articles:
-
Flaw no 1, par value was the basis of valuation of share capital; and
- Flaw no 2, the exclusion of shares held by federal and state governments
As a matter of fact, similar findings were reported by a group of researchers from Asian Strategy & Leadership Institute (Asli), who undertook their own survey of selected companies in 2006. It was most unfortunate that the prime minister then and the government were misled into rejecting the Asli report outright and key members of the research team were unfairly penalised. For this, the government owes the team members an apology.This time, we are glad to note the following points indicated in EPU's response:
1. It promises to uphold the importance of ensuring that the methodology in computing corporate equity ownership must reflect the actual scenario;
2. It is currently reviewing its methodology with a view to ensuring its relevancy and accuracy;
3. Market value of public-listed companies is being considered and will be reported in the Eleventh Malaysia Plan (11MP); and
4. It admits that government-linked companies (GLCs) belong to all Malaysians regardless of ethnicity.
As far as data on equity ownership is concerned, it is high time for EPU to redeem and re-establish its long-lost credibility and professionalism. If it is not clearly seen to do so during the preparation of the 11MP, its reputation and integrity will be completely damaged beyond repair.
Independent task force
We are of the opinion that market price of public-listed companies must be the only basis for the valuation of equity capital in the 11MP. If the real measure of wealth (market value) is not adopted, it is meaningless to talk about credibility and professionalism.
In order to assist the government to regain its credibility with regard to equity ownership data, it is advisable to set up an independent task force headed by the Securities Commission to undertake the equity computation job in a transparent and professional manner.
For unlisted ‘sendirian berhads’ whose shares are not traded in the open market, we concur with the suggestion by a Malaysiakini reader (whose pseudonym is Fair Play) that as an alternative, ‘par value’ should be replaced by shareholders' funds as the basis to determine the ‘market value’ per share of individual company.
This is done by taking the total paid-up capital, all reserves and undistributed profits and then dividing the sum by the total number of shares issued.
Such a new method will be very close to what EPU attempted to achieve, i.e. to measure "corporate equity ownership of all types of companies using the same value indicator".
Unfortunately, the additional information required for this new method is currently not readily available with the Companies Commission of Malaysia. The additional information has to be extracted from the audited accounts of companies and further computation is required to obtain the shareholders' funds. And this involves a very huge number of ‘sendirian berhads’.
For practical reasons, as the 11MP document has to be ready by mid-2015, it may still be necessary to rely on par value for the valuation of ‘sendirian berhads’. If the new method cannot be applied in time during the preparation of the 11MP, concrete steps must be taken immediately so that par value will not be used again for ‘sendirian berhads’ in the preparation of the Mid Term Review of 11MP a few years from now.
The use of par value for ‘sendirian berhads’ must not be manipulated and turned into an excuse not to use market price for public-listed companies. The use of par value for listed companies is totally unacceptable. The continual use of par value for publicly-listed companies as a basis to compute equity ownership will be construed as sheer desperation on the part of politicians and incompetence on the part of government servants.
Although the total number of companies listed in Bursa Malaysia is just about 1,000 while that of unlisted ‘sendirian berhads; is almost one million, the majority of ‘sendirian berhads’ are small companies whose shareholders funds are relatively small compared with the market capitalisation of listed companies.
For instance, the market capitalisation of Malayan Banking, the largest listed company in Bursa Malaysia, in December 2014 was more than RM80 billion. It may take as many as 100,000 or 200,000 small ‘sendirian berhads’ to have a total shareholders' funds of RM80 billion.
GLCs owned by all M’sians
As for government-linked companies (GLCs), it is insufficient to merely state that they belong to all Malaysians. Lip service will not be acceptable. The total equity value held by GLCs should be apportioned among the ethnic groups proportionately according to the population mix.
More importantly, the GLC apportioned values (proportional entitlements of the various ethnic groups) should be added to the equity ownership of the various ethnic groups. The resultant figures should be reflected accordingly in the table of the 11MP document that shows ‘Ownership of Share Capital of Limited Companies’.
After the proportionate allocation of GLC equity, the government does not have to straight away dish out and transfer the shares to the various ethnic groups. The government can still hold the shares on behalf of the various communities. We believe Khazanah Nasional and other professional institutional investors have better expertise to create value than individual shareholders.
EPU should take the initiative to utilise the 11MP (the last Malaysia Plan before year 2020) as a platform to remind and re-educate all Malaysians that the 30 percent bumiputera target refers to share capital of limited companies only, and not to ownership of all properties, buildings, houses, shops, factories, cars etc.
Ownership of share capital of limited companies is not a perfect indicator of ownership of wealth, but, we must admit that there is no such thing as perfect indicator. We do not need a perfect indicator, but just a good indicator. As an indicator, ownership of share capital of limited companies is comprehensive and good enough because it covers both public-listed companies as well as ‘sendirian berhads’.
Malaysia must not be turned into a regimental quota-based country where ownership of all types of wealth is rigidly regulated along ethnic line. Such a quota-based system will be stifling to one party and stultifying to the other. If adopted, it is the surest way to grind the Malaysian economy to a halt.
When the 30 percent target in limited companies was set by the founding fathers of the New Economic Policy, the understanding was that crutches must be thrown away when they were no longer needed. It is irresponsible to introduce a new set of crutches by using new terms such as "effective control of equity".
We are confident that in the future bumiputeras have the ability to achieve share ownership in the corporate sector above 30 percent through fair competition, without the assistance of a quota system. In fact, a prolonged quota system will have the unintentional retarding effect which is detrimental to bumiputeras.
EPU should remind all Malaysians that the original objectives of the New Economic Policy were to eradicate poverty regardless of race and to restructure society with a view to achieving national unity.
The overriding objective of national unity can only be achieved if the wisdom and noble intentions of the founding fathers are respected and accepted by all ethnic groups in Malaysia.
LITTLE STARS is pseudonym of a group of professionals.
THE BUMI EQUITY DEBATE
Has 30pct bumi equity target been achieved?
Major flaw in computing bumi equity target
30pct bumi equity is Umno’s raison d'etre
In defence of article on flaws in bumi equity target
EPU reviewing how it measures bumi equity
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