The Malaysian Mystery of ValueCap

It is Malaysia Inc's mystery company, a state-owned investment house few seem to want to talk about, much less know about. Rare is the Malaysian who has ever heard of it, knows who comprises its board, the background of its senior management or, indeed, knows much of what it actually does. It doesn't have a website, and telephone calls to its notional head office go unanswered.

Having any sort of meaningful contact with its elusive executives is near as painful as pulling teeth, as calls, emails and questions go begging, unreturned and unanswered.

When one does actually make contact with the company, which sits at the intersection of Malaysia's top-level business and politics, its response is one of hostility, to threaten legal action. Even though it is owned by a Malaysian public anxious to know how its money is being handled, its message seems patently clear; stay well away.

Welcome to the secretive world of ValueCap Sdn Bhd, which was forced in late February to extend the maturity date of its US$2.7 billion in bonds for another three years. ValueCap was conceived in 2002 as a Malaysian version of Hong Kong's Tracker Fund, a powerful device to support the stock market. Three Malaysian government enterprises are behind Valuecap; the main state holding company Khazanah, the state pension trust fund KWAP, and the government's fund management arm, Permodalan Nasional Bhd (PNB).

But with funds equal to only around 1 percent of the Malaysian stock market capitalisation compared with the HK fund's $30 billion war chest, ValueCap seems a poor relation to its northern cousin at the very least, and particularly underfunded at such a tremulous time in the world economy.

But after operating under the radar for most of its six-year history, in recent months ValueCap has had an unwelcome spotlight trained on it by Malaysians wanting to know how more about what their government does. Unused to public scrutiny, the company late last year was debated and attacked in a parliament suddenly full of new opposition faces after last March's elections which, though won by the long ruling Barisan Nasional ruling coalition, saw the government's invincibility disappear when it lost more than a third of the seats. Now every aspect of government is under scrutiny, and the bureaucrats don't seem to like it very much. Indeed, it is becoming a particular problem for Prime Minister-designate Najib Tun Razak, who last November took over the finance ministry, the portfolio ultimately responsible for ValueCap.

The gathering controversy at Valuecap stems from recent revelations that it was supposed to make good a RM5.1 bond repayment to its original shareholders by February, returning the money that was seemingly the capital that Valuecap began life with in 2003. Where that gets messy is that the government acknowledged in October that ValueCap would receive a RM5 billion ‘loan' from Malaysia's employee provident fund, which has RM330 billion under management. The government insists the EPF loan is unrelated to the delayed ValueCap bond repayment, and assures that ValueCap is viable. After a spirited November debate in Malaysia's parliament, deputy finance minister Nor Mohamed Yakcop pledged that the RM5 billion EFP loan would not be used to pay off ValueCap's loans.

As scant information dribbles out about Valuecap, rousing suspicions of a bailout - strenuously denied by the government – Malaysians now want to know more about what's going on inside this mystery outfit.

But their problem is the government and its state investment agencies seem intent on not saying much at all. ValueCap resolutely refused to make available details of its portfolio, how it is managed, who advises it or even the resume of its chief executive officer, Sharifatu Laila Syed Ali. Nor will either of its 33 percent shareholders – Khazanah, KWAP and PNB - disclose any details about their status in the ValueCap fund or what, if any, returns they have received from their six year investment.

Inquiries to all four institutions directly responsible for ValueCap hit a circular brick wall. Khazanah spokesman Mohamed Asuki bib Abas said "Valuecap has their own management team and Khazanah as a shareholder could not respond to you on their behalf." Over at PNB, spokesperson Rosli Ismail said that "with regards to the subject matter, we regret to inform that we decline to comment. C'est la vie." It was the same at KWAP. "Unfortunately we are not in position to comment on Valuecap," said its spokeperson.

At ValueCap itself, the response was curiously hostile. "We have strict instructions against disclosing pertinent information of the company," company secretary Husna Hafiza Mohammed said. "We would not hesitate to take any legal action against you ...for any misrepresentations made."

So why all the secrecy? After all, it was Asia's crippling 1990's financial crisis that now prompts Malaysia Inc into claiming that it is going out of its way to be a paragon of transparency and corporate governance, operating under so-called ‘world's best practices.' Indeed, in a 2005 interview with Euromoney, Khazanah's managing director Azman Mokhtar boasted of a new era in transparency and openness at Malaysia's big sovereign wealth fund.

Senior government officials claim there isn't any secrecy surrounding ValueCap. Deputy Finance Minister Yakcop told parliament that Valuecap "is run by a team of professionals" and pledged the company "would provide adequate information on the company so long as it did not jeopardise its investment strategies. We have nothing to hide," he said.

But the message seems to be taking its time to seep through to one of Khazanah's critical offshoots. Indeed, Khazanah's short official description of ValueCap is about the most revealing information freely available about this reclusive state-owned enterprise.

"Established in 2002, Valuecap is a fund management company which was created to invest specifically in the Malaysia equities market. Owned jointly by Khazanah, PNB and KWAP, Valuecap's key mandate is to undertake investments in equities listed on Bursa Malaysia on a portfolio basis, based on superior fundamental investment research."

What is clear is that ValueCap operates at the upper echelons of Malaysia's political and business life, sometimes one and the same thing. Documents obtained by Asia Sentinel show the ValueCap board in 2007 to be a gathering of senior ethnic Malay businesspeople and directors, some closely connected to leading politicians and with leading government-linked companies such as the power utility Tenaga Nasional and oil giant Petronas.

A document filed to the Malaysian Securities Commission on June 13 confirms that up ValueCap has a ‘non-current liability' of RM5.1 billion - which seems to be the shareholders' bond - as against total assets of RM7.6 billion. Revenue for the year was RM1.3 billion, with profits of RM1.1 billion. Around RM1 million of tax seems to have been paid. The filing was for calendar 2007, long before the current market slump. Malaysia's KLSE composite index more than doubled in that period from 2002-07.


The lack of detailed public information about ValueCap has incensed both Malaysia's political opposition and its feisty and well-read blogosphere, fast becoming the credible news and information alternative to the traditionally government-controlled mainstream media. Malaysia's business and political blogs are scathing about the mysterious fund.

"These buggers are running away with our hard-earned money," said one blogger. "What is the best and most effective ways we can stop them?" Says another "who knows who gains from this outlay of 5 billion ringgit into the share market. Our government has got to be sincerely good for the people at large; and there has to be transparency."

At the very least, analysts say the government has a serious perception problem to deal with at ValueCap, at a time it can ill afford further controversy.

Opposition politician Tony Pua has made the pursuit of ValueCap a parliamentary bugbear for the government. With his background in business – Pua is a self-made technology tycoon – he has assumed the role of shadow finance spokesperson opposing the government.

"The real rationale behind the sudden RM5 billion loan from EPF to ValueCap is a mega bail-out of Valuecap," he says. "The government should stop misleading Malaysians with half-truths. My argument is that this is only supporting shareholders and so it is an inappropriate use of our funds. You are treating the symptoms but not curing the disease, which is your recessionary issues, the health of the economy, the drop in production and so on."

"The intrinsic health of the company is not going to improve just because you have supported the stock price. This injection into the stock market is an unnecessary action."

Pua says Valuecap began buying stock in 2003 "when there was no crisis so there was no obvious need for it." He notes that at RM5 billion, or around 1 percent of the notional Malaysian market capitalisation, the fund isn't big enough to have a significant impact on the wider market, as it was claimed when it was set up. Moreover, he says there are a number of existing state investment vehicles with a similar function to ValueCap, notably the state pension agency, the Employees Provident Fund, which is providing loans to ValueCap.

After searching through random annual reports – because ValueCap won't reveal its portfolio details – he notes ValueCap has modest investments in a handful of blue chip Malaysia companies, such as Tenaga and Telkom Malaysia.

Pua says ValueCap was launched with the RM5.1 billion from its three shareholders. He says the ValueCap's performance over its six-year life, based on its 2007 filing, is "not fantastic" alongside the wider market movement in that time, when the index has more than doubled. "It should've done much better," he says.

He wants Najib to withdraw the EPF injection to ValueCap which, he claims, "serves to only deal with the symptoms of global financial crisis and does not in anyway serve to increase Malaysia's ability to face the challenges brought about by the crisis."

"When we discovered that they actually had a RM5.1 billion bond due to expire in February, it completely makes a mockery of whatever they had announced previously that this money was to prop up the stock market as part of a stimulus package to improve the economy."

"If you want to put it crudely, it's complete lies, it doesn't make sense. They can't raise funds from the stock market to repay their bondholders. What is worse, is that it puts at risk the hard-earned retirement savings of ordinary Malaysians."

Ramon Navaratnam, the president of the Malaysian chapter of Transparency International, berates the scant level of disclosure at ValueCap, pointing out that it has been journalists and bloggers who have determined what ValueCap owns, not the company's disclosure.

"I can understand if this was a private investor wishing to keep his identity secret," Navaratnam says. "But this is the government, its our money that is being risked here. Because it is the government as the custodian of the nation, it should have a greater duty of care to fully disclose what it does with our money."

"They have to change their mindset, or they pay the price" he says. "Is it any wonder the public can perceive the government to be corrupt or full of cronies if this is how its institutions behave. It is a matter of perception."

The Valuecap controversy has thrown the government onto the defensive at a time when it is under attack on a number of fronts, particularly over the independence of the judiciary and the prevalence of so-called "money politics," a Malaysian euphemism for political corruption.

Finance Minister Najib has said ‘money politics' must be stamped out in Malaysia, a call welcomed by many Malaysians tired of a succession of state bailouts of politically influential business interests. They hope he will prove as good as his word when he becomes PM next month. But Najib himself has had some major distractions. He has spent much of the year defending himself from allegations of involvement in the murder of a Mongolian model who had been in a relationship with one of his key advisors.

The 55-year-old Najib, the eldest son of the late Abdul Razak, Malaysia's second Prime Minister after its 1957 independence from Britain, seems set to assume the prime ministership his family regards as a birthright after the current PM Abdullah Badawi announced in October he was stepping down at least two years ahead of schedule.

Critics of ValueCap suggest it may have a deeper role than simply being a share market investor, one that touches at the heart of the Malaysian economy. A cornerstone of Mahathirism was the so-called New Economic Policy, an affirmative action program which advantaged Malaysia's majority ethnic Malay community over the more business-oriented Chinese and Indian minorities. Always controversial, the NEP has anchored the Malaysian economy for much of the last 30 years and confirmed the primacy of the ethnic Malay, or bumiputera, community in the economy. But now the resurgent opposition has called for an end to the NEP, and even senior government officials, notably Najib, have reluctantly conceded the policy needs "review."

Transparency International's Navaratnam believes that as Malaysia evolves into a more accountable democracy, long-standing bumiputera interests will find their control of the economy under threat. He believes ‘bumi' ownership of the economy to be currently between 30 to 40 percent, about double what the government claims it to be.

"Perhaps this company is a vehicle to help maintain that control for the tougher times to come," he says. "The thing is, we don't know, the government isn't saying and that creates an air of distrust."

Navaratnam notes the tight historical links each of ValueCap's shareholders have to the bumiputera community. (State fund manager PNB was founded with the stated aim to "enhance the economic wealth of the Bumiputera community in particular and contribute towards the growth and prosperity of the nation for the benefit of Malaysians.")

In a column for the highly rated headlined "What's Valuecap's Real Role?" opposition politician Syed Husin Ali last year urged the government "to give a complete and comprehensive explanation of the background and the true objective of setting up Valuecap."

"If it fails to do so, then we have no choice but to conclude that the short-term goal is actually to save certain companies and capitalists and also, perhaps more importantly, to raise funds needed by the Barisan Nasional for the next general election."