Which companies need Khazanah’s RM3 bil help?

KUALA LUMPUR : Malaysia’s Budget 2022 brings a ray of hope for Bursa-listed companies that were affected by the Covid-19 pandemic as viable candidates may receive financial support from the government in the form of equity injection.

Finance Minister Tengku Datuk Seri Zafrul Aziz said in his 2022 Budget speech last Friday that a government-owned special purpose vehicle (SPV) will be set up to support companies through equity injection or other related instruments.

Which companies need Khazanah's RM3 bil help?

For this purpose, Khazanah Nasional Bhd will be given the mandate to help the government in providing the infrastructure to manage the fund size of at least RM3 billion.

Aside from the announcement that help will be given to those affected by Covid-19, details are scarce on the screening criteria that will be imposed by the government when deciding which company requires its support.

“[The government] should be targeting companies with poor financials. At the same time, they may look into those which are likely to turn around after receiving the funding assistance,” said HLIB Research head of retail research Ng Jun Sheng.

One obvious way is to look at the sectors that are badly hit. “This may include tourism, leisure, aviation and retail,” said Areca Capital chief Danny Wong Teck Meng.

“The government will ultimately decide on the criteria. To me, [the company’s] liquidity or the going concern is the most important factor,” Wong said.

The Edge compiled a list of Bursa Malaysia-listed companies with high gearing which have negative operating cash flow over the last 12 months.

Looking at a company’s financials, its net gearing may determine the strength of its balance sheet and whether it is able to secure more debt financing if needed.

Operating cash flow meanwhile shows its ability to generate cold hard cash from its business to pay for its mandatory obligations like debt repayment. Investors may also use operating cash flow ratio against current liabilities for a relative comparison of cash flow to a company’s balance sheet size.

Indeed, some sectors were more affected during the pandemic than others, where sales for some companies shrank on the back of travel restrictions, lockdowns and restriction on multiple activities to curb the outbreak.

Aviation is among the hardest-hit industries. AirAsia Group Bhd, AirAsia X Bhd and in-flight caterer Brahims Holdings Bhd all carry negative book value currently.

Outside of the badly-affected sectors, there are also companies which identified Covid-19 as one reason for recent weak performance.

This includes oil and gas giant Sapura Energy Bhd, which incurred pandemic-related expenses of nearly RM460 million yet to be claimed from clients. This added to its financial woes caused by a debt-laden balance sheet and contracts that might not yield profit. Sapura Energy is 40%-owned by Permodalan Nasional Bhd.

Other big-cap companies on the list include conglomerate Boustead Holdings Bhd, which is 59.4%-owned by the Armed Forces Fund (LTAT).

Property developers and construction companies are also among sectors that did not manage to escape unscathed during this health crisis.

That said, there are companies surviving well, so far, although they are tourism-related industries. Malaysia Airports Holdings Bhd and Genting Bhd are examples of it.

Governance is essential

However, one fund manager said that to make the support truly targeted, the government should consider coming in only as a lender of last resort — basically going for companies with possibility to turn around but which have exhausted all avenues for financial support.

“The companies should go to banks first, [as Khazanah’s money] is the country’s money [being disbursed]. Capital injection is practically a non-recourse loan (repayment comes only from profit), said the fund manager.

The SPV must have control to put in place, such as board representation, ensuring the companies that receive the capital injection are managed well.

He added that there should be other guidelines in place such as a cap of injection for each company to ensure more companies get support and the assistance is not concentrated to one or two names.

By : Adam Aziz – THE EDGE MARKETS

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