Tuesday May 24, 2011

Khazanah Nasional MD talks on many issues

Khazanah Nasional managing director Tan Sri Azman Mokhtar spoke on CNBC's Managing Asia show last Friday, covering a wide range of topics from procurement to Proton and Iskandar to Integrated Healthcare. Here are excerpts from the interview.

Q: Part of your plans also meant changing the way GLCs (Government-linked companies) procured their business - an area a lot of observers say corruption was apparent. How did you deal with such a sensitive issue?

A: It's put together in a book called the red book, and this is not chairman Mao's red book but this is a book that talks about best practices of procurement. So, where you put things properly by process and so on, then the possibility of arbitrary behavior whether in the form of rent-seeking or corruption immediately reduces.

We have not eradicated it you know, however, I think there is clear evidence that a lot of things have improved especially the harder we push.

Azman says building an institution will be a real achievement.

But there's more transparency now?

There is certainly more transparency. Not just in procurement but when we divest an asset, for example. You know it is not done in small rooms, it is actually done through a proper process.

We invite the key players, put out the key criteria very clearly. So we go through a tough or even sensitive journey by being objective and organized. And then you know, stay the course to execute that properly. And so far, that has been our guiding post.

Overall, you say your mission is to create shareholder value and part of the process, of course, involved hunting down captains of the industry. Was it hard finding these key talent? More importantly, how did you go about convincing them that you were serious about revitalizing the government-linked companies?

Sometimes, I am reminded by Marx, not Karl, but Groucho, who says that you should not enter a club that would have you. Generally, we hire people who don't want to join, if you get what I mean.

Who's the hardest candidate to get?

Well, at the risk of maybe embarrassing him, I think it is Idris Jala. And he had a wonderful career in Shell - 22 years. I asked three trusted contacts in the markets, who was the best turnaround artist in Malaysia. And two out of the three came back with his name.

How did you convince him?

Well, Shell is a very good firm, a fantastic company as we know but I suspected that it did not have enough or as much adventure or excitement, Then, once we cross that rubicon, so to speak, I said here are two or three companies - I shall not name those he didn't choose - but he chose Malaysia Airlines.

You have a grand plan for GLCs where you hope to have five regional champions by 2015. There are skeptics who say, you know what, that is a very ambitious target. You think you can make it a reality?

I think we are getting there.

Ok, which of your nine main holdings or K9 companies are you betting on?

Axiata is touching 150 million subscribers. It is profitable and growing in the range 15% to 20%, the sustainable kind of growth. They also have been disciplined. So they have been doing well not just on the organic side but in the M&A market.

CIMB, in a very short space of five to six years, has grown to be among the largest banks in the region, and if I'm not mistaken, certainly the largest by number of branches in the region.

The third one is perhaps the healthcare franchise. This came from nowhere, and this perhaps gives insights on how we think actually. Integrated Healthcare Holdings - under IHH is Parkway, which we bought last year. And Pantai. I think there are others - a stake in Apollo in India as well as a medical university and so on.

Let's talk about the other company in your stable that has created a lot of controversy- Proton. Regulators aborted the deal by Volkswagen to buy the automaker. What's the fate of Proton now? Can it survive the consolidation that's going on and go in alone?

I think to be fair, Proton, for the last two to three years, has actually been doing a reasonably good job at the domestic turnaround. I think the current management team should be judged by the new models because it takes at least two to three years to push through a new model.

And Proton is still a major employer within Malaysia and the linkages of the auto industry are actually pretty deep. It is not enough for it to just survive, I think you need to do more than to just survive to be able to thrive in a sustainable manner.

Khazanah, as a vehicle, is driving investment into the Iskandar region in southern Johor. But there has been a lot of controversy surrounding the project because of the replacement of CEO Arlida Ariff, amid allegations of inflated costs and questionable procurement procedures as well as kickbacks. Has this been a big setback for the new economic zone?

If you look at all the macro numbers, Iskandar is well on track. We have always stated since we launched the project in November 2006 that 2012 is going to be the important year because Iskandar as a special economic zone, had certain clusters that needed to be developed. So we picked five nodes. One of those nodes was Nusajaya, designated as the services base. Pinewoods Studio, Lego Land, Edu-city, are being built there. These are all well on track. A police report was lodged but we leave it to the authorities to investigate further.

As you drive the GLC reform, how do you stay involved but at the same time, give your CEOs enough breathing room to carry out their jobs?

I think finding the right balance is very important.

How do you find the right balance? Do they complain you interfere too much?

Not to me. We tried cloning but it's not possible. We have about 50 to 60 major companies so it's physically impossible to interfere even if you wanted to.

I coined the term macro managing instead of micro managing. In the areas of strategies, for example, it's a joint thing, so we discuss with the CEO and in the boards.

But if companies are in trouble and they are not managing their affairs, there will be a period of time that we do manage. You roll up your sleeves and go in. But only for a period of time and then you have to source and find the right CEO and the right successor.

The best thing is to leave them alone, and have periodic checks in terms of performance management.

And finally after six years on the job, your contract has recently been renewed for another three years. What will you now set out to achieve next for Khazanah?

Well, Khazanah is a specific 10-year programme.

We are well on track. The world is a very volatile place. However, we have built enough resilience and safety nets. We are poised for growth and to complete all those things that we set out to do. I need two to three terms to do this. I've always stated that I do not intend to overstay nor to leave prematurely.

But at least stay till 2015?

Well, that's not entirely up to me, as I said.

But would you like to stay till 2015?

I would like to complete the job that I set out to do. And you build a team around you who would carry on long after you are gone. And then you build an institution.

I think this is the next task. Actually, if you are able to build an institution, that would be the real achievement.

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