[ad_1]
KUALA LUMPUR – The financial woes of two large and prominent local companies are raising concerns about the overall health of Malaysian businesses, particularly debt-laden publicly traded entities, amid the Covid-19 pandemic.
The problems facing casino magnate Lim Kok Tay of the Genting Group, Malaysia’s richest businessman, and record losses at the national oil company Petroliam Nasional Bhd, or Petronas, the country’s richest entity and its only list of Fortune 500, they suggest that companies in corporate Malaysia that are High indebtedness and low cash could run through some tough months if the international economic outlook does not improve.
State support, in particular on the moratorium on businesses and households to repay their bank loans, will be withdrawn at the end of September and is expected to have devastating effects on the Malaysian economy as a whole.
Manu Bhaskaran, a regional strategist for Centennial Group, argues that a number of other factors must come together for policymakers to design a soft landing for an economy already in recession.
“Government support in the form of a moratorium on loans should be phased out over time and not abruptly. Also, banks should be practical when dealing with borrowers because disconnecting one (borrower) can have a dangerous knock-on effect. “, said.
There is a general consensus among economists and bankers that business closures in the service economy will lead to widespread layoffs in the coming months, mounting more strains on household debt than, at almost 83% of gross domestic product, already it is among the highest in Asia.
But how the fallout will affect Malaysia’s business sector is sparking debate.
The optimistic view among bankers and investment analysts is that the fallout will be limited to the travel, leisure, hospitality, airlines and retail sectors and that will contribute to job losses. Malaysia’s overbuilt real estate sector is also expected to suffer casualties and could trigger further consolidation of real estate players.
The fact that much of Malaysia’s companies would be spared from the aftermath of the pandemic is based on the view that most of the country’s publicly traded companies are better capitalized and their banks are in a stronger position than during the Asian financial crisis of more than two decades. ago when regional currencies were hit by speculators, sending economies into a tailspin.
To be sure, most Malaysian companies still have a breather.
Malaysia’s corporate reporting rules dictate that bank loans only crystallize into delinquent loans when interest payments are not paid for three months. That provides freedom until the end of the year, the bankers noted.
But long-term observers of the Malaysian economy argue that the problems Genting de Lim faces and the losses at Petronas indicate that the challenges facing both the government and the private sector are vastly different and more overwhelming this time.
Lim surprised investors last month when cruise operator Genting Hong Kong, a publicly traded entity in which he personally controls about 80 percent, declared that it would suspend all payments to creditors due to serious impairments in its business hit by international closures that forced the closure of its casinos and resorts around the world.
While Genting’s businesses in Malaysia and Singapore are weathering tough economic headwinds, analysts fear that the group’s healthier units could be used to rescue Genting Hong Kong.
Petronas, which posted a quarterly net loss of RM21 billion (S $ 6.9 billion) for the period ending June 30 versus a RM14.7 billion profit in the same quarter last year, played a key role in repairing the economy during the crisis in the late 1990s.
It was used to bail out large Malaysian companies, including the debt-laden Malaysia International Shipping Corp, controlled by the eldest son of then-Prime Minister Mahathir Mohamad, and the embattled national car company Proton.
The national oil company also spearheaded the development of the country’s administrative capital, Putrajaya, during the crisis years, which was vital in boosting a declining construction sector.
Economists noted that the government’s reliance on Petronas to provide a financial lifeline for troubled companies and the broader economy will be limited this time.
The huge debt of other large state investment companies is also likely to limit the government’s ability to carry out bailouts.
Leading the group is Khazanah Holdings, the state-owned strategic fund designed on Singapore’s Temasek line, which holds dominant stakes in many of the country’s largest companies, such as power company Tenaga Nasional, wireless telecom operator Axiata Group, the telecommunications giant Telekom Malaysia. and the real estate group UEM Sunrise. The Khazanah stable companies had a net debt position of RM57.6 billion at the end of March this year, according to published accounts.
Other state-owned investment entities with dominant interests in publicly traded entities are Permodalan Nasional Bhd (PNB) and the pension fund of the country’s armed forces or Lembaga Tabung Angkatan Tentera (LTAT).
PNB’s groups of companies, which include conglomerate Sime Darby, engineering and automotive giant UMW, and companies involved in pharmaceuticals, real estate development and manufacturing, reported a combined net debt of RM23.8 billion.
The net debt position of LTAT companies, including the diversified Boustead Group, stood at RM 7.8 billion.
Senior government officials acknowledge that the debt of many government-linked entities is large due to business expansion over the past decade. But they remain optimistic that the tensions will not lead to major consequences.
A senior Khazanah official noted that the state-owned investment giant would have to take a slightly different approach in dealing with the aftermath of the economic crisis, but it was driving consolidation in sectors it dominates.
“After the expansion phase, now is the time for some consolidation, so there is room for agreements between GLC,” the official said.
[ad_2]
