Consolidating journal entries
None of them had control over the company and management was given free rein as they continued to deliver.In comparison, our GLOC CEO’s have KPI’s that often extend beyond maximizing shareholder value.
As mentioned earlier, GLICs already control half of the 20 largest companies.Even more importantly, their voting rights will diminish in value, weighted against the holdings of these giants.The idea of using GLICs to buy out foreign investors to defend our stock market was first mooted during the Asian financial crisis and sadly, it could become a reality someday even though this is not longer the desired direction., the Malaysian market’s weighting on international benchmarks such as the MSCI, which takes into account free float, will shrink even further.The problem as I see it stems from our stock market’s inability to keep pace with the accelerated growth of our GLIC’s; the high investment concentration of GLIC’s on domestic equities; and their growing desire to exert influence on their investee companies.GLICs such as the Employees Provident Fund, PNB, Tabung Haji and Lembaga Tabung Angkatan Tentera have grown rapidly since the 1990s for a host of reasons, including the captive nature of our mandatory pension funds, our growing workforce and high savings rate, and the exceptional appeal of our savings schemes.Over time, they should easily control at least half of the next 20 and over an even shorter period, the next 20.
Assuming they continue to dogmatically pursue a policy of investing almost exclusively in the domestic equity market, a day would come when the majority of our top 100 companies will be entitled to carry GLC membership cards.
It could be difficult for a strong-minded and successful shareholder entrepreneur to peacefully co-exist with new controlling shareholders that may want to impose their influence on areas such as management composition, CEO compensation, business direction, capital funding, corporate culture and so on.
Even a decision as fundamental as whether the company should retain the bulk of its earning for reinvestment or whether earnings should be largely paid out to meet the income needs of GLIC shareholders could be a source of tension.
This assertion can be backed by a sampling of the top 20 largest listed companies.
Of these, 10 companies accounting for 57% of the 20 companies’ total capitalization (03 32% of the entire market’s capitalization) are classified as GLCs.
Putting aside PNB’s earlier acquisition and eventual privatization of Island & Peninsular and Petaling Garden of which they were already major shareholders, this trend can be traced back to almost a year ago when UEM Land initiated the acquisition of Sunrise.