The Oracle on Economics and Business


Some economics lessons from Oracle.

These are some recent opinions from the Oracle of Syed Putera. He has been away for an extended period this time darting in and out of the country, traversing different climatic zones and all that. For that, he was still nursing flu when I met him last week.

He was already prepared with a small note on the topics he wanted to speak about and through experience, for me to write on.

Before he could share with me the contents of the note, I asked him about the listing of Felda Ventures.

Why is the issue about Felda listing evolving into a very hot topic? Isn’t it illogical and highly unreasonable for any right thinking individual to oppose the listing that would result in more cash in the hands of ordinary Felda settlers? To oppose the listing would be selfish and even envious on the part of the objector over the benefits that would go to settlers.

That would be a very reasonable argument indeed. Our objection to the proposed listing is based principally on our concern that businesswise, the listing isn’t aimed at actually giving Felda settlers long term benefits. IPOs are usually used as a means, by the underwriting banks to make money as well as the people in the listing company to reap sudden windfalls.  Two groups make big money. One, the underwriting bank or banks. Two, the people with large block of shares- those who got pink forms and have money to subscribe to the IPO.

After the initial euphoria, look at the long term price of stocks belonging to GLCs. They stay just above par value for the next 10 years. So, the stakeholders, namely Felda settlers maybe who own 5,000 to 10,000 worth of stocks cannot expect to make big money. Those who make money are those owning more than 250,000 shares. How many are of this type in the Kumpulan Permodalan Felda presently? Maybe 2.

The basic philosophy of our economics is wrong. The listing of Felda Global  Ventures for instance. Felda should stay close to its core business which is plantations and its related business. That’s where its business skills are. It can’t compete here except under a protective regime yet it wants to compete in global business. It has to be managed by a team which knows how to compete in global business in a variety of ways.

We are told, the new listed company will be managed by the team that is managing the present unlisted FGV. The record there is dismal having an accumulated loss of RM 500 million. This raises a cause of concern whether the new entity will be managed by capable team.  It does place KPF berhad( the cooperative arm representing the Felda settlers) which has been making money and declaring dividends, potentially at risk.

The problem with our economics managers here is they have flouted the first fundamental law. If the thing is unbroken don’t try to fix it. Improve on it yes, but not alter its entire character. Before something happen everyone is buoyant. We can write beautiful treatises and working papers in support of our business model. The man who helped Salleh Budu prepare his paper on the NFC project in order to get money from MOF/MOA must have given a detailed model to succeed getting RM 240 million. Did it also prescribe buying a high end condo at 1 Menerung to earn revenue? If it did, then NFC is also in the property business.

Because of that we get the funds we aim for. If it fails, how do we justify that? We can’t say we worked hard as hindsight. Prostitutes work hard. GRO in Karaoke joints do so. The touts asking for donations on 1001 religious orphanages and schools work hard with patrons at eateries and petrol stations. We can’t defend by saying we haven’t disbursed the money fully. Then the borrower can say we fail because we don’t have sufficient funds. It’s even more disingenuous saying its ok, we placed the money in escrow account. Show it then. If placing public funds in escrow account, we have to have a lawyer in charge of that account. Ask him or her to speak about the escrow account. If placing public fund in escrow accounts is good policy, then perhaps we will be better off placing the entire appropriated fund from our consolidated fund aka the budget in escrow accounts. By giving all those excuses we are skirting around the issue.

We seem to miss the point. The point is managing our assets and public money responsibly and accountably. These are the issues.

Back to Felda listing. There is the real question of managerial capabilities. You are going to place felda in a wide ranging business fields. If listing is an all-consuming obsession, then it would be rationally better to list the successful KPF rather than having it team up with FGV which has a bad record. You are putting the interests of the 220,000 settlers at risk by teaming up a poorly performing business arm and have it listed. FGV is then riding off KPF. Can FGV go listing on its own? It can’t right? It has to depend on KPF. If that is the case, KPF is the entity that should go for listing, not FGV.

IPO can’t be an excuse for Felda to get funds right? It has and can borrow from our EPF funds. In any case it says it has money and large reserves. Ahmad Maslan once threatned to sue people over allegations that Felda funds are so low. So why want to do an IPO? What is the typical spread between the issuing company and the public? The public is usually given 25% of the listed shares. Out of that maybe 5% is reserved for directors, Felda employees, selected persons. Those who can and are able to subscribe more than 250,000. For these people, a moratorium is a small price for waiting.

Ananda Krishan took his public company private because he reasoned out, the public isn’t appreciative of his business. We can’t argue with the owner if he feels it that way. Delisting his company and making it private allows him to control the business and gives him more freedom.

When you go for listing there are some many rules and regulations and protocols with which you now must adhere. Every 3 months, you prepare voluminous reports to the SC. Not that SC necessarily reads them, but that is the protocol by law. You have to submit quarterly reports. That means a lot of paper work for a long time. Then you have to maintain the reporting accounting firms. You retain them to monitor the public listed company on a fee costing a few million Ringgit a year. That means, you take up more costs not associated at all coming from business operations. These are additional administrative costs. But if the FGV thinks it can absorb all these costs, who are we to argue with them? We wait for them to publish escalating administrative costs in the next few years.