Malaysiakini Opinion

Stop the needless witch-hunt of Khazanah

P Gunasegaram  |  Published:  |  Modified:

QUESTION TIME | The timely or untimely disclosure of Khazanah Nasional Bhd’s RM3 billion losses in 2008 raises questions as to why this is being revealed now, a decade later; the manner in which it was disclosed in Singapore’s Straits Times; and the purpose of the revelation.

To determine whether Khazanah was reckless or not when it made that investment – more than half of which was subsequently recovered, according to the report yesterday – it is necessary to look at how the investment was made at the time.

That will help shed some light on the political motives for revealing the information, kept well-hidden for 10 years, and whether those facts are being used to discredit the Khazanah management and board in furtherance of the government’s own aims.

The board, including its CEO Azman Mokhtar, spectacularly offered to step down via nine undated letters of resignation, leaving Prime Minister Dr Mahathir Mohamad with a free hand to choose the new board and CEO.

For reasons which have not been publicly disclosed, Mahathir inexplicably accused Khazanah of deviating from its original objective of helping the bumiputera.

What did he mean? Was he confusing this with Permodalan Nasional Bhd, which was set up specifically to increase and retain bumiputera participation in the corporate sector? Khazanah has no such explicitly stated mission or objective.

Mahathir went on to say that he would revive the concept of Malaysia Inc - a plan touted in the 1990s to align government and business interests, which unfortunately came to be synonymous with privatisation of plum projects and the sale of government stakes to cronies when Mahathir was first at the helm.

Does he want to do the same now, and is he eyeing Khazanah’s investments for this purpose?

The ‘reckless’ investment

But first, was Khazanah actually reckless in 2008? According to the Straits Times report, Khazanah had in 2008 "embarked on a highly confidential investment strategy," whereby the fund placed some of its money with banker Luqman Arnold, who through his investment group Olivant, managed some of Europe's financial powerhouses.

It said this was dubbed as ‘Operation Twist’, which then morphed into ‘Operation Red’ when Khazanah, together with Olivant and Spain's Santander Bank, acquired a 2.6 percent interest in Swiss Bank UBS.

The entire shareholding in UBS was held in accounts under Lehman Brothers, which in 2008 filed for bankruptcy.

"That deal, however, collapsed spectacularly when Lehman Brothers went bankrupt in late September 2008. The entire shareholding in UBS was held in accounts managed by the failed Wall Street bank, resulting in the complete wipeout of Khazanah's RM3 billion investment," said the report.

The Straits Times also stated that Khazanah had aggressively attempted to recoup its losses from the failed investment and recovered about half of its investments four years later by lodging a claim with Lehman's global administrator, PricewaterhouseCoopers.

That makes the final loss some RM1.5 billion. Was Khazanah reckless? Perhaps not, because it could not have anticipated the bankruptcy of Lehman. If anything, and in the interest of transparency, it should have disclosed the loss then. But not all sovereign funds are transparent.

Others too lost money on UBS. Singapore’s secretive GIC reportedly booked a loss of US$4 billion when it sold its stake in UBS last year...

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