The Malaysian government's investment arm, Khazanah Nasional, is moving to transform itself into an institution like Singapore's powerful Temasek Holdings, Standard and Poors said today.

The international ratings agency said Khazanah, which the government has ambitions of becoming a Southeast Asian investment giant, has taken significant steps towards elevating its status.

"Khazanah's focus on delivering shareholder value, acquisition of key assets from the Malaysian government, and investment in overseas companies resemble the path taken by Temasek in 2002," said S and P credit analyst Greg Pau.

"We believe that Khazanah is moving in the right direction in emphasising a performance culture, sound corporate governance and internal control, and in empowering the management of related companies," he said in a report.

The S and P study will come as welcome news for the Malaysian government, which in partnership with Khazanah has been working to revamp lumbering state firms.

In the past year Khazanah has emulated Temasek by making regional investment forays, including the 327 million dollar takeover of Indonesia's Bank Lippo, and the purchase of a stake in Singapore's MobileOne.

Find a balance

However, S and P said that the success of the strategy will require Khazanah and its related companies to find a balance between commercial interests and their policy roles, and to guard against excessive expansion and gearing.

Khazanah, which means "treasure" in Malay, has been charged by the Malaysian government to hold and manage its commercial assets since 1993.

It holds some 16 billion dollars in assets including struggling national carmaker Proton, as well as power generation and telecommunications concerns.

Singapore's Temasek, which is managed by influential businesswoman Ho Ching -- the wife of Singapore Prime Minister Lee Hsien Loong - is one of two powerful vehicles used by Singapore overseas to invest its massive national savings.

It manages a global portfolio worth 63 billion dollars which includes Singapore Airlines and other corporate icons in the city-state, as well as companies in Australia, China and India.