FUYOH! M’sian gomen pumping RM20 billion to saveeconomy?! Sure ONOT!?

cilisos.my/fuyoh-msian-gomen-pumping-rm20-billion-to-save-economy-sure-onot/

By now most of ugaiz would know our Ringgit isn’t very strong atm. We talked about our economy and currencyin a bit more detail in a previous article and we mentioned that while there are economic factors, there alsocould be political factors that is causing our Ringgit to slide. Add in the whole 1MDB fiasco and we haveourselves in some pretty challenging times la.

And despite our PM saying that we’re prepared to handle the economic downturn, no one likes their currency tofall la, even our gomen. And so recently, our PM recently announced that the gomen is gonna pump in RM20billion into the economy to strengthen it. That is not a typo. It’s RM20 billion, not million.

RM20,000,000,000.

But that’s not all.

1/9

http://cilisos.my/fuyoh-msian-gomen-pumping-rm20-billion-to-save-economy-sure-onot/https://www.google.com/#q=usd+to+ringgithttp://cilisos.my/5-reasons-why-pegging-the-ringgit-might-not-work-like-1997/http://www.channelnewsasia.com/news/business/malaysia-won-t-peg/2063116.htmlhttp://www.thestar.com.my/Business/Business-News/2015/09/14/PM-says-govt-to-reactivate-ValueCap-with-RM20b-fund/?style=bizhttp://www.forbes.com/sites/rodgerdeanduncan/2014/10/14/is-there-an-elephant-in-the-room-name-it-and-tame-it/http://www.valuecap.com.my/homehttp://diylol.com/meme-generator/all-the-things/memes/buy-all-the-undervalued-stocks--2http://www.asiasentinel.com/econ-business/the-malaysian-mystery-of-valuecap/http://austrianaddict.com/2014/08/26/is-the-economy-growing-shrinking-or-exactly-where-it-should-be/http://www.themalaysianinsider.com/malaysia/article/1mdb-should-lead-by-example-in-bringing-overseas-money-home-says-daphttp://sixmoment.com/sadringgit

Yeap, we not be to kidding of you . The RM20 billion is goinginto a company that sounds like an affordable bottle capmanufacturer more than anything else. Ladies & gentlemen,presenting ValueCap.

Don’t worry if you’ve never heard of it, none of us at theCILISOS office heard of it prior to this story. But when weheard about this, we were quick to try and find out. Joining uson is once again, Alvin Vong, Director ofEquitiesTracker.com, who’s helped us before.

But first…

Tot gomen running out of money… Where is themoney coming from??

Before we get into that, let’s put into perspective just how much this RM20b is. A transcript of our PM’s 2015budget speech puts the country’s budget for 2015 at RM273.9b:- RM223.4 billion is for Operating Expenditurewhile RM50.5 billion for Development Expenditure. If you take into account the RM5.5 billion worth of budgetcuts, we would be left with RM264.8 billion.

So if you do the math, RM20b is about 7.5% of the budget for the whole of Malaysia! And that much moneyis going into just ONE company.

Yep… but as we ALSO covered before in a previous article, there are signs that the gomen isn’t exactly pimpingit right now. Before we even begin to talk about the company that’s getting RM20billion, let’s deal with theelephant in the room first la k? Where does a country, that has a company with RM42 billion worth of debt, getanother RM20 billion to give to another company?

Unedited image from Forbes.

First & foremost, we must give the official answer from our gomen.

“The money will come from the shareholders (of ValueCap) and will not be an allocation from thegovernment.” – Minister in the Prime Minister’s Department Datuk Seri Abdul Wahid Omar, asquoted by The Edge Markets.

2/9

http://www.valuecap.com.my/homehttp://cilisos.my/fuyoh-msian-gomen-pumping-rm20-billion-to-save-economy-sure-onot/cilisos.myhttp://klsenew.klsetracker.com.my/http://cilisos.my/5-reasons-why-pegging-the-ringgit-might-not-work-like-1997/http://www.thestar.com.my/News/Nation/2014/10/10/Budget-2015-full-speech-text/http://cilisos.my/8-headlines-show-us-that-malaysia-could-be-running-outta-money/http://cilisos.my/8-headlines-show-us-that-malaysia-could-be-running-outta-money/http://cilisos.my/6-simple-burning-questions-malaysia-should-ask-1mdb-to-answer/http://www.theedgemarkets.com/my/article/wahid-valuecaps-rm20b-injection-will-not-come-government-coffers

According to ValueCap’s website, it is equally owned by 3 government-linked-companies (GLC).

Khazanah Nasional Berhad – The ORIGINAL sovereign wealth fund, that invested in Axiata, TelekomMalaysia, Tenaga Nasional, CIMB Group, PLUS Expressways, Malaysia Airlines, Malaysia Airports andUEM Land.

Kumpulan Wang Persaraan (KWAP) – It’s like KWSP (which anyone paying EPF should know), but forgomen civil servants.

Permodalan Nasional Berhad (PNB) – Which owns Amanah Saham Nasional Berhad (ASNB) and isthe biggest fund manager in Malaysia.

Pandan MP, Rafizi Ramli mentioned that ValueCap only had about RM3 billion in assets . A quick look atValueCap’s 2013 financial report (they didn’t have one for 2014) showed that they did have RM2.7 billion listedunder ‘available-for-sale financial assets’ amongst other things. But from what we can understand from it,they do not anything close to RM20b on their own la. (Please do let us know if we’ve understood it wrongly.)

Which means that even if they sold off all their assets (and they probably won’t) and pooled together all theirresources, we don’t think it will be enough. Its 3 owners would still have to fork out a few billion at least.

Do they have the money?

Because according Khazanah’s 2014 & KWAP’s 2013 financial reports (we were unable to find PNB’s reports),they showed that these 2 companies did have assets that could be sold to raise funds (current assets, totallingabout RM12.9b between them). And if these two companies are capable of raising that amount, it wouldn’t betotally absurd for 3 companies to raise RM20b right?

But does that mean that they won’t be directly touching gomen money?

….

Each of these companies (Khazanah, PNB, & KWAP) mention that theyare, in some way, gomen investment funds with different purposes .

“It’s like the government digging into their piggy bank.” – AlvinVong

So despite our gomen saying that the money will not affect our annualbudget, the gomen is using its savings. Meaning that it is, in some way,still funded by the gomen! But just say la, they don’t raise the moneyfrom their assets or using their own money, Rafizi Ramli mentioned thatthe 3 GLCs could possibly turn to bonds to raise the money but that sucha move will come with a drawback.

What’s a bond? Well, it’s kinda like an IOU card that pays interest. But just like an IOU, you also gotta seewho’s lending you the money.

“There is a risk in this. If the value of the investments drop or fail to go up, the funds will be leftowing the bond market the money.” – Rafizi Ramli as quoted by The Rakyat Post.

And we know that if that were to happen, it wouldn’t be the first time a gomen-linked company struggled torepay a bond.

3/9

http://www.valuecap.com.my/corporate-overview/who-we-arehttp://www.khazanah.com.my/https://en.wikipedia.org/wiki/Axiatahttps://en.wikipedia.org/wiki/Telekom_Malaysiahttps://en.wikipedia.org/wiki/Tenaga_Nasionalhttps://en.wikipedia.org/wiki/CIMB_Grouphttps://en.wikipedia.org/wiki/PLUS_Expresswayshttps://en.wikipedia.org/wiki/Malaysia_Airlineshttps://en.wikipedia.org/wiki/Malaysia_Airportshttp://www.kwap.gov.my/enhttp://www.pnb.com.my/http://www.valuecap.com.my/valuecap/media/valuecapmedia/Reports-Financial-Statements-FY2013.pdfhttp://www.khazanah.com.my/khazanah/files/45/457efe1e-cbf7-451d-9d30-690692b3a660.pdfhttp://www.kwap.gov.my/EN/UsefulInformation/Publication/Annual Reports/KWAP Annual Report 2013.pdfhttp://www.khazanah.com.my/About-Khazanah/Overviewhttp://www.pnb.com.my/about_m.phphttp://www.kwap.gov.my/EN/Aboutkwap/Background/Pages/default.aspxhttp://www.themalaysianinsider.com/malaysia/article/valuecaps-rm20-billion-will-come-from-3-funds-says-wahidhttps://en.wikipedia.org/wiki/Bond_(finance)http://www.therakyatpost.com/news/2015/09/15/how-will-khazanah-epf-and-pnb-provide-funds-for-valuecap-asks-rafizi/http://www.themalaysianinsider.com/malaysia/article/cabinet-rejects-rm3-billion-for-1mdb-as-debt-repayment-options-narrow

But what is one company gonna do with RM20billion???!!

At least once they get the money, maybe they can buy a proper logo

Here’s a little back story of this one company that’s gonna get RM20b from the gomen.

ValueCap was actually set up in 2003. It’s purpose? Support underperforming shares. Asia Sentinel describesit as Malaysia’s version of Hong Kong’s Tracker Fund, a powerful device which is used to support the stockmarket. However, ValueCap’s own website doesn’t state very clearly what it actually does. If anything, it’sconstantly changing.

But what the gomen wants it to do now is to go to the stock market and…

Nah we kid, not all the undervalued stock la. Just some Malaysian ones. According to Investopedia,undervalued stocks are stocks that are a 3rd of their intrinsic value. Meaning they are potentially worth moreusing some complex calculation la. You can read about it in more detail here.

But back to ValueCap. Apparently, this isn’t the first time that ValueCap has been tasked by the gomen to do bigmoney dealings. According to MalaysiaKini media statement by Lim Kit Siang, ValueCap started with RM10billion worth of funds to help various SMEs. Then in 2008, it was reported that it got an additional RM5 billionfrom the gomen.

But the money isn’t to buy stocks for the sake of just buying stuff. Various analysts have mentioned that thisRM20 billion injection was likely done to boost investor confidence (links here, here, & here). Why? Becauseforeign investors have been taking their money out of Malaysia.

4/9

http://www.valuecap.com.my/corporate-overview/who-we-arehttp://www.thestar.com.my/Business/Business-News/2015/09/14/PM-says-govt-to-reactivate-ValueCap-with-RM20b-fund/?style=bizhttp://www.asiasentinel.com/econ-business/the-malaysian-mystery-of-valuecap/http://www.trahk.com.hk/eng/index.asphttp://www.valuecap.com.my/corporate-overview/who-we-arehttp://www.theedgemarkets.com/my/article/malaysias-najib-delivers-rm20b-boost-stock-market#.VfaVqDR7wG8.facebookhttp://www.investopedia.com/university/value-investing/value-investing3.asphttp://www.malaysiakini.com/letters/24634#axzz3lxnQ2GRlhttp://www.limkitsiang.com/archive/2003/jan03/lks2044.htmhttp://www.thestar.com.my/story/?file=%2f2008%2f10%2f21%2fnation%2f2327061&sec=nationhttp://www.bernama.com/bernama/v8/bu/newsbusiness.php?id=1171255http://www.thestar.com.my/Business/Business-News/2015/09/15/ValueCap-boosts-market/?style=bizhttps://www.malaysiakini.com/news/312524

Image from diylol.com

This graph given to us by Alvin based off statistics from Bursa Malaysia indicate that foreign investors havebeen selling more than they’ve been buying, and when there is a greater demand to sell than a demand tobuy, prices will fall. And thus this RM20b is meant to help build confidence so investors won’t be inclined to selltheir shares.

But just how much can we trust this company to use the money wisely?

5/9

http://www.bursamalaysia.com/market/

So we tried to find out if ValueCap did a good job last time. We won’t lie. The background check wasn’tpretty la. Asia Sentinel actually wrote one whole long article about it.

Click to go to article.

The article mentions that one controversy that surrounded it was news that ValueCap was unable to repay aloan of RM5.1b. What happened next was that the Employees Provident Fund (EPF, where all your retirementmoney is) was gonna invest RM5b in Value Cap. So RM5.1b & RM5b you instantly connect the dots la. Peopleinstantly thought that the gomen was gonna use EPF money to bail out ValueCap.

EPF later said that the RM5b they gave ValueCap would NOT be used to repay their loans, but the moneystill went to ValueCap. We’ve honestly tried very hard to find out if ValueCap has since repaid their loans butthe trail stops with an article by Reuters that stated that the deadline was extended to 2012.

In regards to the EPF money, we found article that claims that the money loaned to ValueCap had nogovernment guarantee as with 13 other loans they approved. But as far as the gomen goes, they have saidthat ValueCap has generated high returns for its shareholders.

So is this RM20b gonna save our economy or is it another waste of money?

We know we’ve just talked about the not so great stories associated with ValueCap but you know what? Sincethe gomen announced this whole RM20 billion injection, our Ringgit has recovered slightly.

The Malay Mail Online reported on Sept 17 that Bursa Malaysiaclosed higher than the previous day for 3 consecutive days due tothe gomen’s measures AND an increase in oil prices worldwide.The Star on the other hand, reported that the Ringgit improved toaround RM4.25 per USD (yea not very high but better than RM4.31per USD at the beginning of the week).

[Update] The Ringgit is falling again, we repeat, the Ringgit isfalling again!

And though The Star mentions that the money has not yet beengiven to ValueCap, The Edge reports that PART of the reason forthe Ringgit going up is because of the announce of the RM20b.

While we mentioned that analysts have said that this RM20b wasdone to boost confidence, and it probably has, Alvin told us that the

6/9

http://www.kwsp.gov.my/portal/en/web/kwsp/homehttp://www.thesundaily.my/node/161320http://in.reuters.com/article/2009/02/26/valuecap-bond-idINKLR41406420090226http://www.pakdi.net/kwsp-bagi-pinjam-duit-kita-sebanyak-rm-55-1b/http://www.thestar.com.my/Business/Business-News/2015/09/14/PM-says-govt-to-reactivate-ValueCap-with-RM20b-fund/?style=bizhttp://www.themalaymailonline.com/money/article/bursa-ends-higher-for-third-day-runninghttp://www.thestar.com.my/Business/Business-News/2015/09/17/Ringgit-bounces-back/?style=bizhttp://www.xe.com/currencycharts/?from=USD&to=MYR&view=1Whttp://www.themalaysianinsider.com/business/article/ringgit-falls-most-in-2-weeks-as-stocks-drop-on-growth-concernhttp://www.thestar.com.my/Opinion/Columnists/The-Star-Says/Profile/Articles/2015/09/16/Nursing-the-economy-is-a-longterm-game/http://www.theedgemarkets.com/en/article/klci-extends-gain-bargain-hunting-valuecaps-rm20b-boost

RM20b is a temporary measure. Some analysts mention the same thing.

“My sense is that the (Malaysia) measures are more to try and prevent a sharp fall than to getthe market to rally.” – Rahul Bajoria, Asia regional economist at Barclays, as quoted by FinancialTimes.

“I think the goal (in Malaysia) is to shore up confidence in the currency, given that the stockmarket has had significant outflows.” – Euben Paracuelles, an analyst at Nomura, as quoted byFinancial Times.

Alvin also brought up how countries like China & the US have been pumping money into their economy and howthese measures may not be the most effective. Why? Because the they don’t allow market forces todetermine the economy.

We were also able to find a few articles that talk about why the government’s involvement in the economy maynot be the best solution here, here, here, & here albeit using the US as an example.

TLDR: Stop messing with the market, and let people decide how Malaysia’s economy really is.

But if this RM20b is not the answer to our problems, what is???!!

An analyst mentions that to determine whether pumping in this RM20b was a good move or not depended onwhich would last longer: our pockets or the negative sentiments towards the country’s economy.

We believe that in other words, this means that pumping in money into our economy is a good thing as long aswe have enough to last the negative sentiments towards our country. And that actually just means one thing:

We gotta do stuff that will restore the confidence laa!

Alvin tells us if we want to restore our economy in the long run, we would need to have a couple of things suchas a growing middle class, good governance, & an environment that encourages innovation. This article by TheStar mentions that certain sectors of our economy need to be more competitive. Lim Kit Siang says that other,potentially less popular, measures need to be put into place like reducing our budget & raising taxes.

There are many opinions la, and they all may work. But WSJ has gone further to say that investors arewaiting to see how our political situation pans out before deciding whether to invest in Malaysia. If that is thecase, then it is no longer an economic thing la.

There are probably other things that need to be fixed besides our economy

Yea you probably knew this already. Our economy needs some help la, regardless of whether our fundamentalsare strong or not.

About a month earlier, our deputy finance minister also asked that Malaysians spend locally while a professorasked that students study in Malaysia to help the economy. Besides that, The Star reports that the RM20b is oneof a few measures our gomen is implementing to save our economy. In the same article, they mention that heencourages companies to take the profit they’ve made overseas and invest in local projects.

But we can’t help but feel a bit amused by DAP’s reply to these calls to spend more money locally.7/9

http://www.ft.com/intl/cms/s/0/4c6e8024-5ba4-11e5-97e9-7f0bf5e7177b.html#axzz3mA24BUv2http:/http://www.businessinsider.com/afp-china-injects-nearly-100-bn-into-banks-for-economy-lift-2015-8?IR=T&http://abcnews.go.com/Business/wall-street-awaits-federal-reserve-meeting-2010-election-results/story?id=12044648http://www.investopedia.com/terms/m/marketeconomy.asphttp://news.nationalpost.com/full-comment/stephen-gordon-increasing-government-spending-would-be-the-wrong-solution-to-the-wrong-problemhttp://www.forbes.com/sites/dougbandow/2012/08/06/federal-spending-killing-the-economy-with-government-stimulus/http://www.heritage.org/research/reports/2010/01/why-government-spending-does-not-stimulate-economic-growth-answering-the-criticshttp://www.forbes.com/sites/jeffreydorfman/2013/11/05/the-stock-market-is-telling-everyone-the-fed-has-it-wrong/http://www.ft.com/intl/cms/s/0/4c6e8024-5ba4-11e5-97e9-7f0bf5e7177b.html#axzz3mA24BUv2http://www.thestar.com.my/Opinion/Columnists/The-Star-Says/Profile/Articles/2015/09/16/Nursing-the-economy-is-a-longterm-game/http://www.themalaymailonline.com/malaysia/article/kit-siang-malaysia-needs-economic-reform-not-a-rm20b-stock-market-boosthttp://www.wsj.com/articles/malaysia-struggles-with-a-dearth-of-deals-1442558874http://www.themalaymailonline.com/malaysia/article/be-patriotic-buy-local-goods-new-deputy-finance-minister-tells-malaysianshttp://www.thestar.com.my/News/Nation/2015/07/16/Don-Study-locally-to-help-stabilise-ringgit/http://www.thestar.com.my/Business/Business-News/2015/09/14/PM-says-govt-to-reactivate-ValueCap-with-RM20b-fund/?style=biz

Or this. Image from austrianaddict.com.

Click for article.

Note who’s signature is on every note. Image via sixmoment.com

We mentioned earlier than investors could be waitingfor our politicial situation to settle, but here’s what theBBC had to say about the RM20billion.

“The Malaysian Prime Minister, Najib Razak,has announced a multi-billion-dollar plan to helprevitalise the country’s struggling economy. He’sfacing slower growth and a currency that haslost nearly a fifth of its value against the USdollar since the beginning of the year. The primeminister is also no doubt keen to refocusattention on the economy, as he deals withallegations of corruption.” – BBC News

WAHLAU. If you’re an investor reading this in theLondon paper, would you want to invest!? Thereare so many holes in the Malaysian economic storynow, that economic factors may not be the only thingthat the gomen needs to consider. Even our very owngovernor of Bank Negara, Zeti Aziz said that somedomestic issues have affected the sentiment &confidence in our economy.

“We have some domestic issues that haveaffected sentiment and confidence. These arethe things that need to be resolved.” – Zeti Aziz,Bank Negara, to NST.

And if the woman who signs every Ringgit note issaying that, then 20 billion notes isn’t going tomake a lasting difference.

[Update 21/9/15] Tan Sri Zeti Aziz said today thatthe Ringgit can recover once the 1MDB issue isresolved, and that people deserve to get theanswers to their questions about it.

“We don’t need another scandal. We don’tneed political instability. All the issuesregarding 1MDB need to be resolved, onlythen can we see the Ringgit rise again.” –Translated quote from Tan Sri Zeti Aziz asquoted by Astro Awani.

She also said that besides a resolution of ourcountry’s domestic issues, other factors that couldhelp our economy included an eventual decision

8/9

http://www.bbc.com/news/business-34252958http://www.nst.com.my/news/2015/09/%E2%80%98country-not-heading-towards-crisis%E2%80%99http://www.themalaymailonline.com/malaysia/article/malaysians-deserve-answers-on-1mdb-and-rm2.6b-donation-zeti-sayshttp://www.astroawani.com/berita-malaysia/isu-1mdb-harus-dijawab-dahulu-sebelum-ringgit-boleh-pulih-zeti-74035http://www.themalaysianinsider.com/malaysia/article/ringgit-can-recover-once-1mdb-issue-resolved-says-zeti

by the US Federal Reserve to raise interest rates, a recovery in global commodity and energy prices and animprovement in China’s economy.

9/9

FUYOH! M’sian gomen pumping RM20 billion to save economy?! Sure ONOT!?Tot gomen running out of money… Where is the money coming from??But what is one company gonna do with RM20 billion???!!So is this RM20b gonna save our economy or is it another waste of money?But if this RM20b is not the answer to our problems, what is???!!We gotta do stuff that will restore the confidence laa!

There are probably other things that need to be fixed besides our economy