Equity Restructuring and Ownership
The Plan restates that the target of attaining at least 30% Bumiputra corporate equity ownership at macro level remains. It goes on to indicate that the focus will be on promoting genuine economic participation, consistent with the objective of sustainable high growth, rather than corporate equity allocation.
The Plan proclaims that this will be achieved through more transparent, market-friendly and merit-based instruments, focused on:
• Strengthening Bumiputra entrepreneurship to help create competitive businesses in high impact sectors;
• Increasing wealth ownership beyond corporate equity to include other properties and business assets such as retail space landed properties, commercial buildings, intellectual properties and other services through pooling of funds and institutional investment; and
• Promoting Bumiputra representation in high paying jobs through enhanced capability building and demand-side incentives.
These statements can be cautiously welcomed as they represent a nuanced shift. However, if the past is any indicator, this shift may be no more than illusionary and a mutation of the NEP.
Furthermore, as the past demonstrates, it is the manner in which policies are implemented that matter. It must be recalled that at the end of the day it is the Little Napoleons that determine how policies are implemented. Furthermore, the emergence of powerful pressure groups such as PERKASA, are in the forefront with demands for a tightened and radically rigid set of policies that reinforce the NEP. These groups will clearly be vocal now that they have seen the Prime Minister retreat. Ominously, they have succeeded in forcing the Prime Minister to retreat from the key elements of the NEM. The NEM balloon was pricked no sooner than it was floated. There is every indication that these groups will vigorously pursue their agenda and the 30 percent equity target will symbolically remain central to their demands. These demands will continue to be a distraction and impact on the investment climate both domestically and in terms of foreign investors. It is in that context that attention needs to be paid to the issue of the extent to which the 30 percent target set in the early 1970s has been attained or is close to being attained.
The current Plan follows up on the 9th Plan by repeating the need to view the attainment of the 30 percent target as a long term goal, to be achieved by 2020. The 10th Plan takes on a new dimension. It expands the scope of wealth to beyond share equity by including other assets.
The 9th Plan attempted to correct one aspect of the misunderstanding of the NEP target concerning ownership of share capital. For the first time, the 9th Plan indicated that these share valuations are done on the basis of taking the par value of the shares of all limited companies, both public limited and private limited companies, distributed by ethnic origin. Thus, the total stock of share capital is valued in nominal ringgit terms.
The calculations take no account of the true asset or equity values which are a correct measure of wealth. Par valuations are notional and equate a single share in a small private family owned business with a single share in a large asset rich public limited company listed on the stock exchange. The resulting aggregate values (at par values) understated the net worth of asset rich companies whilst exaggerating the value of shares in private companies. The total par value of shares as measured is a gross under-estimate of the value of all corporate assets/equity or the net worth of corporate entities.
This same methodology has been applied consistently since 1970. According to the Table in the Appendix of the 10th Plan, the total par value of share capital in 2008 amounted to RM 581.8 billion as against RM 621.8 billion in 2004. It is most intriguing as to why there was a decline. Of the total share value in 2008, the Bumiputra percentage was 21.9 percent; 36.7 was owned by Non-Bumiputra Malaysians and Foreigners owned 37.9 percent. Many analysts have argued that the holdings of Nominee companies owning 3.5 percent should be aggregated with Bumiputra holdings to give an overall Bumiputra ownership of 25.4 percent, a figure close to the NEP target of 30 percent. These commentators have contended that Nominee companies are mainly Bumiputra owned. Be it as it may, the figure of 21.9 percent can be viewed as an under-estimate for other reasons beyond those cited above.
The total value of RM 581.1 billion, it must be recalled, represents the total par value of all shares in both public and private limited companies. It is significant that the 10th Plan, does not report data on Listed Companies on the Kuala Lumpur Stock Exchange. At the end of 2002 there were a total of 865 listed companies with a market capitalization of RM 481.6 billion, a figure that exceeded by RM 171.8 billion the total share capital of all companies (both listed and unlisted) in par value terms. This is clearly an inconsistency. No published figures are available about the ethnic distribution of the capitalized value of RM 481.6 billion. It can however be reasonably argued that all listed companies on the KLSE are companies that have been restructured, resulting in a minimum 30 percent Bumiputra ownership. It must be recalled that restructuring is a pre-condition for listing on the KLSE. On this basis, it would not be erroneous to assume that 30 percent of the capitalized value of listed shares belongs to Bumiputra. To this extent then, Bumiputra ownership is close to or even exceeds the NEP target. It should also be observed that ownership is but one dimension. Control matters. In terms of control, even through minority holdings, Bumiputras and Bumiputra controlled entities are likely to be in control of corporate wealth well in access of 30%. On this basis, the data presented in the Plan is moot and anomalous.
Be that as it may, the broader debate can easily be settled by applying a more transparent and diligent methodology than is the case at present. It is fundamentally important that this be done to dispel misperceptions about share ownership in the Malaysian economy. An independent and impartial study should be commissioned to get at the truth. This is vitally important to help avoid the adoption of radical policies, such as a return to the emotionally charged and divisive policies associated with the NEP. It is important that the nation take stock of where it stands and does not march in a backward direction towards policies that have failed and, if readopted, could result in grave consequences for the nation’s future.