EPF defends its move to exit troubled companies

KUALA LUMPUR: While institutional investors are often criticised for “taking the easy way out” when they exit troubled companies, it is sometimes wiser to leave when the investee company refuses to make changes, said the Employees Provident Fund (EPF).
Speaking at the Invest Malaysia 2017 conference, EPF CEO Datuk Shahril Ridza Ridzuan gave the example of its decision to exit Malaysia Airlines.
“For example, one of the first things we did when we came in was we dumped Malaysia Airlines as we believed it was going to go bankrupt.
“Of course, FGV (Felda Global Ventures Holdings Bhd) was another case – we thought it would be difficult for the company to turn around under its current leadership,” he said.
He said this in response to a question on whether institutional investors often “ran away” from troubled firms by divesting their stakes in public-listed companies (PLCs), instead of staying on and instituting changes in these companies.
The EPF had gradually sold its stake in FGV and declared early this year that it no longer has any interest in the company.
Asked if EPF would revisit FGV as an investment, Shahril said that “as we are not involved anymore, we don’t look at it.”
“We are a long-term investor but ultimately, we are a portfolio investor. Given the size of the EPF, and the fact that we hold stakes in so many companies, it is frankly a difficult and onerous task to spend so much management bandwith to try and change companies when they refuse to change,” he said.
Shahril added that it spent a lot of time communicating with its investee companies on issues of governance but in some cases, it took the view that “things are not going to change”.
“Academically, we talk about how institutional shareholders can put pressure and force some change but at some point, institutional investors have to decide to cut their losses and put their money to better use elsewhere.
“There is a limit to what an institutional shareholder can do if we don’t have direct control over the management,” he said.
Retirement Fund Inc (KWAP) chief executive officer Datuk Wan Kamaruzaman Wan Ahmad, who was also a panelist at the session, said the fund had often stayed on in troubled companies as it was “stuck” due to liquidity issues.
“It is not by choice but due to circumstances, for example, the latest is obviously FGV. Some have managed to divest their stakes and some have not been able to.
“Some thought it was at a low level and collected more shares and ended up in a bigger problem,” he said.
However, he said it had ultimately decided to stay on in the company as it felt that there was light at the end of the tunnel.
“It is a GLC and there is a lot of support from the government – they will not let it fail because it will affect a large group of stakeholders,” he said.
He added that as a portfolio investor, KWAP did not take any controlling interest in companies, keeping its stakes at a maximum of 20%.
“We do not get involved in the day-to-day running of the company and we do not have board directorships. It is much easier to stay focused this way,” he said.
Permodalan Nasional Bhd (PNB) president and group CEO Datuk Abdul Rahman Ahmad said the difficulty faced by institutional shareholders was whether it was able to effect change.
“I think Malaysia is a bit unique in this sense, because there are not that many companies here that are truly institutionalised – there is usually an owner.
“As an institutional investor, we have to make a judgement on whether we are able to influence the controlling shareholder or the management team chosen by this shareholder, to change,” he said.
Otherwise, he said, it was only fair for the institutional investor to exit.
 
Source : http://www.thestar.com.my/business/business-news/2017/07/26/epf-defends-its-move-to-exit-troubled-companies/#eQ97bhUIzprlfsmU.99
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