July 15, 2017
thoughts on

Reflections of the Asian Financial Crisis & Corporate Malaysia Today

July 15, 2017
Organized by:
Featured on:
Khazanah’s AFC 20th Anniversary Analyst Survivor’s Ball Grand Hyatt, Kuala Lumpur
featured on
Khazanah’s AFC 20th Anniversary Analyst Survivor’s Ball Grand Hyatt, Kuala Lumpur
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The epicentre of change in Malaysia over the last few years has been the 1MDB crisis. It has shaken the foundations of Malaysian politics, economics, institutions and business.

Ladies and gentlemen 

Thank you for having me up here to reflect on the AFC & Malaysia today, even though I was never a research analyst. 

I was, at different times, the cooler but poorer investment banker, or the richer equity salesman, or “empty suits” as you called us. 

For full transparency though, I was acting Head of Research at CIMB Securities for about 2 months in the mid-1990s because we had to remove the Head of Research; he seemed to be writing buy reports on mid-sized companies and selling the same stocks from his personal account! 

I guess that was just another one of the weird, wonderful and woeful things going on in the Wild Wild East stock markets in the run up to the AFC. All of us here lived the Malaysian version of the great Malaysian movie, The Wolf of Wall Street. It was as wild, but without the cocaine (maybe) and without throwing dwarfs at dart boards (definitely). 

I became an equity salesman in early 1993; it was perfect timing. I thought I was so good – The Wolf of Semantan Street - because every stock I recommended went up; it was just detail that every other stock went up saw well. My last paycheck in corporate finance was RM6,000; my first paycheck as an equity salesman was RM90,000. At 28, I could sit at the back of my chauffeur-driven Jaguar and was on the cover of a men’s magazine with the caption “Young, free and bullish”. If I saw my son doing the same today, I would smack him! 

Cockiness and arrogance were everywhere. I remember my first meeting with the great Halim Saad when I became Deputy CEO of CIMB IB in 1996. He made me wait 2 hours, and when I walked in, he spoke for 5 minutes from his desk without even looking up from his paperwork. I wouldn't call it speak; he mumbled. And you didn't dare ask him to repeat anything; you just whizzed out of the room, and somehow, his secretary, Florence, who was outside the room, would have heard everything clearly and would repeat him at verbatim. I doubt management ever spoke truth to Halim! 

Animal spirit in competition was literal. I remember witnessing 2 foreign IBs literally elbowing each other to walk next to a high-flying client (I know who you are, Kar Peng). We were on a site visit for a Euro-convertible bond in a jungle in Keningau, Sabah. The client was, of course, Teh Soon Seng of Aokam Perdana. There were fund managers with us looking at this factory full of new machines; none of them actually operational because it was maintenance day apparently, so we were told to just imagine how much was being produced every day in the factory. We lapped it up and the bond did very well until the scam collapsed - the stock went from 60sen to RM30 to back to 60sen. 

Come to think of it, for those who remember him - didn't Soon Seng have the look and build of a similar type of character that would emerge in corporate Malaysia about 10 years later? 

One or two smart analysts, of course, realised what was really going on with Aokam early, but those days it was easy to shut you up. I remember reading about one frustrated analyst who was told not to recommend a sell on a stock. His call became “can’t recommend a purchase”, or acronym “crap”. 

With hindsight, it isn't at all surprising that things came crashing down in the AFC - irrational exuberance, poor governance, easy money. In the mayhem of tumbling markets and currencies, and payment defaults, we saw Malaysia Inc. at its worst. 

My worst war stories involved RHB, Bakun Dam and short selling. 

Soon after the onset of the Tom Yum crisis we (Commerce Asset Holdings then) received a bizarre takeover bid from RHB. Bizarre because they were in financial trouble while we had just completed a rights issue. The team from RHB marched to CIMB, and presented us the deal, and my response was that. we can discuss, but based on a proposal that I had prepared instead. The RHB reps (Chartchai and one guy who doesn't want me to mention his name - he had a head full of grey hair, isn't Charon and is now CFO of a large petroleum company) said “Nazir, you dont know what BNM wants”. So I said we have nothing to discuss and the meeting ended in less than 5 minutes. 

Then my CEO, Tan Sri Md Nor, and I received a message saying that if we didn't facilitate the deal, BNM would not renew our directorships. I don’t know if that was a real threat, but we believed it. The two of us discussed and decided that whatever the consequences we should just do the right thing. At a packed press conference, we unilaterally called off the deal. It was mayhem and all sorts of questions were fired at us. We were against the wall until someone asked “are you going to merge with MBF or Bank Bumi?” Our ED, Dr. Rozali, responded with one of the best lines I have ever heard - “we will consider every deal even if there is none”. There was total silence, and in the confusion, we just walked out of the room. 

We then waited for the call to vacate our positions. Instead, there was political upheaval and we survived. So I had a near-career death experience in the crisis. 

The other nightmare came as CIMB had lead-underwritten the mega RM1.5bn Ekran rights issue to fund the Bakun dam on the condition that if the project didn't proceeds, the rights money would be returned to shareholders. By the time the project was called off, the money had been siphoned out. We screamed to the authorities, but no one dared act against the promoter. 

Instead, the authorities were told that the crisis was caused by short sellers and they had to do something about it. So while there were misappropriations, governance transgressions and the sort, they spent enormous time and energy in search of a short seller. Maybe because we were next door to the SC, but the only short selling case was against CIMB, its dealer Tommy Ng and client Credit Lyonnais. There was absolutely no doubt to any rational person that the case was of a simple (and common) non-delivery of shares by Mercury Asset Management, London. 

The injustice of it was galling to me because I saw my friend and staff, the innocent dealer being arrested and handcuffed. I saw his kids having to read about their dad the criminal on the front pages of the newspapers. I knew that he just happened to take CLSA’s order that morning - they weren't even his client; the actual account dealer just happened to be in the toilet at the time. 

I remember consulting my brother Johari at Shearn Delamore about this great injustice, and his prescient words to me - “Jay, in Malaysia today, just because you are innocent, doesn't mean you won’t be found guilty”. 

From those depths, I was motivated to be part of change and rebuilding of corporate Malaysia. I actually remember a specific conversation over breakfast with a few people, Azman Yahya and Shahril Shamsuddin among them, saying that when we get there, we will do things differently. 

I got brave and still recall the moment in 2001 when Halim wanted an outrageous extension of payment for a deal to buy Renong shares from Time Engineering. I was already CEO of CIMB IB and my CF staff was in the board meeting to approve the deal when I saw a note telling me what was going down. I called him out of the board meeting and said, we must change our stance, we cannot support the deal whatever the consequences. It was the final slip in the Renong deck of cards. I knew it, so I made a preemptive call to PM’s adviser, Tan Sri Nor to tell him what had just happened, why I took the decision and that I was ready to face the consequences. To my relief he said “Well done, you did the right thing. Come and help us take over UEM and Renong from Halim.” 

Nationalising UEM, Celcom and many others, new corporate governance rules, banking consolidation and reregulation, Khazanah and then GLC transformation, professional managers, were all part of Malaysia Inc. II that emerged from the AFC. 

I remember another phone call that came from Putrajaya - 

“Nazir, you called default on Minister XYZ’s company?”
“Yes, sir. I did” I answered, a bit scared.
“Sorry I had to call you, he asked me to so you understand lah. When he calls you, just say I called, but you are not changing your stance. Well done.” 

Even the politicians were behaving. It was a golden time. We were creating value with M&As and operational transformations of companies. New entrepreneurs, like Tony, were emerging. Yes, capital controls somewhat limited reforms, but also financial suffering, so on balance I think the government did the right thing. We were reforming; we just had to stay the course. 

Today, we know we didn't stay the course long enough. 

The epicentre of change in Malaysia over the last few years has been the 1MDB crisis. It has shaken the foundations of Malaysian politics, economics, institutions and business, and it is still playing out. A Malaysia Inc. III may even be in the making. 

When you look around the world at the upheavals against global finance, capitalism and liberal democracy, even in the US, history will have to judge whether what is happening in corporate Malaysia is just par for the emerging new order. 

I would, however, make 3 observations- 

  1. The 1MDB Crisis would not have happened had the entity been subject to the established GLC framework - especially those coloured books that Azman wrote - which embodied all the lessons we learnt from the flaws of Malaysia Inc. I that ultimately crashed in the Asian Financial Crisis.
  2. Getting back on course from here would require greater convergence of international and domestic narratives of what happened and how it is addressed. If not, we may find ourselves moving forwards with a new order for corporate Malaysia.
  3. Malaysia Inc. II was based on universal values of corporate governance, transparency and separation of politics and business. In my humble view, we must get back on course. We are a nation blessed with enormous potential and our forefathers fought hard to build solid foundations which are still here. Yes, mistakes were made; we are humans. In the past, we have found it in ourselves, in our leaders, the resolve to correct them, not to build on them. It’s that time again.

Ladies and gentlemen 

Let me end by saying that it’s been a great privilege to have had a front row seat for so much of what happened in corporate Malaysia - the late 80s economic recovery, wild wild 1990s, AFC and post-crisis reform era. As for current times, I am just relieved that Zafrul is sitting in my seat. 

Thank you.


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