Local tycoon Syed Mokhtar AlBukhary’s RM34 billion in liabilities has made him one of the country’s biggest holders of corporate debt.
The debts have bankers and investors worried over the potential stresses that big conglomerates, such as that of Syed Mokhtar’s, which controls a varied range of businesses from power plants, to transportation and infrastructure development, could have on the banking system, a report in Singapore’s The Straits Times said today.
Syed Mokhtar’s business interests include DRB-Hicom’s Proton Holdings Bhd, the latter which secured a RM1.5 billion soft loan from the government in April this year. The government agreed to inject the funds by subscribing to new preference shares in the local carmaker.
“Should Proton fail to repay the soft loan, the government will be able to convert the shares and wrest control of Proton.
“The carmaker has bled more than RM2.5 billion since it was taken over by DRB-Hicom four years ago, due to slumping sales, weak cash flows and the high inventory levels of unsold cars,” said the report.
The newspaper also spoke to Jason Chong, chief investment officer at Manulife Asset Management Services in KL, who said that from a market standpoint, there was no reason for a private company to be bailed out by the government.
Senior executives in Syed Mokhtar’s firms however, downplayed debt concerns surrounding the group.
One officer from DRB-Hicom anonymously told the daily that the “absolute numbers do look huge” but in reality, they were manageable.
“Many of our businesses require huge capital outlays and our infrastructure projects are largely project-finance debts that are ring-fenced by cash flows,” he said.
A senior officer of a state-controlled commercial bank also said Syed Mokhtar was in a “far better situation” than a decade ago, and that they were comfortable as lenders to the tycoon’s group.
Concerns however do remain over Syed Mokhtar’s debt burden, said the report, as he was seen as a product of the corporate patronage system that featured the intertwining of the business of politics, where politically well-connected businessmen were favoured in the awarding of lucrative contracts and concessions, it added.
In an economic model packed with “failures” and public bailouts to protect the banking system, such as the takeovers of the Malaysia Airlines and Port Klang Free Zone (PKFZ), “there are fears that Syed Mokhtar’s group could face a similar fate should the Malaysian economy slip into a major recession.”
Syed Mokhtar, who is listed as one of Malaysia’s top 10 richest people, has varied business interests, including strategic ports under MMC Corp, independent power plants under Malakoff Berhad, as well as rice and sugar processing and plantations, just to name a few.