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Nikkei Markets

Malaysia seeks to monetize state assets to boost revenue

May sell stakes in unlisted state and listed private companies

Malaysian Prime Minister Mahathir Mohamad said at an investment conference that the government will monetize assets in an orderly fashion.(Photo by Takaki Kashiwabara)

KUALA LUMPUR (Nikkei Markets) -- Malaysia may name some of its state-run enterprises for potential disinvestments and also sell stakes in select publicly traded firms as part of a broader effort to boost government income to pay off costly credit and cut debt.

"The key guiding principle for monetizing any of our assets is that the disposal or monetization must never be done at fire-sale prices, and any disposal of shares, monetization of assets, auctions or other measures will be done in an orderly manner and communicated cohesively across all implementing entities," Prime Minister Mahathir Mohamad said at an investment conference. "There shall be no disruption to the capital markets, confidence to the financial markets, ratings environment, and economic growth."

A list of state-run companies for potential disinvestment is currently being prepared by the prime minister's office, Finance Minister Lim Guan Eng told reporters on the sidelines of the same conference. "Let the prime minister announce it," he said, referring to the disinvestment targets.

The government is identifying "mature" state-run enterprises for potential disinvestments and for trimming stakes held by some state-run companies in other publicly traded firms, Mahathir said. Receipts from such share sales will help pare debt and off-budget liabilities as the government seeks to clean up its balance sheet and re-embrace fiscal discipline in the years ahead.

However, absence of any major policy announcement by Mahathir and Lim weighed on investor sentiment. The benchmark FTSE Bursa Malaysia KLCI fell following their speeches, ending 0.2% lower. "While we welcome and are glad to see the commitment, the government has to really deliver," said Areca Capital chief executive Danny Wong.

Mahathir and Lim indicated "they are on the same page and complementing each other" and the government is "very focused and going about what they have to do with seriousness," said Pheim Asset Management's Chief Investment Officer Leong Hoe Kit.

The comments come as the Mahathir-led Alliance of Hope coalition government struggles to balance capital spending to spur economic growth with operational expenditure amid mounting interest liabilities arising from public debt exceeding 1 trillion ringgit that it inherited from the previous administration. The government's revenue has been dented as it followed through on a pre-election pledge to scrap a remunerative but unpopular goods and services tax. It is now relying on state asset sales to boost income as the sales and services tax, which replaced the GST, is not enough to finance some populist measures and pay off liabilities.

"A debt and liability management committee has been formed to look into the government's balance sheet and implement strategies to reduce debt and liabilities, including government guarantees," Mahathir said.

The panel, which was established in January with a mandate to reduce the government's debt and liabilities to a manageable level, is expected to submit its report within 18 months of its formation.

The strategies that the current administration is adopting include, among others, greater risk control parameters on issuances of government guarantees and better market access, Mahathir said.

--Sarah Nadlin Rohim

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