Bumiputra equity?

Another race issue has cropped up in Malaysia even though many people are still seething over Singapore Minister Mentor Lee Kuan Yew's remarks about compliant Chinese in Malaysia, and Malaysian PM Abdullah Ahmad Badawi's son-in-law's remarks about non-Malays taking advantage of Malays when they are disunited.

This time, The Star dated 6 Oct 2006 cited a report by think tank Asian Strategy and Leadership Institute (Asli) as saying that Bumiputra equity of the corporate sector is a lot higher than the target of 30 per cent. Badawi immediately rejected it as wrong.

Is it really wrong? Has the policy surpassed its goal to help redress the wealth imbalance in the country?

To recap, the Asli report, citing statistics from the Bursa Malaysia Corporate Equity’s 2005, estimated the amount of Bumiputra equity ownership at 45 per cent of the RM715.4 billion worth of stocks on the stock exchange, or RM325.1 billion. The survey is based on a sample of 1,000 listed companies.

The government's reasoning on why the Asli report is wrong:
1. The Government’s estimate of Bumiputra equity ownership in the Ninth Malaysia Plan is only 18.9 per cent based on Bumiputra holding in 600,000 companies. The value is computed based on the par value of the company's shares.
2. Government-linked companies are not Bumiputra companies.

Let's tackle the second point first. Yes, not all GLCs are Bumiputra companies. But it is not wrong to calculate the level of Bumiputra holdings in all listed companies.

Take the example of MMC Corporation, which is majority held by businessman Syed Mokhtar Al-Bukhary (51.75 per cent) and government agencies such as Skim Amanah Saham Bumiputra (24.42 per cent) and the Employees Provident Fund (3.78 per cent).

Of course, Syed Mokhtar's stake held through Seaport Terminal (Johore) must be accounted as Bumiputra equity as he is a Bumiputra businessman. The stake held by Skim Amanah Saham Bumiputra must also be classified as Bumiputra equity although it is part of the government because the funds will only accrue to Bumiputras. But the stake held by the EPF cannot be classified as Bumiputra equity as it is a national agency.

So, the argument depends on the methodology.

The first point is more contentious. Even though the government uses a bigger sample to calculate the level of Bumiputra corporate ownership, it is totally misleading to use the par value of their holdings.

Of course, the level of Bumiputra will always remain suppressed and stay below the target of 30 per cent if par value is used as the computation. This is because the par value is equivalent to the issue price of the shares.

Take the example of Maybank, the biggest bank in the country. Based on the government's definition, the entire Maybank is only capitalised at RM3.8 billion based on its share capital of 3.8 billion shares at its par value of RM1 per share. Hence, a Bumiputra shareholder such as Skim Amanah Saham Bumiputra (the biggest shareholder of Maybank with a stake of 36.5 per cent) is deemed to be holding Maybank equity worth only about RM1.4 billion.

But the picture is completely different if one uses current price instead of par value in the computation. Based on Maybank's last traded price of RM11.30, the bank is capitalised at RM42.9 billion. And Skim Amanah Saham Bumiputra's 36.5 per cent stake in Maybank is therefore worth RM15.7 billion -- more than ten times the value based on par value!!!

Using current price is definitely more realistic in ascertaining the actual level of Bumiputra ownership in the corporate sector or the economy. The government must also take account the continuous disposal of assets by Bumiputra to raise funds -- especially in IPOs as pointed out by the Asli report -- over the years when it analyses the actual level of Bumiputra ownership.

But such suggestions won't please defenders of the Bumiputra policy, which should have expired in 1990.