Back to the future: Malaysia considers setting up asset management entity to bail out troubled businesses

A view of the Kuala Lumpur city skyline on Feb 24, 2020. The plan for a new asset management company was broached at a meeting where a merger of state-owned Malaysia Airlines Bhd and AirAsia Group was discussed.
A view of the Kuala Lumpur city skyline on Feb 24, 2020. The plan for a new asset management company was broached at a meeting where a merger of state-owned Malaysia Airlines Bhd and AirAsia Group was discussed.PHOTO: AFP

KUALA LUMPUR - The government is in the final stages of setting up a new state-guaranteed asset management company to head off defaults in the banking sector and to bail out troubled businesses reeling from the collapse in the financial markets battered by the coronavirus pandemic.

The plan for a new asset management company was broached at a meeting on Sunday between Finance Ministry officials and key representatives from the country's battered aviation sector where a controversial merger of state-owned Malaysia Airlines Bhd (MAS) and AirAsia Group was also discussed.

The push for an asset management entity to deal with the country's mounting economic challenges was drawn directly from the government's experience in managing the fallout from the 1998 regional economic crisis when it set up Pengurusan Danaharta Nasional Bhd to deal with non-performing loans in the banking sector.

"The need for another Danaharta is obvious, but the bailouts for businesses are going to be many times more compared to the previous crisis," said a chief executive of a large US-based investment fund with extensive interests in the region.

Danaharta emerged as a prime mover in getting the country's seriously mauled banking system back on its feet following the 1998 financial crisis. The agency used a mixture of zero-coupon bonds and cash to purchase loans from the domestic banking system by paying sharp discounts of as much as 50 per cent on a loan that were either collateralised by property or shares listed on the stock exchange.

The warehousing of these troubled loans with Danaharta, which ceased operations in 2005, allowed financial institutions to resume lending to help revive the economy.

The creation of a new asset management entity will represents a major undertaking by Prime Minister Muhyiddin Yasssin's new government as it confronts the unprecedented economic fallout from the Covid-19 pandemic.

The administration, which took shape earlier this month through defections and the intervention of the King, has already come under sharp criticism this week over its plans to allow wage earners to dip into their personal pension savings to weather the current financial crisis.

Private economists say that any failure on the government's part to provide direct financial assistance to ordinary Malaysians in the coming days while pushing ahead with business bailouts will surely add to growing public unease over the country's political and economic prospects.

 
 
 
 

The Malaysian Institute of Economic Research (MIER) offered a grim picture of what is to come.

In a statement issued late Tuesday, the highly respected MIER said the economy will slip into a serious recession and contract by as much as 2.9 per cent in 2020, against the official estimate of gross domestic product expanding mildly by 2 per cent. Households incomes are projected to fall by 12 per cent, which it estimated amounted to roughly 95 billion ringgit (S$28.96 billion), and jobs losses are estimated to be in the region of 2.4 million positions, 67 per cent of which are unskilled labour, the MIER said.

A substantial number of job losses are likely to come from the proposed forced merger of the MAS and AirAsia.

The merger has been in the works for some months but has faced heavy opposition from several government officials who have argued that AirAsia stood to gain more from such a corporate union.

But financial officials close to the situation said that the dynamics have changed sharply after the shares of AirAsia's listed entities were battered in recent weeks, forcing the government to consider the drastic step of potentially nationalising the aviation sector. "Whether the government goes that far (to nationalise) is not clear, but you cannot write off the prospect," said one CEO of a financial consultancy close to the ongoing negotiations.