KUALA LUMPUR, 17 February 2020 – Following global best practices, the government should start moving away from having direct involvement in the management of government-linked companies (GLCs), especially through golden shares.
This is because, as economic sectors become more liberalised while regulators become more sophisticated, the concept of golden shares as a means of control has become less relevant.
Just last week, the Malaysian Aviation Commission highlighted at a media briefing that the government should not have a golden share in the aviation sector, specifically in the public-listed airport operator Malaysia Airports Holdings Bhd (MAHB), in order to establish a fair and competitive commercial environment for the industry.
Institute for Democracy and Economic Affairs research manager of the economics and business unit Lau Zheng Zhou explained that historically, golden shares were used mostly in strategic sectors such as utilities and infrastructure companies, without which, the economy may not function.
But as the economy develops, Lau said, the government’s role in the current economy should remain as a policymaker, not a market participant.
“I understand that [the rationale for] the government wants to regulate these strategic sectors, but how best does the government intend to regulate them? Must the government need the golden share to achieve this?” he questioned.
Instead, Lau advocated for regulatory institutions and their framework to be empowered and strengthened in order to ensure a fair competition and efficient running of the industries.
“We must work towards disentangling government control in businesses. Ownership is fine, but I think it’s best for the government not to take up a managerial role [in GLCs],” he said.
Lau contended that the presence of a golden share may be seen as a threat to markets, as the law provides the government to do as it pleases. For instance, when a decision is made by the board, the government may overrule the decision by exercising its right as a holder of golden shares by arguing that it is not in line with the “strategic interests of the country”.
But the “strategic interests of the country” is arbitrary and may shift with the change in administration, Lau explained.
“The abolishment of golden shares must be seen as part of a greater effort to regulate GLCs in a more efficient way. This would restore market confidence in the industry, and signal that the government is serious about reform,” he added.
Furthermore, the government has other mechanisms and means of intervention to achieve its objective of reinforcing an open and transparent business environment, according to Kenanga Investment head of research Koh Huat Soon.
“It (golden shares) seems redundant. Surely, there are already representations from the government in the board, via representatives from Khazanah Nasional Bhd for instance, that would carry out a certain degree of government oversight of these GLCs,” he told The Edge Financial Daily.
“I think having representatives from the government in the board is sufficient. Having a golden share on top of that doesn’t serve a significant purpose,” he added.
However, Koh admitted that the golden share is essential for the government to establish a sense of control in the GLCs, under the circumstance that Khazanah starts paring down its equity stake in the GLCs.
The concern with golden shares, Koh said, is that the market is sceptical and suspicious of it because no one could rule out the likelihood of it being abused for political ends.
But, by the same token, if the government is righteous, having a golden share may be justified for the protection of national interests, he added.
The issue of whether Malaysia should end its practice of owning golden shares in publicly-listed GLCs has sparked discussions of late.
Khazanah managing director Datuk Shahril Ridza Ridzuan on Jan 14 urged Putrajaya to do away with having golden shares in GLCs as a means of control. Instead, he suggested that GLCs be regulated by industry regulators rather than via direct intervention in the companies’ management, which could be detrimental to the companies’ way of doing business.
But Prime Minister Tun Dr Mahathir Mohamad was quoted by the media as saying that the government insists on having golden shares to prevent the mismanagement of GLCs.
A golden share allows the government to veto strategic decisions made by the board, such as overruling the appointment of top management positions. This gives the government the power to exercise its right to exert control of these companies if needed.
“If the government truly intends to let the industry flourish, they can achieve it even with the golden shares. At the same time, getting rid of the golden shares won’t change anything if the government does not have its priorities right.
“In the end, it is still up to the government whether they want to impose control over these companies,” an analyst covering MAHB told The Edge Financial Daily.
“If the government decides to abolish the golden share, it would be nice from a perspective point of view. Investors may have a better sentiment when businesses have less political interference,” the analyst added.
The view is concurred by another analyst from a bank-backed research house who declined to be named due to the sensitivity of the issue. He said the government needs to be seen as being impartial and not interfering directly in the business operations of GLCs.
“When decisions are made, there may be accusations levelled at the government that they were not market-driven decisions. As such, it won’t look good based on market sentiment,” the analyst commented.
“The idea is to show that the government is reducing its interference in businesses,” he added.
Interestingly, Hong Leong Investment Bank Bhd analyst Daniel Wong pointed out that the government has technically not exercised the rights provided by the golden share. Hence, by its very nature, golden shares in itself do not affect investors’ sentiment.
“In essence, the golden share doesn’t really affect a company’s operations. What benefit will the market get if the government decides to get rid of the golden share? Nothing,” he argued.
Case in point; foreign ownership of MAHB is currently at over 30%, which goes to show that investors’ confidence is not affected by the golden share held by the government.
Wong argued that whether or not the government has a golden share in a GLC is negligible, as it does not contribute nor does it damage the fundamentals of the company. In fact, he went on to say that it would not have any effect on its share price either.
“I won’t oppose the call to abolish the golden share. I just don’t see it will result in any effect on investors. Even without the golden share, it will be status quo for the industry,” Wong said.
According to the ministry of finance, as of Oct 24, the government had 32 golden shares in various companies, seven of which are listed entities.
First published in The Edge Financial Daily, 17 February 2020