Kuala Lumpur/Singapore: Malaysian state fund Khazanah Nasional Bhd’s $835 million (Rs3,941 crore) bid for Parkway Holdings Ltd may signal the start of more focused, major acquisitions abroad to help Malaysian companies venture beyond the home market.
Khazanah’s biggest foreign acquisition aims to double its stake in Parkway, Asia’s biggest listed hospitals operator which owns Mount Elizabeth and Gleneagles hospital in Singapore, and manages chains in India and China.
Healthcare rush: Parkway Holding’s Mount Elizabeth Hospital in Singapore. India’s Fortis is in the running for the hospital operator. Jonathan Drake/Bloomberg
The move, which caught potential suitor India’s Fortis Healthcare Ltd and the market by surprise, has drawn attention to the strategy of Khazanah, whose $28 billion assets are mostly concentrated in South-East Asian financial, healthcare and telecom companies.
“It’s consistent with their (Khazanah’s) strategic thrust to be in healthcare,” said Michael Lai, associate director of investment at Fortress Capital Asset Management.
He said Khazanah’s move gave it first mover advantage over Fortis.
“Healthcare assets are quite lucrative in this part of the world. I think it is a bit of a strategy whereby if someone wants to buy over my assets and I don’t want to sell, I might as well offer first,” said Lai, who helps to manage around 200 million ringgit (around Rs285 crore) at Fortress.
The Malaysian fund’s mandate is to make strategic investments on behalf of SouthEast Asia’s third biggest economy, and also oversee a programme to transform state-owned firms beset by inefficiencies into global players.
Khazanah has been less aggressive than Singapore state funds Government of Singapore Investment Corporation Pte Ltd (GIC) and Temasek Holdings Pte Ltd, which hold assets totalling over $400 billion and have invested in Western banks and real estate.
The Parkway bid has put some investment banks, hungry for more deals from the Malaysian government, in a bind and could make them less keen to pitch for a mandate from Fortis.
“Anyone who has a franchise here would find it very hard to challenge the Malaysian government,” said a Singapore-based banker, who asked not to be named.
Khazanah’s move comes as the Malaysian government, in a bid to revive the country’s stock market, pledged to attract foreign portfolio funds back by increasing the market’s free-float.
The fund was told to progressively divest its non-core assets and last year, made a total of eight divestments worth 3.1 billion ringgit. It has said that the asset sale programme will continue this year.
Khazanah is not bulging with cash unlike the deep pocketed GIC with its $300 billion in assets or multi-billion-dollar Chinese and West Asian funds. It does not receive a constant supply of surplus cash from the Malaysian government. Instead, it relies on dividend income and gains from stake sales, mirroring Singapore’s Temasek.
But with the Malaysian government looking to cut Khazanah’s stakes in state-owned firms as part of broad economic reforms, the fund may have a bigger war chest to do more deals. The fund does not disclose details of its cash holdings.
Deutsche Bank AG estimates Khazanah’s exposure in the market as of late last year represented 8% of MSCI Malaysia component stocks.
“They still have a big balance sheet. If they think something is strategic like healthcare, they will look at it,” said a banker, who has covered the fund. “Their main focus is Malaysia and south-east Asia, but they do look at stuff in China, India and West Asia.”
Khazanah’s investments have been restricted to Asia.
“Khazanah is moving more of their investments outside of Malaysia. But their strategic role is still very much in place—to develop Malaysia Inc.,” said Lim Jit Soon, head of equities research, south-east Asia, at Nomura Securities.