Thursday, December 18, 2008

The Terengganu Investment Authority can uplift the state

SOVEREIGN funds have been in business for a long time and over the years have been accumulating assets and seeking returns for the vast oil or non-oil resources of a particular country.

Be it Abu Dhabi Investment Authority, Government of Singapore Investment Corp, Government Pension Fund of Norway or China Investment Corp, these names are just examples of sovereign funds that have been locking up stakes in companies and businesses in search of long-term yields for their respective countries.

When the state of Terengganu decided to set up its own fund, the objectives were similar with the other larger funds but its purpose a little different.

It’s a little different because there was already an agency handling the development and investment needs of the state - Terengganu Inc.

But the push to set up Terengganu Investment Authority (TIA) was very telling.

Terengganu is the main source of the country’s oil reserves and while Petroliam Nasional Bhd has become one of the most profitable companies on the Fortune 500 list today, driven by oil in the state, the state itself remains one of the country’s poorest states.

And with oil a finite resource, something had to be done to elevate the state’s prospects because the current method, by the looks of it, is not working sufficiently.

Drive along the state’s prized petrochemical complexes and you will see the shiny steel structures that have defined the country’s progress in the oil and gas industry.

However, journey on just a short radius away from the state’s oil centres and you will witness the wide gap that TIA, and the income it plans to generates, hopefully can narrow and improve on.

The sum of money that TIA is raising is peanuts compared with the size of some of the world’s large sovereign funds.

RM10bil is even less cash than what a few public listed companies in Malaysia have on their balance sheets.

But the idea of raising the cash now and investing it as quickly as possible in today’s depressed environment makes that RM10bil a lot more potent than it would have a year ago.

In short, there is more bang for the buck today.

TIA seeks to garner long-term sustainable growth and income from its investments, and the process and lengths it proposes to go through to ensure its money is not frittered away is also commendable.

TIA will have separate boards of advisors and directors, and a team of managers, to put in safeguard procedures to ensure the independence of each strata within the company.

Risk management processes will also be strictly adhered to.

Apart from that, Terengganu’s model of securitising its future oil revenue stream can also provide an idea to other cash-rich states.

And should TIA be a success the state’s ruler intends it to be, it can be a model for other resource-rich states to ponder.

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