All About TIA/ SWF

Sovereign Fund – Overall Look

When the Abu Dhabi government announced late in November that it was buying 4.9% of Citigroup for $7.5 billion, the general reaction was relief that the firm was finding a way out of the subprime mortgage mess.

The same response followed the early December news that UBS was selling a 10.8% share to the government of Singapore and an unnamed Middle Eastern investor for $11.5 billion, for much the same reason.

But is foreign ownership — or, more precisely, foreign government ownership — really a good thing? Many experts think this mushrooming trend bears watching, especially for any sign that these funds are evolving from pure investment vehicles into tools for exerting political pressure on the "target" countries. "I think pressure is a legitimate worry, but I’m not sure we have seen signs of that yet," says Wharton finance professor Franklin Allen.

There is nothing intrinsically wrong with foreign ownership, suggests Wharton finance professor Richard Marston, but ownership by foreign governments could be different from ownership by foreign businesses. "Clearly, there are industries where we would be concerned about certain countries having an ownership interest," he says, citing airlines and military contractors. "You do worry that these are governments, and you worry about their motivation."

Governments, through investment pools known as sovereign wealth funds, have put tens of billions of dollars into Western financial firms this year, from Bear Stearns and Barclays to HSBC Holdings and Blackstone Group, investing at bargain prices amid the subprime crisis. Two Middle Eastern government funds now even own a third of the London Stock Exchange.

None of this investment has drawn the kind of outrage that greeted a 2006 plan for a government-owned business in the United Arab Emirates to buy a firm that ran a number of U.S. ports. Much of that involved unease with a Middle Eastern country having a role controlling potential entry points for terrorists. "A lot of this becomes emotional when you’re talking about the Chinese and Arabs as opposed to the French," Marston says.

Concerns over Secrecy

Still, some politicians and economists are concerned about the growing power of sovereign wealth funds, most of which are based in the Middle East and Asia. The International Monetary Fund estimates that sovereign funds control as much as $3 trillion in assets, up from $500 million in 1990, and it expects them to grow to $10 trillion by 2012.

While cross-border investments are nothing new, the sovereign funds raise special questions because the investment decisions are controlled by governments rather than individuals or corporations. And, unlike central banks, which tend to invest reserves in assets like U.S. Treasury bonds, the sovereign funds often invest in corporations. This year, the largest target country for such investment has been the United States.

The 20 largest sovereign wealth funds, each worth more than $10 billion, are estimated to control more than $2 trillion in assets, overshadowing the $1.5 trillion thought to be managed by hedge funds, which have been subject to calls for greater regulation because of their market clout. Like hedge funds, most sovereign funds are secretive. There is no comprehensive list of what they own, nor any mandatory reporting of their investment policies.

The Abu Dhabi Investment Authority, established in 1976, is the largest sovereign fund, with assets estimated at $500 billion to $875 billion, according to a widely cited analysis last August by Edwin M. Truman, senior fellow at the Peterson Institute for International Economics in Washington, D.C. Next is the $100 billion to $330 billion controlled by the Government of Singapore Investment Corp., founded in 1981. Singapore also runs $108 billion Temasek Holdings, started in 1974. Early in December, Temasek said it would provide $1 billion to a private-equity fund set up by Goldman Sachs Group of the U.S. to invest in China.

Norway has $308 billion in its Government Pension Fund. Kuwait’s two funds total $213 billion. Russia has a $122 billion fund, and China a $66 billion fund. Other big funds are run by Qatar, Algeria, Australia, Brunei, Korea, Malaysia, Kazakhstan, Venezuela, Canada, Iran and New Zealand.

Though the funds are typically found in countries with big trade surpluses, there is one in the U.S: the state-run Alaska Permanent Fund, founded in 1976 to reinvest oil profits.

The oldest major fund, Kuwait’s General Reserve Fund, has been around since 1960. But the funds are getting more attention now because of their mushrooming size, thanks to soaring oil prices. Truman says the funds could grow even bigger if the countries that run them were to divert more of their foreign exchange reserves into them. China, for example, has $66 billion in its sovereign fund, but more than $1.2 trillion in reserves, mostly invested in U.S. Treasury bonds. According to Allen, China might want to put more money into its sovereign fund for fear that more Treasury purchases would destabilize the Treasury market. "If they put it all into Treasury bonds, they are going to start having price effects," he says.
Reinvesting Oil Profits, for Now

Most of the sovereign funds that are soaring in size have rising oil prices to thank. In fact, it’s no coincidence that the biggest funds belong to oil-producing states, which are using the funds to reinvest oil profits so there will be new sources of income when the oil is gone, Marston notes, adding that Norway’s fund, considered the poster child of well-run funds, was established to reinvest North Sea oil profits. "They basically said, ’Well, we want to put some wealth aside rather than distribute it immediately, so we will have an annuity for the Norwegian people to make up for the fact that the oil is running out."

Countries that build up foreign-exchange reserves typically invest them in liquid assets like U.S. Treasuries. But once reserves are big enough to cover any short-term needs like currency intervention, countries feel they can afford to tie money up on long-term investments that offer better returns, says Wharton finance professor Richard J. Herring. "If you have your liquidity needs taken care of, then you start thinking about making longer-term investments. It’s a very natural thing."
Since sovereign funds have traditionally taken a long-term approach to investing, they have had a stabilizing influence on world financial markets, Herring says. But because the top 20 sovereign funds are so large, they do put a lot of concentrated economic power under the control of a small number of people, often in autocratic countries. The smaller sum controlled by hedge funds is divided among thousands of players.

Writing in the Financial Times last July, former Treasury Secretary and Harvard president Lawrence Summers noted that government shareholders may not always have the same interests as ordinary shareholders. "The logic of the capitalist system depends on shareholders causing companies to act so as to maximize the value of their shares," he wrote. "It is far from obvious that this will over time be the only motivation of governments as shareholders. They may want to see their national companies compete effectively, or to extract technology or to achieve influence."
Governments of target, or "host," countries could find themselves in awkward situations, he said. "What about the day when a country joins some ’coalition of the willing’ and asks the U.S. president to support a tax break for a company in which it has invested? Or when a decision has to be made to bail out a company, much of whose debt is held by an ally’s central bank?"

So far, there have not been any serious cases of this power being used for political or other non-investment purposes. One of the few examples is relatively mild: In June 2006, the Norwegian fund sold its more than $400 million in Wal-Mart holdings, criticizing the way the company treated its workers.

Still, the temptation to use financial clout to further non-financial goals is ever-present, Herring says, recalling that many American universities and pension funds divested themselves in the 1980s of companies doing business in South Africa. "You had many large players reallocating their portfolios for other than economic reasons. That’s simply the nature of things when government [of a fund] is in part political."

An Inside Look at Western Companies

According to Herring, the sovereign funds’ investments in financial-services firms may be motivated not just by hopes of good investment returns, but by the desire to learn how those Western companies operate. In addition to the recent deals, China earlier this year paid $3 billion for a 9.3% share in Blackstone Group, the New York-based private-equity firm. "My guess is that these [investments] are substantially different than the kind of passive portfolio investment you see out of Norway."

Even so, he adds, that’s no cause for alarm, as the U.S. government can step in if it sees a real problem. "The rules can change if we should become enormously concerned that, say, the agricultural-refining business is of strategic importance." U.S. law welcomes foreign investment so long as it poses no security risk.
For many observers, the biggest concern today is not the potential for political shenanigans but uncertainty about how sovereign funds might affect the financial markets. In an article this fall in Finance & Development, a quarterly publication of the International Monetary Fund, IMF research director Simon Johnson noted that: "Unfortunately, there’s a lot we don’t know about sovereign funds. Very few of them publish information about their assets, liabilities or investment strategies."
If the funds emphasize a buy-and-hold strategy, as is widely thought, they help stabilize markets, he said. At the same time, he cited some anecdotal evidence of sovereign funds investing in other funds, such as hedge funds, that multiply their impact through borrowing. Leveraging can destabilize markets when bets go wrong.
The global value of traded securities is about $165 trillion, so $3 trillion in sovereign funds is not yet a major concern, he wrote. But if the figure rises to $10 trillion, and if many funds do employ leverage, the funds will bear watching, he added.

The Peterson Institute’s Truman advocates "a quantum increase in transparency and accountability" for sovereign funds. At a minimum, he says, the funds should publish annual reports detailing investment strategies and holdings. This fall, the U.S. Treasury Department called on the IMF and World Bank to develop a "best practices" guideline for sovereign funds.

Allen, Herring and Marston agree that greater transparency would be good. But Herring notes that such requirements would not be easy to impose: "It’s hard to see how you get compliance with so-called ’voluntary’ guidelines when the people who are making the investment decisions are really not involved in putting together the guidelines."


Govt agrees to body to handle oil royalty
The Star Sunday December 14, 2008

KUALA TERENGGANU: The Government has agreed to the setting up the Terengganu Investment Authority, a sovereign wealth fund which will manage oil royalty payments to the state.

Deputy Prime Minister Datuk Seri Najib Tun Razak said the Cabinet had on Wednesday given the nod to the setting up of the authority with a starting fund of RM10bil.
“The Cabinet will continue to discuss the technical aspects of the setting up the fund at the next meeting,” he said after handing a cheque for RM408.6mil as part of the oil royalty to Terengganu Mentri Besar Datuk Ahmad Said here yesterday.

In good hands: Najib handing over the cheque for part of the oil royalty to Ahmad Said in Kuala Terengganu Saturday. — Bernama

The amount is the remainder that the state was supposed to get for the 2007-2008 period. The TIA was proposed by Yang di-Pertuan Agong Tuanku Mizan Zainal Abidin as a way to channel part of the oil royalty into a sovereign wealth fund which would be operated by a team of professionals and supervised by foreign bankers and investors.
Tunku Mizan will be the chairman of the TIA board of advisers while the Mentri Besar will be also represented on the board.

Najib said the TIA would utilise oil royalty to invest in Terengganu and other parts of Malaysia.

The authority would also have the mandate to invest globally in bonds to ensure the state’s financial sustainability on a long-term basis.

He said revenue earned by the TIA would be able to complement the state’s income when oil and gas resources were exhausted.

Najib said he was confident that development in Terengganu would take off with the payment of oil royalty directly to the state.

“I hope that the state will utilise the royalty money wisely and make far-sighted development plans,” he said.

Asked whether the Government would now reduce its allocation to Terengganu, Najib said any allocation would be based on the requirement by the state.

“We have to evaluate certain criteria based on the development and per capita income before deciding on quantum of allocations from the Federal Government to the state,” he said.

Earlier in his speech, Najib said the royalty money would be transferred to the state’s treasury via electronic transfer.

“We (The Federal Government) will pay all dues of the oil royalty promptly through the transfer and I anticipate that the state government will not face any obstacles in initiating development projects.”

Kerajaan Setuju Cadangan Penubuhan TIA Oleh Terengganu, Kata Najib

KUALA TERENGGANU, 13 Dis (Bernama) -- Datuk Seri Najib Tun Razak berkata kerajaan secara prinsipnya bersetuju dengan cadangan kerajaan negeri Terengganu menubuhkan Lembaga Pelaburan Terengganu (TIA) dengan dana permulaan bernilai RM10 bilion.

Timbalan Perdana Menteri berkata persetujuan itu dicapai pada mesyuarat Kabinet semalam, yang menggambarkan kerjasama erat kerajaan pusat dan kerajaan negeri Terengganu bagi menjamin masa depan rakyat negeri berkenaan.

"Pada prinsipnya, cadangan ini telah pun diluluskan oleh jemaah menteri pada mesyuarat semalam," katanya kepada pemberita selepas majlis penyerahan bayaran royalti minyak separuh kedua 2008 di Stadium Negeri di sini hari ini.

Pada majlis itu, Najib yang juga Menteri Kewangan menyerahkan cek bayaran royalti minyak berjumlah RM408.6 juta kepada Menteri Besar Terengganu Datuk Ahmad Said.

Turut hadir, Menteri Perdagangan Antarabangsa dan Industri Tan Sri Muhyiddin Yassin, Menteri Pelajaran Datuk Seri Hishammuddin Tun Hussein, Menteri Kemajuan Luar Bandar dan Wilayah Tan Sri Muhammad Muhd Taib, Menteri Penerangan Datuk Ahmad Shabery Cheek dan Ketua Wanita Umno Tan Sri Rafidah Aziz.

Najib berkata penubuhan TIA yang diilhamkan oleh Yang di- Pertuan Agong Tuanku Mizan Zainal Abidin, adalah bagi menjana pertumbuhan ekonomi mampan serta menjamin pembangunan negeri secara berterusan.

"Perincian (cadangan penubuhan TIA) serta beberapa aspek serta struktur pentadbiran dan perjalanan TIA akan kita bincang bila kertas sebenarnya dibawa dalam mesyuarat jemaah menteri," katanya.

TIA akan beroperasi sebagai satu "dana kekayaan" bagi Terengganu bertujuan mengurus pelaburan negeri bagi menghasilkan pulangan jangka panjang daripada segi ekonomi kepada rakyat negeri itu dan Malaysia amnya.

Mengulas lanjut, Najib berkata dana RM10 bilion itu akan diperoleh daripada pasaran bon daripada royalti minyak dengan kerajaan negeri Terengganu akan membuat pelaburan yang sebahagian besar dilakukan di luar negeri itu.

Beliau berkata langkah kerajaan negeri Terengganu itu adalah bagi menjamin kelangsungan pendapatan negeri itu pada masa depan kerana minyak sebagai sumber hasilnya mempunyai jangka hayat tertentu.

"Seandainya minyak pupus (habis), Terengganu dengan langkah ini akan dapat punca pendapatan tambahan," katanya.

Ketika berucap, Najib berkata jemaah menteri berpendapat royalti minyak itu perlu diserahkan sepenuhnya kepada kerajaan negeri Terengganu dalam menguruskan serta melaksanakan pelbagai program pembangunan di negeri berkenaan.

"Saya harap wang royalti minyak ini digunakan secara baik untuk melaksanakan pembangunan dan pembaharuan. Kita mahu rakyat Terengganu miskin dan kemiskinan tegar dihapuskan. Kita mahu kerancakan ekonomi di Terengganu berterusan," katanya.

Ditanya sama ada kerajaan pusat akan mengurangkan peruntukan untuk pembangunan setelah wang royalti minyak dikembalikan semula kepada Terengganu, Najib berkata perkara itu akan bergantung kepada beberapa kriteria.

Timbalan Perdana Menteri berkata kerajaan pusat akan melihat kepada kemajuan, pendapatan perkapita dan sebagainya di negeri itu, sebelum menentukan peruntukan bagi tujuan tersebut.

Beliau berkata jumlah pembayaran royalti sebanyak RM408.6 juta itu dibuat setelah kerajaan pusat menolak segala peruntukan kepada kerajaan negeri Terengganu untuk projek pembangunan di negeri berkenaan, sebelum ini.

"Ini untuk akaun 2007/2008. Kita tutup semuanya apa yang kita hutang kepada kerajaan negeri (Terengganu), ia dianggap sudah selesai. (Jumlah) ini juga daripada surat yang saya terima daripada Menteri Besar," katanya.-- BERNAMA


Terengganu: It may not be all that bad for Najib

Abdul Ghani Hamat
The Edge 19 April, 2009

THE leadership crisis in Umno Terengganu has surfaced at the wrong time for new party president and Prime Minister Datuk Seri Najib Razak. Or has it?

Think again. With reform on his mind and PAS party polls around the corner, the timing of the “crisis” cannot be all that bad for Najib.

In fact, it could be just what the doctor ordered.

First, it gives Najib an early, perfect excuse to ring the changes in the Umno Terengganu leadership without much resistance.

Dousing the festering feud that contributed to Barisan Nasional’s (BN) inability to defend the Kuala Terengganu parliamentary seat is important. But having a progressive, pragmatic leader at the head of the state is more important.

Also, the sooner Najib straightens out the issues besotting Umno in the state, the more time he will have to rebuild public support for the party. Terengganu, an overwhelming Malay-majority state, is crucial to Umno. It cannot afford to see the state go the way of Kelantan and Kedah.

Second, PAS at its upcoming convention in June could be forced to show both its hands with respect to its ties with other Pakatan Rakyat (PR) components. This could influence political developments in Terengganu, the home state of PAS president Datuk Seri Abdul Hadi Awang and several other party bigwigs, in view of their differences with the so-called Erdogans.

The ambiguity and fuzziness characterising PAS’ position in PR due largely to these differences clearly is unsustainable. More so when Umno’s problems are no longer stealing the limelight.

At some point, PAS must come clean about its PR ties, and the time for that has arrived. People want to know if PR as an alliance is going anywhere, and if PAS’ liaison with PR is “real” or just a silly infatuation.

PAS has shared a platform with PKR and DAP on so many occasions, including in campaigning ahead of the KT by-election. Naturally, people would want to see PAS take the relationship forward.

Its nemesis Umno has swallowed the bitter pill and moved on, and so PAS must show that it is ready to move on, too. Without PAS’ full commitment to the alliance, the scope of what PR can achieve would be severely curtailed. Clearly, unless PAS leaders think and act as one, the PR structure will remain flimsy, and the country can forget about a two-coalition political system.

Alas, at the moment it’s difficult to envisage the party’s traditionalist faction, which predominates in Terengganu, sharing a dinner table with alliance partner DAP, for instance.

So what hope is there for the parties to take the relationship a step further if they can’t be expected to sink and swim together.

No doubt Najib will be looking closely at how the tussle for dominance within PAS will play out at the party’s convention in Shah Alam, as the outcome may have a significant influence on how Umno goes about growing its fortunes in Terengganu.

But whilst the timing of the “crisis” in Terengganu could be advantageous to Najib, can he be sure that the right person is picked to lead the state? He has given the two factions in Umno Terengganu one month to sort things out themselves.

Menteri Besar Datuk Ahmad Said may emerge stronger from this episode, but when the one-month grace is up, Najib may have his man ready to take charge of the state nonetheless.

Whomever he picks to lead Terengganu, Najib must understand that the state needs a chief executive more than an administrator. It needs a person who can look after its “sovereign wealth” properly and not squander it on cheap handouts and construction projects of dubious benefits.

The person must think about the state’s welfare for the long term. He must know how to create employment and raise the standard of living of a rural population and ensure a revenue stream for the state after oil runs out.

The state is rich in resources no doubt, but over the years, its people have been stood up by their leaders, including during PAS rule.

If Terengganu Investment Authority ever gets off the ground, perhaps Najib should think long and hard about keeping these politicians away from the establishment.

He may not get any objections from PAS Terengganu on this, given that its leaders are not averse to working with Umno for the sake of Malay unity. It’s a stance that has riled the Erdogans. The PAS convention in Shah Alam may just rekindle interest in the unity idea if the party is pushed to show both its hands.

So there, the “crisis” in Terengganu opens up plenty of options for Najib. It is not surprising, therefore, to find those who believe this whole episode has been cleverly stage-managed

Oil-rich Terengganu is planning to establish a multibillion-dollar sovereign wealth fund

Source: 21-APR-2009 Intellasia | Straits Times
Apr 21, 2009 - 7:00:00 AM

Oil-rich Terengganu is planning to establish a multibillion-dollar sovereign wealth fund, but it is causing unease among businesspeople and government officials as Malaysia's economic crisis deepens.

The chief bugbear is that the planned RM10 billion (S$4.1 billion) fund, which is to be managed by the Terengganu Investment Authority (TIA), will be created using borrowed money and not existing capital held by the Terengganu state, said bankers and government officials.

'To turn in a profit, the fund must ensure a return higher than the cost of its borrowing, and there will be the pressure to go into risky investments to get better returns,' said a chief executive of a state-controlled bank, who asked not to be named.

A senior TIA official, who spoke on condition of anonymity, told The Straits Times that governance issues and rules that will determine how the fund will invest its money are being hammered out ahead of the planned end of the year launch.

'It (the fund) is still being cooked and we want to model (it) along the lines of Mudabala,' he said, referring to Abu Dhabi's highly reputable sovereign wealth fund.

Detractors of the proposed fund point out that the Mudabala investment model was not established on borrowed money.

The TIA is proposing to raise RM5 billion through a bond issue that will be guaranteed against future earnings the state will receive in royalties from national oil corporation Petronas for oil and gas extracted from Terengganu territory.

Another RM5 billion will be raised through a separate bond issue that will be guaranteed by the federal government.

'We are in the final stages of finalising the government guarantee and we are deciding on how to draw down on the facility,' said the TIA official.

Many analysts worry that the federal government's green light for TIA and its backing for the fund through financial guarantees could prompt other oil-producing states such as Sabah and Sarawak to demand funds of their own.

'With all the spending that the government has to undertake to stimulate the economy, funds like TIA's and others will only stretch the government's finances further,' said Jason Chong of UOB-OSK Asset Management in Kuala Lumpur.

Malaysian State Plans 11 Billion-Ringgit Wealth Fund

By Netty Ismail

May 18 (Bloomberg) -- The Malaysian state of Terengganu is starting a sovereign wealth fund of 11 billion ringgit ($3 billion), of which 5 billion ringgit will be raised from capital markets this week.

The Terengganu Investment Authority, the first sovereign wealth fund set up by a Malaysian state, said it will manage the long-term oil revenue of the state, located on the east coast of peninsular Malaysia.

The country’s King Mizan Zainal Abidin, who is also the Terengganu sultan, proposed the fund to ensure sustainable income for the state should its oil and gas reserves run out, the fund said in an e-mailed statement today. The state is one of Malaysia’s biggest oil and gas producers.

The fund seeks to “generate long-term sustainable and recurring returns” and to promote Terengganu’s economic development, Chief Executive Officer Shahrol Halmi said in the statement.

The Terengganu Investment Authority, which was set up on Feb. 27, will team up with “well-known sovereign wealth funds” to invest in tourism, energy and agriculture projects, he said.

The fund plans to invest in “high-impact, strategic projects in Terengganu, other parts of Malaysia, and in regional and international projects that have positive spillover benefits to Terengganu,” said Shahrol, a Stanford University graduate who worked for more than 15 years at consulting firm Accenture Ltd., according to the statement.

It will seek funds from domestic and foreign capital markets, and the 5 billion ringgit it plans to raise this week will come with a Malaysian government guarantee, the fund said. The remaining 6 billion ringgit will come from future oil royalties.

Companies including Exxon Mobil Corp. produce crude oil from projects offshore Terengganu. The state is also home to Petroliam Nasional Bhd.’s Kertih refining and petrochemical complex.


Oil-rich Terengganu is planning to establish a multibillion-dollar sovereign wealth fund

Source: 21-APR-2009 Intellasia | Straits Times
Apr 21, 2009 - 7:00:00 AM

Oil-rich Terengganu is planning to establish a multibillion-dollar sovereign wealth fund, but it is causing unease among businesspeople and government officials as Malaysia's economic crisis deepens.

The chief bugbear is that the planned RM10 billion (S$4.1 billion) fund, which is to be managed by the Terengganu Investment Authority (TIA), will be created using borrowed money and not existing capital held by the Terengganu state, said bankers and government officials.

'To turn in a profit, the fund must ensure a return higher than the cost of its borrowing, and there will be the pressure to go into risky investments to get better returns,' said a chief executive of a state-controlled bank, who asked not to be named.

A senior TIA official, who spoke on condition of anonymity, told The Straits Times that governance issues and rules that will determine how the fund will invest its money are being hammered out ahead of the planned end of the year launch.

'It (the fund) is still being cooked and we want to model (it) along the lines of Mudabala,' he said, referring to Abu Dhabi's highly reputable sovereign wealth fund.

Detractors of the proposed fund point out that the Mudabala investment model was not established on borrowed money.

The TIA is proposing to raise RM5 billion through a bond issue that will be guaranteed against future earnings the state will receive in royalties from national oil corporation Petronas for oil and gas extracted from Terengganu territory.

Another RM5 billion will be raised through a separate bond issue that will be guaranteed by the federal government.

'We are in the final stages of finalising the government guarantee and we are deciding on how to draw down on the facility,' said the TIA official.

Many analysts worry that the federal government's green light for TIA and its backing for the fund through financial guarantees could prompt other oil-producing states such as Sabah and Sarawak to demand funds of their own.

'With all the spending that the government has to undertake to stimulate the economy, funds like TIA's and others will only stretch the government's finances further,' said Jason Chong of UOB-OSK Asset Management in Kuala Lumpur.

Malaysian State Plans 11 Billion-Ringgit Wealth Fund

By Netty Ismail

May 18 (Bloomberg) -- The Malaysian state of Terengganu is starting a sovereign wealth fund of 11 billion ringgit ($3 billion), of which 5 billion ringgit will be raised from capital markets this week.

The Terengganu Investment Authority, the first sovereign wealth fund set up by a Malaysian state, said it will manage the long-term oil revenue of the state, located on the east coast of peninsular Malaysia.

The country’s King Mizan Zainal Abidin, who is also the Terengganu sultan, proposed the fund to ensure sustainable income for the state should its oil and gas reserves run out, the fund said in an e-mailed statement today. The state is one of Malaysia’s biggest oil and gas producers.

The fund seeks to “generate long-term sustainable and recurring returns” and to promote Terengganu’s economic development, Chief Executive Officer Shahrol Halmi said in the statement.

The Terengganu Investment Authority, which was set up on Feb. 27, will team up with “well-known sovereign wealth funds” to invest in tourism, energy and agriculture projects, he said.

The fund plans to invest in “high-impact, strategic projects in Terengganu, other parts of Malaysia, and in regional and international projects that have positive spillover benefits to Terengganu,” said Shahrol, a Stanford University graduate who worked for more than 15 years at consulting firm Accenture Ltd., according to the statement.

It will seek funds from domestic and foreign capital markets, and the 5 billion ringgit it plans to raise this week will come with a Malaysian government guarantee, the fund said. The remaining 6 billion ringgit will come from future oil royalties.

Companies including Exxon Mobil Corp. produce crude oil from projects offshore Terengganu. The state is also home to Petroliam Nasional Bhd.’s Kertih refining and petrochemical complex.

Mubadala to invest US$1.8b in Malaysian property project, says paper

KUALA LUMPUR, May 23 — Mubadala Development Co, the investment arm of the Abu Dhabi government, will invest about US$1.8 billion (RM6.3 billion) in a property development project in Malaysia, a local newspaper reported today.

The project involves the construction of hotels and villas on a 1,200-hectare site in Terengganu, the Edge Weekly reported, citing Shahrol Azral Ibrahim Halmi, CEO of the Terengganu Investment Authority (TIA).

Mubadala will invest the amount over seven years while TIA will buy the land from the state government and inject it into the joint venture, said Shahrol.

TIA has been set up and labelled as Malaysia's first sovereign wealth fund and is modelled on similar concepts in the Gulf with the aim of investing oil revenues for the long term.

The Malaysian fund this week said it is to sell RM5 billion of bonds guaranteed by the federal government.

Shahrol said the fund aims to raise another RM6 billion later this year by forward selling the oil royalty to be received by the oil-producing state over the next few years.

Mubadala, which manages over US$10 billion in assets, is also developing a US$600 million city in a planned economic zone in Johor. — Reuters

State fund to focus on tourism, oil and gas

SHAHROL Azral Ibrahim Halmi, 39, was initially sceptical when he first heard about Terengganu Investment Authority Bhd (TIA).

He wondered, not unlike many others, if the scheme was just another way for a select few to experiment and benefit from the state’s oil money at the expense of the state and its people.

So, two months ago, when the executive partner at Accenture Malaysia was approached and offered the job of TIA CEO, he thought the decision would be easy, given his misgivings.

But he had a change of heart after an audience with the Sultan of Terengganu Tuanku Mizan Zainal Abidin, who is also the Yang di-Pertuan Agong.“I consider myself an idealistic person wanting to improve things for the country. The turning point came when I saw Tuanku’s passion and what he wanted to achieve with TIA,’’ he tells StarBizWeek in an interview.

“I keep telling people this is a unique opportunity to make a difference in the country.’’

While Shahrol may be convinced, he now shares the heavy load of convincing sceptics, of which there are many, about TIA’s mandate to bring socio-economic development to the state and its people and its ability to invest prudently to generate recurring income, while upholding the strictest form of transparency and corporate governance.

TIA will have an initial fund size of RM11bil, of which RM5bil will be raised via a government-backed 30-year Islamic medium-term note – the first 30-year paper ever issued in the country – and RM6bil via a derivative programme that essentially sells forward the state’s oil royalties for immediate payment today.

When you view that against the fact that TIA, as it stands now, has a paid-up capital of RM1mil and a few staff at its initial stages, it would be hard to believe that it can pull it off.

Shahrol points out that TIA will raise its paid-up capital to RM200mil very soon and RM1bil in due course. The agency has also embarked on an aggressive recruitment to hire up to 100 employees within the next year.

Funding structure

TIA executive director of business development, Casey Tan, says the money being raised by selling forward the oil royalties is net of what the state would use for its developmental budget.

“It will not stretch the government’s finances. Funds for TIA will be raised from domestic and international investors,” he said.

He is eager to point out that the funds raised from the assignment to TIA of some of the future oil royalties currently due to the state is “not borrowed money”, as they are essentially “sales proceeds from the sale of receivables”.

He explains that TIA has monetised the royalties in a way that will allow it to enjoy the upside if oil prices rise while limiting the downside losses if oil prices fall.

“If the oil prices fall below the floor, the investor who bought our derivatives will have to absorb the losses. If it goes higher than specified, then TIA and the investor will be able to share in the upside,” he says.

As for the other part of the financing which involves the issue of RM5bil debt papers, the book-building process closes on Monday at 5pm. The lead manager and underwriter for the medium-term notes is AmInvestment Bank while Goldman Sachs and JP Morgan are advisors for the financing structure related to the future oil royalties.

So far, the signs are encouraging. Shahrol says the take up rate for the bonds have exceeded RM8bil in value and the yield on the 30-year bonds is 5.75%, which an analyst says is quite good considering the fact that it’s a long-term paper. So far, some 55% of the subscribers involve foreigners.

Tang also explains that the Government guarantee was needed for the bonds to lower its cost of borrowing.

“The Federal Government does not come up with the cash. But it allows TIA to rely on its credit rating to raise the funding from public markets at a lower cost of capital,” he says, adding that this way, it subjects TIA to the “discipline of managing the funds prudently and professionally to ensure that the investment returns exceed the ongoing costs of the financing.”

Shahrol adds that the Government guarantee enables TIA to raise the money, as it is a new fund without a track record, and also helps lower the cost of financing.

He points out that the interests of the Federal Government and TIA are fully aligned as Minister of Finance Inc (MOF Inc) will be issued with a special share that entitles it to certain special approval rights as well as 10% of TIA’s annual after-tax profit.

“MOF Inc will enjoy profits derived from TIA’s entire capital base, although the Government guarantee covers RM5bil. And the profit share will remain in force even after the Government guarantee has expired, so long as MOF Inc continues to hold the special share,” he says.

But why the rush to raise money now? “Given the current volatile market conditions, timing is of essence. We want to capitalise on opportunities as they arise ... whether it means taking advantage of fund-raising windows in the market or pursuing quality investment opportunities at attractive valuations,” says Shahrol.

Given that the fund is borrowing to invest, some observers have said that it should be referred to as a hedge fund instead of sovereign wealth fund. Tang replies: “We don’t borrow to do a portfolio allocation. We are putting the money into productive projects which have to be viable and have an economic agenda that creates jobs and foreign direct investment.”

He says TIA’s hurdle rate for investments is 8% and it has a internal rate of return target of between 15% and 20%, which some have described as rather ambitious, especially amidst the current environment.

“It’s a little on the high side ... unless the fund is also involved in the market trading, although that would mean it is exposing itself to the vagaries of the financial markets,” says an observer.

The mandate

The idea for TIA was mooted by Tuanku Mizan, who had visited Abu Dhabi and was keen to set up an agency akin to Mubadala, that country’s strategic investment arm.

“We are modelling ourselves after Mubadala and are differentiating ourselves against Abu Dhabi Investment Authority, Temasek or GIC because the idea is more towards catalysing economic growth in certain regions,’’ says Shahrol.

Although Terengganu has a large portion of the country’s hydrocarbon reserves, it remains one of the poorest states.

Nonetheless, its GDP is over 75% dependent on oil and gas and the plan is to lower that portion. That can be achieved by growing other sectors of the state’s economy, and that is what TIA aims to do.

“We want to catalyse economic growth in the different sectors and make their contributions to GDP bigger and also drive sustainable growth when oil and gas runs out,’’ says Shahrol.

“The target is for the state to be self sufficient in 2020,” says Tang.

Tang says that by the matching FDI concept, the RM11bil TIA raised would actually be worth RM22bil in investment, which changes the scope and type of investments TIA will handle. The matching investment from Mubadala and other foreign investors is expected to start rolling in from July onwards.

He points out that TIA needs to have a sufficiently large capital base to make significant high-impact investments, capitalise on economies of scale and minimise concentration risk while taking on large scale long-term projects.

The investment proposition

“We have the projects and they have been planned for over a year. We are in execution mode and our partners are all ready,’’ he says.

The plan, says Shahrol, is to “create the largest independent oil and gas exploration and production company” in the region and for this purpose, TIA is in final stages of negotiation with Mubadala, which is keen to expand its energy assets in the region via Pearl Energy. TIA expects to invest some US$1bil while Mubadala, if all turns out as planned, will invest some US$1.2bil in the venture, he adds.

The other plan involves boosting tourism, already one of Terengganu’s main strengths, by developing several islands off the coast into world-class resorts through partnerships with several foreign parties.

To get better yields, he says, TIA will not just focus on the hotel business but is “taking a masterplan approach to build a resort with private villas and other amenities as well as retirement homes”. Towards this end, TIA will invest some US$1.8bil while it expects the sum to be similarly matched by a foreign investor for the project.

“It will be a tourism play. The land will be acquired from the state and sold at a higher price to the master developer. There could also be opportunities later to package it into a real estate investment trust (REIT) to get the desired returns,” says Tang.

But observers say such a massive tourism play may also be fraught with difficulties. The year-end monsoon has traditionally curtailed large-scale tourism projects in the East Coast and there are a number of holiday spots in the region, such as Bali and Phuket, that offer competition.

Also, connectivity to Terengganu needs to be improved. - The Star Online

Malaysia's first state-established RM11b sovereign wealth fund identifies projects

PETALING JAYA: The country’s first state-established sovereign wealth fund, Terengganu Investment Authority (TIA), with an initial fund of RM11bil, has identified several high-impact investment projects in the tourism, energy and agriculture sectors in the state and around the country.

This week, TIA will raise RM5bil, which sources say will involve the issuance of Islamic medium-term notes on the back of a Federal Government guarantee, while a further RM6bil will be “raised through the assignment to TIA of some of the future oil royalties due to the state,” it said in a statement. TIA’s current paid-up capital of RM1mil will be raised to RM200mil soon and in due course increased to RM1bil.

TIA chief executive officer and former executive partner at Accenture, Shahrol Halmi, said the fund had identified several strategic partners and would team up with well-known sovereign wealth funds for these projects, which include regional and international projects that have “positive spillover benefits” to the state.

“The key objectives of TIA’s investment strategy are to generate long-term sustainable and recurring returns and to ensure the development of long-term sustainable economic and social programmes for the state,” he said.

The Mentri Besar of Terengganu (MB Inc) owns 100% of the ordinary shares of TIA with the Ministry of Finance (Inc) and TIA Foundation (it will be set up by early June to fund and implement social benefit programmes in the state and the country) owning one preference share each. The preference share entitles the holder to certain approval rights (including rights to appoint nominees to the board) as well as a 10% share of TIA’s annual after-tax profits.

TIA’s board of directors will receive investment advice from an economic advisory panel which includes Employees Provident Fund CEO Datuk Azlan Zainol and Felda Holdings Bhd group managing director Datuk Mohd Bakke Salleh.

TIA was set up on Feb 27 after receiving the nod from the Cabinet and state executive council to manage the long-term oil royalty of the state, an idea mooted by Yang di-Pertuan Agong Tuanku Mizan Zainal Abidin after a visit to Abu Dhabi in February last year.

“His majesty wanted to ensure sustainable income for the state long after oil and gas reserves run out,” said the statement.

The initial directors of TIA are Tengku Datuk Rahimah Sultan Mahmud, who has extensive professional experience in several industries namely energy with Esso Malaysia, group managing director and CEO of Lembaga Tabung Haji Datuk Ismee Ismail and Shahrol. More directors – local and international – will be appointed shortly to the board.

The statement also said TIA would incorporate a triple-tier check and balance system comprising the board of directors (representatives from the three stakeholders who cannot hold positions in the Government or occupy any political positions), a board of advisers (to include “international eminent persons”) and a senior management team which will have a “mix of experienced, prominent local and international individuals”.

Tuanku Mizan will be the first chairman of the board of advisers, which will include the Prime Minister (or Finance Minister as the alternate appointee to the Prime Minister), and the Mentri Besar of Terengganu. Khaldoon Al-Mubarak, chairman of Abu Dhabi Executive Affairs Authority and CEO of Mubadala, will also serve on the board.

The statement said that in order not to confuse the economic mission with the social mission, it was considered necessary for TIA Foundation to have its own dedicated board of trustees, management team, operating budget and processes. “An example of a potential social development initiative that has been identified is microfinance. TIA Foundation plans to provide small loan facilities to micro-entrepreneurs, fishermen, and farmers in Terengganu, to fund working capital or capital expenditure to help them break out of the poverty trap,” it said.

Meanwhile, Prime Minister Datuk Seri Najib Razak said the Federal Government would gain 10% from the net profit of TIA. He said this while responding to a question on the rationale of the Government’s guarantee for the TIA’s RM5bil fund.

65 peratus penduduk Pantai Teluk dikategori miskin tegar

65 peratus penduduk Pantai Teluk dikategori miskin tegar

PANTAI TELOK - Pemimpin di sini berharap supaya pihak berkenaan memberi tumpuan yang lebih dalam mengatasi masalah kemiskinan di kawasan ini, berikutan hampir 65 peratus penduduk termasuk dalam kategori miskin tegar.

Pengerusi Jawatankuasa Kemajuan dan Keselamatan Kampung (JKKK) Pantai Telok, Busu Yaakub berkata, pihak berkenaan diharap dapat mengkaji kembali permohonan bantuan yang dikemukakan dan telah mendapat sokongan daripada JKKK kerana calon yang hendak dibantu itu layak mendapat pertimbangan.

“Kebanyakan calon yang kami kemukakan kepada pihak berkenaan layak menerima bantuan dalam pelbagai bentuk kerana kami sendiri telah menyelidik latar belakang calon tersebut.

“Lagi pun, calon ini adalah anak jati daripada kampung ini, jadi kami sendiri tahu bagaimana kehidupan sebenar mereka di sini,” katanya.

Busu berharap pihak berkenaan membuat penilaian kembali permohonan tersebut dan turun padang melihat sendiri kedaifan penduduk terlibat.

“Majoriti penduduk di sini miskin kerana mereka hanya bergantung dengan hasil laut sahaja,” katanya kepada Sinar Harian.

Thursday May 7, 2009

Dungun to be turned into seafood hub

KUALA TERENGGANU: The Terengganu government will develop Dungun as a seafood hub for tourism and commercial purposes in the East Coast Economic Region.

Mentri Besar Datuk Ahmad Said said the district was selected because it was the state’s major fishing area.

“We want to make Dungun a centre for tourism and seafood based commercial products like crackers,” he told reporters after opening the Terengganu State Development Office here.

He said the state would streamline cracker production because the supply of fish-based food items was never enough to meet demands.

“Presently, we cannot even export crackers and can only meet local demand,“ he said. In view of this, the state will set up a factory in Dungun to process and pack quality crackers.

Ahmad said 1,000 fishermen from 100 villagers along the coast would benefit from various economic activities beginning this month. — Bernama

An open mind spells success for villagers

NST Online » Local News

2009/05/08

KUALA TERENGGANU: For 15 Kampung Pela villagers here, the key to success was a healthy mindset.

They not only triumphantly rose above the hardcore poverty line after participating in a rock melon venture last year, they also became the first group of farmers in the country to set up their own management company, overseeing production of the fruit.

And to think that the farmers, most of whom are in their 40s, initially ventured into the fertigation project just to supplement their income.

Most of them were in the oil palm industry.

Fertigation is the application of fertilisers, soil amendments, or other water soluble products through an irrigation system.
The fruits are harvested 70 days after the seeds are sown while it is sold statewide to hypermarkets with the help of the Terengganu Agrotech Development Corporation Sdn Bhd, a state government linked company.

They also provide the fruits for Malaysia Airports Holdings Berhad and AirAsia to be served to its passengers.

Their 10ha site produced RM600,000 worth of rock melons or Cucumis melo last year and they expect to produce close to RM1 million worth of fruits within the next three months, making them the most successful participants out of 229 throughout Terengganu.

Bazli Yahya, 45, manager of Pela Agrotek Management and Services, the company set up by the villagers to run the farm, said the recipe for their fairy tale was keeping an open mind, coupled with good management.

"We seized the opportunity offered to us. While most under the hardcore poverty line take for granted some of the aid and unlike farmers who are techno-phobic, we worked really hard and embraced modern farming."

Aviation industry to encourage tourism

NST Online » Local News

2009/05/09

KUALA TERENGGANU: The tourism industry here is waiting for the aviation industry to take off in hopes it will boost tourism prospects in years to come, Menteri Besar Datuk Ahamd Said said Wednesday.

Ahmad said the development of the aviation industry here would play a vital role in supporting the state which is poised to become the tourism gateway in the east coast following the signing of an MoU between the state government, Malaysia Airlines (MAS) and Asia Pacific Flight Training (APFT), a flight school based in Kota Baru.

"We need pilots, technicians and engineers to cater to what we have planned for the state and also for the nation's tourism industry in general.

"For example we need pilots, including helicopter pilots, to fly tourists to islands as well as manpower to service the international direct flights coming into Terengganu.

"The aviation industry also plays an important role in the creation of skilled manpower. Based on a report by the International Air Transport Association, as many as 32 million people are involved in this industry," he said after witnessing the MoU signing at Wisma Darul Iman.
Ahmad also said under the agreement, it would be the first time that state government-financed students were attending the flight school.

The state government was represented by state Education, Higher Education, Science and Technology and Human Resources committee chairman Ahmad Razif Abdul Rahman, while MAS and APFT was represented by its executive director Tengku Azmil Zahruddin and chairman Datuk Faruk Othman respectively.

Under the agreement, APFT will train the cadet pilots sponsored by the state government via the Yayasan Terengganu. MAS will then take over to enable the pilots to obtain their licences to fly the B737 fleet. Successful candidates will be considered for a job after completing the training.

The training of 20 pilots, 10 aircraft engineers and 20 junior technicians is scheduled to begin in July this year. Pilots will be trained for 18 months, while the engineers and technicians will undergo five and two years of training respectively.

Ahmad said the response had been encouraging with 150 students signing up.

ECER opens new office in Kuala Terengganu

KUALA TERENGGANU: East Coast Economic Region (ECER) in Terengganu hopes to boost progress at its projects with its new state office in Jalan Sultan Zainal Abidin here.

ECER Development Council (ECERDC) chief executive Datuk Jebasingam Issace John said he hoped the ECER’s economic growth would be accelerated in line with the objectives in its master plan.

“The Terengganu office opening reaffirms ECERDC’s commitment towards facilitating smooth implementation of the projects. It will fuel the projects, coordinate potential and current investors and provide information on the projects,” he said here recently.

Under the Ninth Malaysia Plan, 44 projects were identified for implementation in Terengganu under the ECER.

Of these, 31 are exclusive to the state, while the remaining 13 were cross-border projects involving neighbouring states, he said.

Some 21 projects commenced last year while 11 will begin by the middle of this year, 10 before year-end and another two by 2010.

Under the ECER masterplan, Terengganu is positioned as a tourism gateway and hub for the region’s centres of excellence.

The state’s primary focus is on the petrochemical, oil and gas-based industries; goat breeding and mutton clustering; vegetable farming; herbal parks and industry-based crops focusing on kenaf cultivation.

The total investment generated for Terengganu from 2005 is estimated at RM10.8bil.

Friday May 1, 2009 The Star

Felda Tenang jadi medan buruan - Anjing hutan ancam peneroka, bunuh ratusan ternakan

BESUT - Para peneroka di Felda Tenang dekat sini tidak dapat tidur lena sejak 2007 bukan disebabkan turun naiknya harga komoditi kelapa sawit tetapi ancaman dari hutan yang bersempadan dengan ladang mereka.

Apabila menjelang waktu malam, gerombolan anjing hutan mula bergerak memasuki ladang itu dengan sasarannya ialah ternakan lembu milik peneroka.

Peneroka ada sebab untuk bimbang memandangkan pada 2007 sahaja, sebanyak 100 ekor lembu mereka telah dibaham oleh anjing hutan, diikuti dengan 80 ekor tahun lalu manakala dalam tempoh empat bulan tahun ini, ternakan yang dilaporkan mati diserang ialah 50 ekor.

Tidak cukup dengan itu, ada laporan kononnya haiwan tersebut keluar berkeliaran waktu siang untuk mengejar peneroka yang masuk ke dalam ladang untuk memungut buah kelapa sawit.

Setakat ini tidak diketahui jumlah anjing hutan di kawasan tersebut tetapi ada penduduk yakin ia mencecah 100 ekor dengan kumpulan itu memburu pada waktu malam sehingga subuh.

Seorang peneroka, Zakaria Mat Noor, 43, mendakwa kerugian kira-kira RM8,000 selepas 15 ekor lembu peliharaannya dibaham anjing hutan sejak awal tahun ini.

Berdasarkan pemerhatiannya, haiwan itu menyerang lembu secara berkumpulan dengan begitu ganas sehingga badan ternakan itu 'koyak-rabak' dimamah.

"Selepas menyerang lembu, anjing-anjing itu akan memakannya.

"Biasanya kami hanya sedar ada serangan bila terjumpa bangkai lembu di ladang kelapa sawit," katanya di sini semalam.

Menurutnya, masalah itu telah dimaklumkan kepada Jabatan Perlindungan Hidupan Liar dan Taman Negara (Perhilitan) namun sehingga kini tiada langkah susulan diambil.

ECER opens new office in Kuala Terengganu

Friday May 1, 2009 - The Star
ECER opens new office in Kuala Terengganu

KUALA TERENGGANU: East Coast Economic Region (ECER) in Terengganu hopes to boost progress at its projects with its new state office in Jalan Sultan Zainal Abidin here.

ECER Development Council (ECERDC) chief executive Datuk Jebasingam Issace John said he hoped the ECER’s economic growth would be accelerated in line with the objectives in its master plan.

“The Terengganu office opening reaffirms ECERDC’s commitment towards facilitating smooth implementation of the projects. It will fuel the projects, coordinate potential and current investors and provide information on the projects,” he said here recently.

Under the Ninth Malaysia Plan, 44 projects were identified for implementation in Terengganu under the ECER.

Of these, 31 are exclusive to the state, while the remaining 13 were cross-border projects involving neighbouring states, he said.

Some 21 projects commenced last year while 11 will begin by the middle of this year, 10 before year-end and another two by 2010.

Under the ECER masterplan, Terengganu is positioned as a tourism gateway and hub for the region’s centres of excellence.

The state’s primary focus is on the petrochemical, oil and gas-based industries; goat breeding and mutton clustering; vegetable farming; herbal parks and industry-based crops focusing on kenaf cultivation.

The total investment generated for Terengganu from 2005 is estimated at RM10.8bil.