Unease over wealth funds
Terengganu investment fund to be set up using borrowed money, not existing capital
By Leslie Lopez, Senior Regional Correspondent
Oil-rich Terengganu is planning to establish a multibillion-dollar sovereign wealth fund, but it is causing unease among businessmen and government officials as Malaysia's economic crisis deepens.
KUALA LUMPUR - OIL-rich Terengganu is planning to establish a multibillion-dollar sovereign wealth fund, but it is causing unease among businessmen 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 year-end 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 Mr Jason Chong of UOB-OSK Asset Management in Kuala Lumpur.
- Straits Times -
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