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Malaysia's Khazanah reports 77% drop in operating profit

The sovereign wealth fund posted a 19% time-weighted rate of return on its commercial fund despite expectations of a negative return.
Malaysia's Khazanah reports 77% drop in operating profit

Malaysia’s sovereign wealth fund Khazanah Nasional reported a 77% drop in operating profit in 2021 due to Covid-related financial assistance to the tourism sector and poor investment gains.

In its annual review released on Wednesday (March 2), the fund reported a fall in operating profits to RM670 million ($160 million) in 2021 from RM2.9 billion in 2020 - already a 61% slump from the year before.

Khazanah attributed the 2021 drop to financial aid that it had extended to airlines and tourism companies affected by pandemic movement restrictions, as well as lower value gains and dividend income.

During the year, Khazanah injected RM3.6 billion into Malaysia Airlines to fund the business until 2025, after Finance Minister Tengku Datuk Seri Zafrul Abdul Aziz said in Novermber 2020 that the fund had already injected RM28 billion into the airline group. 

A Malaysia-based fund manager who declined to be named told AsianInvestor that "2021 was another bad year with many new Covid cases that affected the economy, especially tourism. Khazanah’s exposure to this sector is rather significant."

"A double-digit negative return was expected,” he added.

International flights into the country fell 84%, while domestic flights were down 64% in 2021 compared to 2019, according to the Economic Planning Unit. Hotel bookings dropped by 66% during this period.

LOWER VALUE GAINS

Profits were also impacted by lower value gains and dividend income from investee companies due to poor earnings, according to Khazanah’s press statement that was released together with the 2021 financial performance.

The performance of its commercial fund, which contains its investable assets, posted a 19% time-weighted rate of return on its net asset value. 

The commercial fund has a realisable asset value of RM106 billion.

The fund said it met long-term expectations with a three-year rolling return of 7%. This puts it on track to meet its five-year rolling target of +3% over the consumer price index, which was 3.2% in December.

Recovery of its domestic listed portfolio, successful liquidation of private equity investments in the US and Europe, and strong performance of its public equities developed market (DM) deployment programmes contributed to the performance, the fund said.

However, its strategic fund recorded a negative 11.4% time-weighted rate of return in net asset value as most of its assets covered by the fund such as the aviation and tourism sectors were hit by the pandemic. 

The strategic fund holds RM28 billion and is dedicated to delivering economic and social returns for the country. 

The fund also reported that its net asset value had grown to RM86 billion in 2021 from RM79 billion in 2020 and had a compounded annual growth rate of 5.8% since 2004.

During the year, Khazanah put RM8.7 billion into new investments and divested RM4.8 billion of assets to raise liquidity.

It cut operating expenses to RM420 million from RM490 million in 2020 while its debt increased to RM48 billion from RM43 billion in the previous year. It declared an RM2 billion dividend to the government, unchanged from the previous year.

The annual review was the first delivered by managing director Amirul Faisal Wan Zahir, who was appointed in the role in July 2021, replacing Shahril RIdsa Ridzuan who left in August after his three-year term ended. 

Moving forward, he said the fund will seek to improve the local economy through a new Dana Impak allocation, which aims to channel investments to “catalytic sectors” such as digital technology, health and education for all, food and energy security, and climate resilience among others.

The Malaysian economy grew 3.1% in 2021 and is forecast to grow between 5.5% and 6.5% in 2022.

¬ Haymarket Media Limited. All rights reserved.
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