Wake-up call for Malaysian Chinese voters!

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ANALYSIS By BARADAN KUPPUSAMY

MCA president Datuk Seri Dr Chua Soi Lek says Malaysians need a New Deal that is fair, democratic, transparent and inclusive to address today’s concerns and it should epitomise the core expectations of the people.



DATUK Seri Dr Chua Soi Lek has outlined a wide-ranging “New Deal” for Malaysians that include abolishing obsolete laws, relaxing the hold on the media, democratising the economy and liberalising the education system.

The MCA president urged Prime Minister Datuk Seri Najib Tun Razak, who was at the 58th MCA general assembly over the weekend when Dr Chua called for the reforms, to “take a giant leap forward” and offer the deal to all Malaysians.

“It should not allow the baggage of the past to be a millstone around the necks of our children and grandchildren,” he said to the applause of the delegates.

“Malaysians need a New Deal that is fair, democratic, transparent and inclusive of all Malaysians to address today’s concerns.

“It should epitomise the very core expectations of the people,” he added.

While proposing that outdated and irrelevant laws be repealed, he also proposed permission for public protests at designated places with a transparent police permit application system.

On the all-important economic front, he said cronyism and nepotism when awarding projects should be abolished and affirmative action based on needs and merits be extended to any group that is poor.

On education, the New Deal hopes that mother tongue languages would eventually be made compulsory in all national schools.

Dr Chua also called for Unified Examination Certificate graduates to be admitted into public universities.

On calls for English to be made compulsory, Dr Chua said it is time the Government set a time frame to achieve this.

He also proposed a one-off cash payment to poor Malaysian households to help them tide over the rising cost of living and a monthly allowance for the affected households – a move that many Malays and Indian households would also welcome.

His New Deal is within grasp and achievable for the younger generation who wants to see the country reform.

Dr Chua is banking on these reforms, in part already promised by Najib, to carry the MCA into the next general election and win the support of Chinese voters, who make up the majority in 46 parliamentary constituencies.

He is, in fact, eyeing the young voters.

The MCA performed dismally in 2008, winning only 15 parliamentary seats.

The DAP has since emerged as the champion of the Chinese community, a position once held by the MCA.

The reforms can help the MCA stand its ground against the DAP’s accusations that it did not fight for the Chinese community and had only kowtow to Umno all these years.

This is not true as cooperation with Umno and the Government had allowed the MCA to achieve a lot for the people over the years.

One example is the fact that 20,000 youngsters graduate annually from UTAR, a college conceived and built by the MCA.

While the Chinese are either sitting on the fence or supporting the DAP, Dr Chua warned that the country would see, not a two-party system, but a two-race system.

He said if the Chinese voters were blind to the realities of politics in the country, they would sit in the Opposition while the Malays form the Government.

Dr Chua said they were off on a tangent, on their own, nursing anger against the Government.

But, he said, the Government has become inclusive and has started political, social and economic reforms that were gradually transforming the country.

His overall message to the assembly delegates is – if they (the Chinese) refuse to see the reform direction the country is taking they would end up the losers.

Dr Chua has promised that if the Chinese voters, for some reasons, don’t give their support to the MCA and if its performance is worse than in 2008, the party will stay out of the Government altogether.

MCA proposes New Deal for Malaysians

Last updated on 3 October 2011 - 08:08am 

Pauline Wong newsdesk@thesundaily.com

Prime Minister Datuk Seri Najib Abdul Razak (right) greets MCA President Datuk Seri Dr Chua Soi Lek (3rd, left) after giving his speech at the party's 58th AGM today. At left is MCA deputy president Datuk Seri Liow Tiong Lai. BERNAMA 

KUALA LUMPUR (Oct 2, 2011): MCA has proposed a New Deal to snag voters and regain full support for the party, as well as for the Barisan Nasional (BN).

Party president Datuk Seri Chua Soi Lek urged Prime Minister Datuk Seri Najib Razak, who officiated the party's annual general meeting (AGM) today, to embrace this new deal, which will "give every Malaysian, their children, and grandchildren confidence and hope that their future is in Malaysia."

"The world has changed, and Malaysia cannot sit still when the world moves ahead with more progressive policies that do away with ideological dogmatism," said Chua, lauding Najib's push for legislative reform and the repeal of the Internal Security Act, among others.

"Laws, policies, ideologies and beliefs that have outlived their relevance must be changed. If we do not do away with them or adapt to the times, they will act as stumbling blocks that impeded the progress of the country and its people.

In a wide-ranging speech, Chua in his opening address during the party's 58th AGM held at the MCA headquarters here, also reiterated the party's vow that it will not accept any government posts if it does not gain the support of the Chinese community.

"Delegates will pass a resolution that the party will not take up any government posts if the MCA does not fare better than in the 2008 general elections.

"Such a move is to respect the wishes of the voters, and should be construed as such and not as a threat to the voters," Chua said.

Chua had mooted the decision in April, when he announced that the party will refuse to take Cabinet posts if it does not turn the tide of support from the 2008 elections.

"Hopefully this decision will create greater awareness of the need for unity among MCA members, and that the survival and destiny of the party is in their hands," said Chua.

Elaborating on the new deal, the MCA president said it is for a fair, democratic, transparent and inclusive government.

"The government should listen more to concerned Malaysians who are now more vocal and politically conscious than before," said Chua, adding that there should be more channels for peaceful dissent, and that routes and places be designated for protests.

"However, organisers of demonstrations must ensure that it is peaceful with no threat towards human life or property," he said.

Chua also proposed that the government should work towards abolishing the Printing Presses and Publications Act.

"The MCA feels the press should have the liberty to exercise self-control, as there are already other laws such as the Sedition Act and the Official Secrets Act to check on any wrongdoing," he said.

Chua also called for the University and University College Act (UUCA) to be reviewed.

"MCA believes that the UUCA should be amended to allow students to be engaged in political activity to respect their rights as voters," he said.

Chua also touched on the economy, saying it must be made free from the encumbrances of cronyism and nepotism, corruption and unfair business practices.

"The rakyat wants a just society and a fairer business environment that emphasises on meritocracy, inclusiveness and transparency," he said, adding that "doing business should be simpler, minus all the red tape."

However, the new deal should not be seen as an attempt to rewrite the so-called Merdeka contract.

"I know there will be groups who will attack me for even suggesting it. But let us be bold and brave enough to rework it to make it more suitable for the times and to meet the aspirations of all Malaysians," he charged, adding that the government and the party should rise above narrow self-interests.

MCA seeks New Deal

Reports by FOONG PEK YEE, NG SI HOOI, EDMUND NGO, ELWEEN LOKE, FLORENCE A. SAMY, MAZWIN NIK ANIS, RUBEN SARIO, SIRA HABIBU, RAHIMY RAHIM, REGINA LEE and PRIYA KULASAGARAN > Photos by DARRAN TAN, AZHAR MAHFOF, SAM THAM, LOW LAY PHON and CHAN TAK KONG

KUALA LUMPUR: A “New Deal” based on fairness and bravery is needed to give the people confidence and hope that their future is in Malaysia, said Datuk Seri Dr Chua Soi Lek.

The MCA president said the New Deal must embrace everyone as well as erase policies and laws which are unjustified and considered stumbling blocks.

“The time to act is now. The New Deal should give every Malaysian, their children and grandchildren confidence and hope that their future is in Malaysia,” Dr Chua said at the opening of the MCA's 58th annual general assembly at Wisma MCA here yesterday.

Urging Prime Minister Datuk Seri Najib Tun Razak to take the giant leap forward and offer all Malaysians a new deal for the future, Dr Chua said Barisan Nasional should not allow “the baggage of the past to be a millstone around the necks of our children and grandchildren”.

Presidential address: Dr Chua delivering his keynote address at the MCA’s 58th annual general assembly at the party headquarters in Kuala Lumpur yesterday. — CHAN TAK KONG / The Star

“Malaysians need a New Deal that is fair, democratic, transparent and inclusive of all Malaysians to address today's concerns of the young and future generation. It should encompass political, social, economic and educational issues and epitomise the very core expectations and aspirations of the people at large.”

He noted that the aspirations of the younger generation might not be the same as that of the older generation.

He added that the Government and leaders must tailor their policies and programmes to the young.

“They must have faith that their aspirations can be met, and that we (Barisan) will facilitate those aspirations and not be a hindrance to them,” Dr Chua said.

The MCA president said there was a need for Barisan to sit down and work out the New Deal, stressing that such efforts must not be seen as an attempt to completely rewrite the so-called Merdeka social contract.

“I know there will be groups who will attack me for even suggesting it.

“But let us be bold and brave enough to rework it to make it more suitable for the times and meet the aspirations of all Malaysians.”

Dr Chua said the policies formulated immediately after 1969 must change with the times, pointing out that the world had changed.

“The new leadership of the MCA wants the New Deal to also embrace a government that is constructive and which can unite all races.

“We must always pursue the middle path, reaching out to a younger generation who may feel alienated.
“We want a nation that is fair, democratic, transparent and inclusive of all Malaysians.”

Dr Chua said the Government should listen more to concerned Malaysians who were now more vocal, active and politically-conscious than before.

“As leaders, we must always be ready to listen. Politicians should never pretend to know everything,” he stressed.

He said a caring government would take care of everyone's needs and expectations, from education and employment to security and law and order, as well as the impact of inflation.

“The Government's duty is to reassure all Malaysians that they have a rightful place in the country. All Malaysians will benefit as the country develops to become a high-income nation by the year 2020. The expanding economic cake should be shared fairly and equitably by all Malaysians.

“Bumiputras should not be jealous of the success of non-bumis, and non-bumis should also not be jealous of the progress of bumiputras. We are 1Malaysia.”

MCA calls for a new deal based on fairness (Update)

By FOONG PEK YEE

KUALA LUMPUR: A new deal based on fairness and bravery needs to be drawn up to give the people confidence and hope that their future is in Malaysia, said MCA president Datuk Seri Dr Chua Soi Lek.
"The new deal must embrace everyone and erase policies and laws which are unjustified and considered stumbling blocks," he said.

Prime Minister Datuk Seri Najib Tun Razak acknowledges the standing ovation from delegates at the MCA's 58th annual general meeting. 

“The time to act is now. The new deal should give every Malaysian, their children and grandchildren confidence and hope that their future is in Malaysia,” he said at the opening of the MCA's 58th annual general assembly (AGM) at Wisma MCA here .

Urging Prime Minister Datuk Seri Najib Tun Razak to take the giant leap forward and offer all Malaysians a new deal for the future, Dr Chua said Barisan Nasional should not allow “the baggage of the past to be a millstone around the necks of our children and grandchildren”.

“Malaysians need a new deal that is fair, democratic, transparent and inclusive of all Malaysians to address today's concerns of the young and the future generation.

"It should encompass political, social, economic and educational issues and epitomize the very core expectations and aspirations of the people at large.”
 
In a highly-charged speech Dr Chua said the coalition must rise to the occasion, rise above narrow self-interest and do away with “ideological dogmatism and laws, policies, ideologies and beliefs that have outlived its relevance in today's political landscape.”

 

Dr Chua and his deputy Datuk Seri Liow Tiong Lai welcome Najib on his arrival for the 58th MCA annual general meeting at Wisma MCA on Sunday

He noted that the aspirations of the younger generation might not be the same like that of the older generation, and that the government and leaders must tailor their policies and programmes to the young.

“They must have faith that their aspirations can be met, and that we (Barisan) will facilitate those aspirations and not be a hindrance to them,” Dr Chua said.

The MCA president said there was a need for Barisan to sit down and work out the New Deal, stressing that such efforts must not be seen as an attempt to completely rewrite the so-called Merdeka social contract.

“I know there will be groups who will attack me for even suggesting it. But let us be bold and brave enough to rework it to make it more suitable for the times and to meet the aspirations of all Malaysians.

“Let us rise above narrow self-interests. The time to act is now.”

Dr Chua said policies formulated immediately after 1969 must change with the times, pointing out that the world had changed.

Dr Chua and his deputy Datuk Seri Liow Tiong Lai welcome Najib on his arrival for the 58th MCA annual general meeting at Wisma MCA on Sunday 

“The new leadership of the MCA wants the New Deal to also embrace a government that is constructive and which can unite all races. We must always pursue the middle path, reaching out to a younger generation who may feel alienated.

“We want a nation that is fair, democratic, transparent and inclusive of all Malaysians.”

Dr Chua said the government should listen more to concerned Malaysians who are now more vocal, active and politically conscious than before.

“As leaders, we must always be ready to listen. Politicians should never pretend to know everything,” he stressed.

He said a caring government would take care of everyone's needs and expectations, from education and employment to security and law and order, as well as the impact of inflation.

Dr Chua, who called for more channels for peaceful dissent, also proposed that designated places and designated routes be allowed for protest and that the applications for police permits must be transparent.

On political transformation, Dr Chua said politicians should go beyond the politics of cohesion, threat, race and religion.

He regretted that there were one or two Barisan leaders who were seen as aloof, arrogant and abusive, and their attitude had not gone down well with the rakyat.

Dr Chua, who likened their behaviour to that of “big brothers” or bullies, said their behaviour would only heighten the people's anger and negative perceptions of the Barisan and the government.

The MCA chief also called on Najib to ensure that all frontline civil servants to emulate the police by learning at least two additional languages besides Bahasa Malaysia.

On education, Dr Chua called for a timetable should also be set for the authorities to make English a compulsory pass subject in the SPM examination.

He also called for mother tongue languages to be encouraged at all national schools and should eventually be made compulsory.

“If such initiatives are planned properly with a staggered timeline, they are achievable.”

Touching on the economy, Dr Chua said the award of projects should not be based on a “know-who” basis, and the expanding economic cake should be shared fairly by all Malaysians under the 1Malaysia concept.

He also urged Malaysians not to see each other as competitors but instead team up to compete with the world outside.

On the rising cost of living and many people not being able to make ends meet, Dr Chua proposed the government help them via special one-off monetary relief like cash handouts to the poor, senior citizens, pensioners, and assistance like school books, uniforms and transportation for school-going children.

The government, he added, should also consider some form of monthly allowance for the poor.

Dr Chua also cautioned the people of the Pakatan's practice - talk but don't walk the talk apart from being “consistently inconsistent”.

He reminded the people that the opposition's populist policies might generate the “feel good” factor; but they would neither address their needs nor generate high income or better living standards.

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The decline of the West

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Ceritalah by KARIM RASLAN

These worries are further fuelled by the ongoing global financial crisis and political paralysis that’s slowly undermining both the European Union and the United States.

HISTORY is written by the victors. Losers rarely get much coverage let alone a mention.
In Malaysia, unlike in Indonesia, the forces of political conservatism ultimately won power from our former colonial masters.

As such, the “left” – as PAS deputy president Mat Sabu discovered – has been forgotten, if not vilified outright.

However, interpretations of history change from decade to decade. Indeed, there is no one “history”.
Instead, there are many and generally, it’s the powerful that get to determine whose version of events should dominate.

What happens though when a once all-powerful nation begins to falter? How does it write or rewrite its history?

Such a shift can be seen in the recent explosion of writing on the supposed decline of Western – particularly American – power.

Historian Niall Ferguson has charted the process in Civilisation: The West and the Rest. Ferguson argues that the “West” (particularly Britain and America) was able to surpass others (such as the Chinese and Ottoman Empires) due to six “killer applications”: competition, science, property rights, medicine, the consumer society and work ethic.



Ferguson argues that the West perfected all six simultaneously, whereas “the Rest” developed only a handful or else let their comparative advantages in these fields stagnate.

His main thrust, however, is that the West’s current weakness stems from a loss of faith in its own civilisational values. In short, the West has failed to renew its commitment to its “killer apps”.

The West, therefore, ought to “recognise the superiority” of its own civilisation because it offers societies “the best available set of economic, social and political institutions”.

One may of course disagree with Ferguson’s thesis but his arguments are compelling.

His contention that the Islamic world declined because it closed its minds and borders is certainly persuasive, if unoriginal.

At the same time, Ferguson’s tome is a clear sign that there’s a growing trend amongst writers discussing (if not agonising) over the West’s “decline”.

These worries are further fuelled by the ongoing global financial crisis and political paralysis that’s slowly undermining both the European Union and the United States.

Indeed, the latest issue of the literary journal New Yorker includes a superb essay by Adam Gopnick, which claims that “declinism” has now morphed into a veritable literary genre – a pet topic for academics and pundits alike.

But is this really something new? “Cassandras” (named after the Trojan princess who foresaw her own city’s destruction at the hands of the Greeks) – the harbingers of doom and decline – have long been with us, even in times of great prosperity.

Indeed, according to Gopnick, the phrase “decline of the West” was used as early as 1918 by the German historian Oswald Spengler.

Nor were such fears of decay exclusively Western: writers and historians such as Ibn Khaldun, Tun Sri Lanang and Sima Qian have dwelt on similar themes as they charted the rise and fall of civilisations.
Moreover, the mere fact that these books are available across the globe suggests the depth and breadth of such concerns.

At the same time they also reveal a passionate commitment to the idea of renewal and reform. Ferguson is clearly a believer in the West’s capacity to re-invent and re-energise itself.

For us in Malaysia, these books – and there are countless others in airport bookshops – reinforce the sense of a world shifting on its axis, of a power alignment that prioritises China and India over Europe and the United States.

We are faced with the challenge of adapting to these newly (re-)emerging powers whilst not forgetting the strengths (or “killer apps”) that made the Western nations great such as the emancipation of women, democracy and religious tolerance.

And it is in this realm that we need writers and historians such as Ferguson and Gopnik – figures who’ll both commend and condemn with equal weight, stepping aside from mere politics.

The new geo-political landscape will demand prodigious powers of concentration and leadership. Mere rhetoric will be useless.

Malay ultras and/or an obsession with bangsawan politics won’t help us in coping with either China and/or India.

History requires candour and honesty. It also demands a degree of openness.

We need to be willing to accept the idea that there are many versions of the truth.

Our narrow-minded views on history hamper us as we chart our way forward.

You need to know yourself in order to plan for the future. Self-knowledge is critical.

I would argue that it’s only when we as Malaysians can start to engage about our collective history with the same vigour and honesty as our counterparts in the West then we’ll be ready to deal with the challenges outlined by these writers.

History – our many histories, Malay, Chinese, Indian, Dayak and so forth – requires objectivity and honesty. If we can’t deal with the past, how can we face the future?

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A "great haircut" for U.S. growth

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A "great haircut" to kick-start U.S. growth

By Jennifer Ablan and Matthew Goldstein NEW YORK 

(Reuters) - More than three years after the financial crisis struck, the U.S. economy remains stuck in a consumer debt trap.

It's a situation that could take years to correct itself. That's why some economists are calling for a radical step: massive debt relief. Federal policy makers, they suggest, should broker what amounts to an out-of-court settlement between institutional bond investors, banks and consumer advocates - essentially, a "great haircut" to jumpstart the economy.

What some are envisioning is a negotiated process in which cash-strapped homeowners get real mortgage relief, even if it means forcing banks to incur severe write-downs and bond investors to absorb haircuts, or losses, in some of the securities sold by those institutions.

"We've put this off for too long," said L. Randall Wray, a professor of economics at the University of Missouri-Kansas City. "We need debt relief and jobs and until we get these two things, I think recovery is impossible."

The bailout of the nation's banks, a nearly trillion dollar stimulus package and an array of programs by the Federal Reserve to keep interest rates near zero may have stopped the economy from falling into the abyss. But none of those measures have fixed the underlying problem of too much U.S. consumer debt.

At the start of the crisis, household debt as a percentage of gross domestic product was 100 percent. Today it's down to 90 percent of GDP. But by historical standards that is high. U.S. households are still more indebted than their counterparts in Austria, Germany, Spain, France and even Greece - which is on the verge of defaulting on its government debt.

Tens of millions of U.S. citizens remain burdened with mortgages they can no longer afford, in addition to soaring credit card bills and sky high student loans. Trillions of dollars in outstanding consumer debt is stifling demand for goods and services and that's one reason economists say cash-rich U.S. companies are reluctant to hire and unemployment remains stubbornly high.

Take Donald Bonner, for example, a 61-year-old from Bayonne, New Jersey, who lost his job working on a dock in June. Back in March, he attended a "loan modification" fair held by JPMorgan Chase in New York. He has lived in his home since 1970, but was on the verge of losing his job. After falling behind on his $2,800-a-month mortgage, he sought to reduce his monthly payment. Bonner says the bank denied the request on the grounds that he is ineligible because his income is higher than the minimum threshold set by the Federal government for loan modifications.

"They keep asking me for additional documentation," Bonner said on Friday. "It seems to me there is never enough documentation and it has to be renewed every month. It does make you wonder with all this bailout money these banks have received, they don't want to lend the money."



DEBT JUBILEE

The idea of substantial debt restructurings and a haircut for bondholders has been raised by financial pundits, including Barry Ritholtz and Chris Whalen, two popular analysts and bloggers.

Renowned economist Stephen Roach, currently non-executive chairman of Morgan Stanley Asia, has gone a step further, calling for Wall Street to get behind what others have called a "Debt Jubilee" to forgive excess mortgage and credit card debt for some borrowers. The notion of a Debt Jubilee dates back to biblical Israel where debts were forgiven every 50 years or so. In an August appearance on CNBC, Roach said debt forgiveness would help consumers get through "the pain of deleveraging sooner rather than later." (here)

But it's not just the liberal economists and doom-and-gloom financial analysts calling for a great haircut. Even some institutional investors, who might suffer some of the impact of debt reductions on their portfolios, are seeing a need for a creative solution to the mess.

"If there is something constructive that can be done it should be," said Ash Williams, executive director of the Florida State Board of Administration, which oversees $145 billion in public investments and pension money. "You don't want to reward bad behavior and you don't want to reward people who were irresponsible. But if there is a way to do well by doing good, then let's take a look at it."

To be sure, consumer debt levels have been coming down since the crisis began. The Federal Reserve Bank of New York reported in August that outstanding consumer debt has fallen from a peak of $12.5 trillion in third quarter of 2008 to $11.4 trillion. (NY Fed report: tinyurl.com/3uuvk8d) That's a sign that consumers are getting less indebted.

But U.S. households are still carrying a staggering burden of debt.

As of June 30, roughly 1.6 million homeowners in the U.S. were either delinquent on mortgages or in some stage of the foreclosure process, according to CoreLogic. And the real estate data and analytics company reports that 10.9 million, or 22.5 percent, of U.S. homeowners are underwater on their mortgage -- meaning the value of their homes has fallen so much it is now below the value of their original loan.

CoreLogic said the figure, which peaked at 11.3 million in the fourth quarter of 2009, has declined slightly not because home prices are appreciating but because a growing number of mortgages are entering foreclosure.

The nation's banks, meanwhile, still have more than $700 billion in home equity loans and other so-called second lien debt outstanding on those U.S. homes, according to SNL Financial.

Debts owed by American consumers account for almost half of the nearly $9 trillion in worldwide bonds backed by pools of mortgages, car loans, credit card debt and student loans, which were sold to hedge funds, insurers and pension funds and endowments.

And that doesn't include the $4.1 trillion in mortgage debt sold by government-sponsored finance firms Fannie Mae and Freddie Mac.

Kenneth Rogoff, professor of economics and public policy at Harvard University and former chief economist at the International Monetary Fund, has said the ongoing crisis should be called the "Second Great Contraction" because U.S. households remain highly leveraged. He says the high level of consumer debt is what distinguishes this from other recessionary periods.

COMPETING INTERESTS

For those in favour of a radical solution, there are a lot of headwinds.

Any debt reduction initiative must confront the issue of "moral hazard" - the appearance of giving a gift to an unworthy borrower who simply made unwise spending choices.

Institutional investors who own securities backed by pools of mortgages are reluctant to see struggling homeowners get their mortgages reduced because that means those securities are suddenly worth less. Any write-downs that banks are forced to take could imperil their capital levels.

Banks and bondholders, meanwhile, have competing interests. This is because mortgage write-downs depress the value of the securities in which mortgages are pooled and sold to investors. Big institutional investors like BlackRock have long argued that any meaningful principal reduction on a mortgage must also include a willingness by banks to take their own write-downs on any home equity loans, or second liens, taken out by the borrower on the property.

The banks continue to hold those second liens on their balance sheets and so far have been reluctant to mark down the value of those loans, even though the borrower often has fallen behind on their primary mortgage payments.

In other words, bondholders are taking the position if they must suffer losses, so must the banks.

"Institutional investors, pension funds and hedge funds all have fiduciary obligations and they can't necessarily agree to haircuts solely because it may be good social policy," Sylvie Durham, an attorney with Greenberg Traurig in New York, who practices in the structured finance and derivatives area.

Tad Rivelle, chief investment officer of fixed-income securities at TCW, which manages about $120 billion of which $65 billion is in U.S. fixed income, doesn't support a big haircut. But he says he can see why some economists and consumer advocates would favor debt reductions and debt workouts as way of dealing with the financial crisis and freeing up more money for spending.

Barry Ritholtz, director of equity research at Fusion IQ and a popular financial blogger, said the standoff between the banks and bondholders is untenable and doing a good deal of harm. An early critic of the bank bailouts, Ritholtz says bankers and bondholders are all in denial and both need to get far more pragmatic.

"They'd be bankrupt if not for the bailouts," says Ritholtz of the banks' position. "For their part, bondholders need to understand that we're not earning our way out of this mess and should eat losses now before they get nothing."

TIME FOR A MEDIATOR?

Given the standoff, there's a sense nothing will happen unless federal policymakers make the first move. The Fed reports that 71 percent of household debt in the U.S. is mortgage-related.

But so far Washington policymakers seem more content to rely on voluntary measures. The two main programs set up by the Obama administration to reduce home mortgage debt - the Home Affordable Refinance Program and the Home Affordable Modification Program - have had limited success.

To date, the U.S. Treasury Department reports that those voluntary programs have resulted in 790,000 mortgage modifications, saving those borrowers an average of $525 a month in payments. Many of those modifications, however, were for borrowers paying high interest rates, not ones underwater on their mortgages.

In fact, Bank of America, one of the nation's largest mortgage lenders, said it has offered just 40,000 principal reductions to its borrowers.

U.S. administration sources told Reuters that they support the concept of carefully targeted principal reductions for underwater borrowers. But these sources, who did not want to be identified, say the administration cannot mandate banks and bondholders to accept any principal reductions absent Congress authorizing the procedure.

The sources point out that federal authorities don't have a "magic wand" - even at Fannie Mae and Freddie Mac, the government-backed home-loan titans.

These sources explain that even though Fannie and Freddie are effectively owned by the federal government, they are controlled by an independent regulator, the Federal Housing Finance Agency. And it's up to the FHFA, and not the administration, to approve any principal reductions on home loans involving Fannie and Freddie.

An FHFA spokeswoman declined to comment. The agency has repeatedly taken the position that its first job is protect taxpayers' return on investment in Fannie and Freddie rather than reducing mortgages for underwater borrowers.

CLOCK TICKING

The fear of some economists is that the economy may be going into a double dip recession. That means precious time is being lost if a negotiated approach to debt reduction isn't taken now.

But the banks also have their own big debt burdens to deal with. Next year alone, U.S. banks and financial institutions must find a way to either pay off or refinance $307.8 billion in maturing debt, compared to the $182 billion that is coming due this year, according to Standard & Poor's.

This maturing debt for U.S. banks comes at a time when they must start raising capital to deal with new international banking standards and are facing the possibility of a new recession that will crimp earnings. (Bank of America story: link.reuters.com/sys63s)

Beyond bank debt, hundreds of billions of dollars in junk bonds sold to finance leveraged buyouts also are maturing soon. S&P says "the biggest risk" comes in 2013 and 2014, when $502 billion in speculative-grade debt comes due.

Still, there are still plenty of economists who say the concern about consumer debt is overdone and that doing anything radical now would only make things worse. One of those is Mark Zandi, chief economist of Moody's Analytics, who says a forced write-down or haircut of debt "would only result in a much higher cost of capital going forward and result in much less credit to more risky investments."

He said significant progress has been made in reducing private sector debt, and draconian debt forgiveness measures would be a mistake. "Early in the financial crisis I was sympathetic to passing legislation to allow for first mortgage write-downs in a Chapter 7 bankruptcy, but the time for this idea has passed," says Zandi.

Still, the notion of a debt write-down and bondholder haircuts will probably be around as long as the unemployment rate stays high and the housing market remains depressed.

Indeed, it has been two years since the notion of a "Debt Jubilee" made it into the popular culture when Trey Parker and Matt Stone used it for an episode of the politically incorrect cartoon "South Park." In the episode aired in March 2009, (here), one of the characters used an unlimited credit card to pay off all the debts of the residents of South Park to spur the economy.

At the time, the idea seemed like just a funny satire on the nation's economic mess. But now it seems like no joke at all.

(Reporting by Jennifer Ablan and Matthew Goldstein; Additional reporting by David Henry and Joseph Rauch; Editing by Michael Williams and Claudia Parsons)

Euro fallout is bad news for world economy

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Global Trends By Martin Khor

The IMF-World Bank meetings last week confirmed the global economy has entered the ‘danger zone’ of a new downturn and possibly recession. This time it could be more serious and prolonged than the 2008-2009 recession. 

THE last two weeks have seen a clear downward shift in expectations on the global economy. The dominant view now is that the world has slipped into stagnation that may well become a recession.

Warnings that the economy had entered a “danger zone” generated the gloomy mood at the annual Washington gathering of the International Monetary Fund and World Bank, as well as the G20 finance ministers’ meeting.

Prominent economists are predicting the new crisis will be more serious and prolonged than the 2008-09 recession.

If the United States and its sub-prime mortgage mess was the immediate cause of the last recession, the epicentre this time is the European debt crisis.

The eurozone’s GNP grew by only 0.2% in the second quarter, and the European Commission predicts the rates will be 0.2% and 0.1% in the third and fourth quarters.

As the domino effect of contagion hit one European country after another (rather like how Asian countries were affected in 1998-99), European leaders have scrambled for a solution.

But none has worked so far.

In the Greek debt tragedy, the government has had to announce one painful austerity measure after another, but its economic condition continues to worsen and the social protests and strikes indicate the approach of the political breaking point.



The costs of austerity are already being seen (by the public at least) to outweigh the benefits.

Several British newspapers last week reported a set of big measures to tackle the European crisis was reportedly being worked on by unnamed European officials.

The centrepiece is a Greek debt default with creditors repaid only 50%, and two measures to cushion that shock – an injection of fresh capital into European banks that would suffer big losses from the default, and the boosting of the European bailout fund from 400-plus billion euros to almost two trillion euros to enable hundreds of billions of euros in new credit to countries like Italy and Spain to prevent them from becoming new debt-crisis economies.

However, this leaked news of a big Plan B was not confirmed by any policy maker, so its status or even existence is unknown.

Instead, the news out of Washington last week was of continued paralysis in European policy.

Greece this week is facing a new crunch time – waiting to see if the European institutions and IMF will approve the next bailout instalment of US$8 billion to service loans that are coming due, and what would happen if they do not. Would it be time then to declare a default?

Meanwhile, the US has its own budget deficit tug-of-war between the President and Congress and between Republicans and Democrats.

What this means is that Europe and the US are not able to make use of the policies (massive increases in government spending, interest rate cuts and pumping of money into the economy) that pulled them quickly out from the last recession.

Moreover, the coordination of policy actions among developed countries (and several developing countries as well, that also undertook fiscal stimulus policies) that fought the last recession no longer seems to exist, at least for now.

Thus the new global slowdown or recession is likely to last longer than the short 2008-09 recession.

The developing countries should thus prepare to face serious problems that will soon land on them.

We can expect a sharp fall in their exports as demand declines in the major economies.

Commodity prices are expected to climb down; they have already started to do so.

There may be a reversal of capital flows, as foreign funds return to their countries of origin.

The currencies of several developing countries are already declining and it may be the start of sharper falls.

It’s beginning to look like 2008 all over again.

But this time the developing countries are starting this downturn in a weaker state than in 2008, since they have not yet fully recovered from the last shock.

And as the downturn proceeds, there will be fewer cushions to blunt the effects or to enable a rapid recovery.

It is also clear that there is an absence of a global economic governance system, in which the developing countries can also participate in.

All countries are affected when the global economy goes into a tail spin.

Once again, the developing countries are not responsible for the new downturn, but they will have to absorb the ill effects.

Yet there is no forum in which they can put forward their views on how to lessen the effects of the crisis on them and what the developed countries should do.

As the new crisis unfolds, there will be renewed calls for reforms to the international financial and economic system.

This time there should be a more serious reform process, otherwise more crises can only be expected in the future.

China's Next Step in Space: Critical Docking Demo in November

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by Denise Chow, SPACE.com Staff Writer

A Chinese Shenzhou spacecraft closes in on the country's Tiangong 1 space lab in this still from a mission profile video. CREDIT: China Manned Space Engineering Office View full size image

The successful launch of China's first space laboratory module this week sets the stage for the future of the country's ambitious space program. But now that the spacecraft is in orbit, a major docking test looms ahead for China.

The unmanned Tiangong 1 prototype module launched Thursday (Sept. 29) from the Jiuquan Satellite Launch Center in northwest China. Shortly after liftoff, officials at the Beijing Aerospace Flight Control Center, the Mission Control for China's human spaceflight program, confirmed that the cylindrical module had effectively unfurled its solar arrays.

Chang Wanquan, chief commander of the China Manned Space Engineering office, declared the launch a complete success shortly after liftoff. China's president Hu Jintao and other state officials attended the launch, according to state media and TV broadcasts. [Gallery: Tiangong 1, China's First Space Laboratory]



Full Video: China´s first space lab module enters space CCTV News - CNTV English

China's first destination in space

Tiangong 1, which means "Heavenly Palace 1" in Chinese, will now settle into an orbit 217 miles (350 kilometers) above Earth, and mission controllers will perform a series of systems tests.

The launch of Tiangong 1 is an important part of China's stepping stone strategy to human spaceflight. The space lab module will test crucial docking technology that will be required to meet the nation's goal of constructing a 60-ton space station in orbit by 2020. [Video: China's First Space Lab Module Lift-Off]

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"The implementation of space rendezvous and docking mission, as well as the breakthrough and mastering of rendezvous and docking technology are the basis and premise for the construction of manned space station," China's Manned Space Engineering office spokeswoman Wu Ping told reporters before Tiangong 1 launched, according to a translation provided by the office. "It is of great significance for the realization of the three-step strategy of [the] China Manned Space Engineering Project, and the promotion of sustainable development of manned space flight."

China's three-step space exploration plan, according to past statements by Chinese space officials, is aimed at first perfecting its human spaceflight transporation system (the Shenzhou spacecraft), then building a space station and moving on to a manned moon landing.

This still from a China space agency video shows a cutaway of a Shenzhou spacecraft docked at the country's Tiangong 1 space lab, showing how astronauts will move between the two Chinese spacecraft.
CREDIT: China Manned Space Engineering Office

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Critical docking tests ahead
With its first space destination sailing above Earth, China is now planning a series of orbital docking demonstration flights over the next two years.

The country plans to launch three separate spacecraft — Shenzhou 8, Shenzhou 9 and Shenzhou 10 — to robotically connect to Tiangong 1, which will mark the nation's first docking maneuvers in space. [Infographic: How China's First Space Station Will Work]

According to state media reports, the unmanned Shenzhou 8 spacecraft could be launched in early November, and the mission is expected to last at least 12 days. At least two docking demonstrations will be performed.

If the Shenzhou 8 mission is successful, Shenzhou 9 and Shenzhou 10 are expected to follow in 2012. The Shenzhou 10 flight may also carry the first astronauts to the Tiangong 1 module, a crew that could also include China's first female astronaut, according to state media reports.

China is only the third nation, after the United States and Russia, to independently launch humans into orbit. China's first manned mission, Shenzhou 5, was piloted by Yang Liwei on Oct. 15, 2003. Two more manned missions followed, in 2005 and 2008.

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Hedge fund management, Value Partners; Malaysian a Hye Achiever in HK, eyes Penang projects

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Former The Star journalist Cheah makes it big in hedge fund management

By LIM AI LEE  sunday@thestar.com.my

PETALING JAYA: He is one of Asia’s most influential men in hedge funds but former journalist turned maverick investor Cheah Cheng Hye (pic below) has not forgotten his humble roots.

As a 12-year-old, he sold pineapples at a wholesale market in George Town after school, worked at a hawker stall and gave tuition to younger children to help support his siblings after his father died.

Today, Cheah runs Hong Kong’s largest investment powerhouse, managing US$9bil (RM28.7bil) worth of funds from investors worldwide. Last year, he became the first Asian to be invited to speak at the prestigious Graham and Dodd Breakfast event at Columbia University in New York.

The Penang-born businessman, who has been dubbed the Warren Buffett of the East, attributed part of his success to being “at the right place at the right time” and the other part, to his strong will to succeed due to his poor childhood.

Cheah, 57, said life was hard in his younger days.

“We never felt sorry for ourselves. We never expected the Government or anyone to help us. We accepted that the only way to improve was through self-help and luck,” he said in an e-mail interview from Hong Kong.

Despite excelling in his studies, the former Penang Free School student knew he could not afford to further his studies after Form Five.

So, he headed to The Star office in Weld Quay and landed a job – folding newspapers.

“We started work at 11pm and finished at 5am. Fortunately, after three weeks, I was recruited as a reporter,” he said, adding that he became a sub-editor and editorial writer within two years.

Cheah quit in 1974 and left for Hong Kong after receiving an offer from the Hong Kong Standard. He quickly adapted to his new environment and went on to become a financial journalist with the Asian Wall Street Journal and later, the Far Eastern Economic Review.

Cheah subsequently joined an investment company and in 1993, co-founded Value Partners Limited with his business partner Yeh V-nee, a Columbia University graduate.

The father of two said he would always appreciate Hong Kong for giving him numerous opportunities but admitted to feeling homesick for Malaysia. “I miss the good-natured people and the food.”

 Value Partners eyes Penang projects

By DAVID TAN  davidtan@thestar.com.my

GEORGE TOWN: Value Partners Ltd, a Hong-Kong based investment company founded by former The Star journalist Cheah Cheng Hye, is exploring investment opportunities in tourism and health-related projects in Penang.

Cheah, the chairman of Value Partners, told StarBiz that Penang could do more to attract tourists from Southern China.

“There exists a strong historical relationship between Southern China and Penang, which can be tapped to boost tourist arrivals from China to Penang.

Cheah: ‘We are now exploring tourism and healthcare-related projects.’ 

“We are now exploring tourism and healthcare-related projects that can attract Southern China tourists to come over.

“These would be sizeable projects, as we would not be interested in small undertakings,” he said.

Founded by Cheah in 1993, Value Partners manages about US$8bil worth of funds, with investments in China, the Asia-Pacific, Japan and Australia.

Cheah, 57, a former student of Penang Free School, worked as a journalist for The Star in Penang from 1971-1974.

He was speaking at the investPenang one-day seminar jointly organised by investPenang and ECM Libra Financial Group Bhd.

Also present was Penang Chief Minister Lim Guan Eng who delivered the keynote address.

ECM Libra chairman Datuk Seri Kalimullah Hassan said the seminar had attracted fund managers from India, the Philippines and Hong Kong, among other countries, who managed funds worth US$2bil (RM6.2bil) and above.

“They are exploring investment (opportunities) in healthcare, business process outsourcing (BPO), infrastructure, and tourism sectors.

“BPO (which) supports the legal and medical care business has the potential to grow in Penang, as the state has a pool of educated workforce to support BPO enterprises,” he said.

The companies that took part in investPenang included Religare Enterprises Ltd, an India-based financial services company with operations around the globe; Alliance Global, which is involved in the food and beverage, real estate, and quick service restaurants in the Philippines; and local companies such as YTL Corp Bhd, Multi-Purpose Holdings Bhd and SP Setia Bhd

Gamble that paid off

By LIM AI LEE  sunday@thestar.com.my

He took a chance leaving one island for another to seek his fortune but the dividends are paying off handsomely for Cheah Cheng Hye, one of Asia’s top fund managers.

WHEN he arrived at the Hong Kong harbour on a cargo steamship 37 years ago, Cheah Cheng Hye was almost broke, having scraped all his savings to pay for space to sleep in the cargo compartment.

He did not anticipate a long stay – all he wanted was to work, save money and return home to Penang. But the 20-year-old soon found a world of opportunities in the then British colony.

Today, Cheah, 57, is chairman and co-chief investment officer of Value Partners Limited, an investment company he co-founded in Hong Kong that manages global funds worth RM28.7bil. Last year, the company launched its Value Gold ETF (exchange-traded fund), the first and only gold ETF backed by physical gold bullion stored in Hong Kong.

In an exclusive interview with Sunday Star, Cheah talks about the turbulent global money market, growing up in old George Town and his affinity for two islands – one where he was born and the other where he now resides.

Q: You have been dubbed the Warren Buffet of the East. How do you feel about the tag? 

A: It is actually not an appropriate tag. Warren Buffett is much, much bigger than me. Anyway, the opportunities and challenges we have here in Asia are so different.

> Given the current global economic climate, what is your advice for fund investors? 

I think global financial markets have entered a very turbulent and difficult time. This difficulty may drag on for years. There is no easy solution because if you put money in the bank on deposit, you suffer from a negative real interest rate (i.e. inflation higher than the deposit rate).

My own solution is to have a highly diversified investment portfolio that is, however, over-weighted in certain sectors like China stocks, precious metals, energy, agriculture and companies with major brands or franchises.

>What made you decide to launch a gold ETF on the Hong Kong Stock Exchange? How is Value Gold ETF faring today?

I’ve been recommending gold and investing in it since the 1990s, because of my fear that governments around the world would end up printing too much money. After a year in operation, our gold ETF is now US$135mil (RM430mil) in size.

This is considered a huge success for a new fund. Our clients are from all over the world. We think inflows from clients in mainland China will grow significantly.

> How did you get into hedge funds? Do you have sleepless nights worrying about whether your funds are performing?

I was a financial journalist in Far East Economic Review and The Asian Wall Street Journal. In the late 1980s, I was offered a research position in a stock brokerage firm in Hong Kong and made a successful transition to investment analyst through self-learning.

Even during good times, my job is extremely stressful and I’ve been doing meditation for many years to reduce stress. I believe successful people must have a strong commitment to being mentally and physically fit, otherwise they would let down their clients and partners.

In the near future, the whole financial industry, including hedge funds, will face a difficult period. But over the mid- to long-term, the better quality funds will emerge stronger and bigger than now because there are lots of savings in the world to be managed.

It should be noted that people are less willing to leave their savings as simple bank deposits and are actually quite keen to try out high-performance investment products provided by fund management companies as an alternative.

> What do you hope to achieve?

We hope to transform Value Partners Group into a leading world-class asset management company. We don’t want people to think that Asian firms will always occupy a lower position than Western ones. Over the next 20 years, several world-class Asian fund managers will emerge because of the superior growth in our region.

> How do you maintain staff loyalty?

Value Partners has about 120 employees. During good years, we pay generous bonuses but we try to keep our fixed overheads low. Basically, our formula is to keep fixed salaries low and bonuses high. We find that younger people like the formula, because they share the profits of the business. In Hong Kong, we have a reputation for being a generous but demanding employer. Our firm has a strong corporate culture.

> What makes you successful?

To this day, I believe half my success is simply being in the right place at the right time. I consider myself a beneficiary of the Asian Economic Miracle and the opening of mainland China. Like everyone else, I make professional mistakes now and then, but each time the remarkable opportunities brought along by the two phenomena have allowed me to find the resources to overcome my errors and start again.

The other half of being successful comes from several factors. I believe one has to be diligent, humble and willing to learn. I sign my name “Learn” rather than my actual name, so that I always remind myself to keep on learning.

> How has your past shaped your future?

My strong will to succeed is probably due to my poverty-stricken childhood. When I look at pictures of myself taken in the 1960s and early 1970s, I realise I was so skinny because we never had enough food to eat.

My father died of illness when I was 12 and from then until I was 15, I sold pineapples seven days a week at my uncle’s store at the Sia Boey Market (now closed) in Penang. During weekdays, I went to the store after school finished at 1pm.

Our family house was sold after my father died and we lived in rented housing. The condition was very bad, so I avoided staying at home unless I was sick. My family had to keep moving because we couldn’t afford to pay the rent and faced eviction constantly. Our longest stay was in the Carnarvon Street area in old George Town. In the neighbourhood I lived in, drug addiction was a very big problem, but fortunately I stayed away from drugs.

When I was in Form Three, my bicycle was stolen at the Penang Library. It was a big disaster for me – the loss meant I could not go to school which was a 45-minute ride away. Luckily, my uncle gave me an old bicycle. Otherwise, I would have had to stop schooling.

In those days, modern medical care was a luxury that few could afford and people relied on religious charms, herbal medicines and folk remedies, which included eating dead cockroaches and drinking the urine of young boys.

In the 1967 “hartal” race riots in Penang, mobs armed with knives and bamboo poles killed people passing through our streets, and I witnessed those bloody scenes, which remain in my memory.

> What was your childhood ambition?

Find a job, which would allow me to sit in an office and avoid manual work. My mother wanted me to work as a chai hoo (Hokkien for clerk).

>What was it like reporting in the days before computers, mobile phones and traffic jams?
I joined The Star (Penang) in December 1971 right after finishing my last (MCE) exam paper. My first job, however, was not reporting but folding newspapers. Fortunately after three weeks, I was offered a reporter’s job that paid RM120 monthly.

In the early 1970s, every reporter had to own a motorcycle. Mine was a second-hand Honda S90, with a 90cc engine. Since I was a crime reporter, I relied on monitoring the police radio and various other means for news leads. A lot of initiative was required. Almost half our stories were based on self-generated ideas.

Within two years, I was promoted to sub-editor and editorial writer, so it became an office job. The Star’s office, originally in Weld Quay, Penang had moved to Pitt Street by the time I quit to leave for Hong Kong in August 1974.

> What would you have done if you had not become a journalist?

I have never really done any long-term planning for my career development. I just drifted from one situation to another, so I don’t know what might be a possible outcome if I had done things differently. I just responded to each opportunity as it came up.

But I think if I had had the opportunity to go to university, I would have ended up as an academic. My biggest hobby is reading and when I was young, I was very interested in politics and history. My interest in finance and investment was non-existent. I didn’t even bother to open an account in a bank until I lived in Hong Kong from 1974.

> How would you compare Penang and Hong Kong? 

The lifestyles are very different. In Penang, I am very comfortable in my hometown. Unfortunately, there has been a shortage of good career opportunities.

Hong Kong’s efficiency and high-opportunity environment suits me. I find Hong Kong people open-minded, with an admirable “can do” spirit towards life.

But I must admit, sometimes I’m still homesick for Malaysia. I miss the easy-going and good-natured friendliness of Malaysians and, of course, I think the food in Malaysia is the best in the world.

> Do you take time off for holidays?

I’m a workaholic and I work seven days a week.

>Is there anything else you wish for in life? 

I believe that the most basic human right is the right to be free from poverty. The fight against poverty deserves support from all of us. It is very painful for me when I come across children deprived of shelter and education because they come from poor families.

What’s PNB up to a takeover bid on Setia ? Leave it to the real businessmen!

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A QUESTION OF BUSINESS By P. GUNASEGARAM  p.guna@thestar.com.my

Permodalan Nasional Bhd's surprise bid for SP Setia raises more questions than answers

IT must be great to have so much firepower at your fingertips. But it is also a huge responsibility. How do you get your target and keep it intact at the same time? It's the old question of having your cake and eating it too.

That's a dilemma that not just Permodalan Nasional Bhd (PNB) but many government-linked companies (GLCs) face. They have the money to buy over property companies but if they don't do it right, they stand the risk of losing the people behind these companies.

If the worst happens the staff leave, the company is unable to undertake its projects, quality of houses and other developments drop, launches get less imaginative, public perception deteriorates, and, ultimately, value gets destroyed.

By seeking to own the golden goose body and soul, it is sometimes killed. Occasionally, there is in the corporate world a very thin line between protecting and enhancing your investments and making a wrong move which may send their value plummeting down, if not immediately, in time.

The latest episode (see our cover story this issue) has raised eyebrows not least because of the manner in which PNB has made its bid for one of most respected and admired property companies in Malaysia, SP Setia.

PNB already has about a 33% stake in SP Setia but is seeking to raise this stake to over 50% by offering RM3.90 a share, about an 11% premium over the closing price before the announcement of its notice of takeover. It offered 91 sen per warrant, a premium of nearly 100%.

It has had its stake of just under 33%, the point at which a general takeover offer is triggered under the takeover code, since 2008 but pushed this to just over trigger point on Tuesday and announced its intention for a takeover the following morning.

The offer is conditional upon PNB getting control of SP Setia. PNB also announced its intention of keeping SP Setia listed by ensuring a shareholding spread even if it got more than 90% of the offer shares.



Initial calculations based on 75% control and acquisition of all warrants indicate that the takeover could cost PNB over RM3 billion, a lot of money for most private investors in Malaysia but a mere drop in the ocean for PNB which has over RM150 billion under management.

It's the second largest fund manager in the country after EPF which is twice as big with over RM300 billion in funds. But PNB is probably the largest equity investor in the country because of a much higher proportion of funds invested in equity. There is hardly a major listed company in Malaysia in which PNB does not have a stake.

The big puzzle is why has PNB launched this takeover offer which could potentially affect adversely the value of its quarry? What was PNB fearing? Was it just a matter of increasing its stake in a depressed market which undervalued SP Setia's assets or was there something else? And why did it not consult with senior management and shareholders even after its notice of takeover?

At this stage one can only conjecture on the answers and make educated guesses.

But first, what's wrong if PNB took a majority stake? Previously SP Setia had PNB as a major but not a majority shareholder. PNB did not intervene in management and had two board representatives. If the SP Setia board put up a proposal for shareholder approval, PNB cannot by itself stop it if other shareholders supported it. They include the Employees Provident Fund (EPF) with 13.4%, SP Setia president and CEO Tan Sri Liew Kee Sin with 11.26% and Kumpulan Wang Amanah Persaraan or KWAP with five per cent.

One must still note that the government-linked funds or GLFs already control over 51% of SP Setia. But with PNB alone poised to take over a 50% stake, feathers are being ruffled and questions are being asked as to what that means.

What would have been the ideal situation for SP Setia? Four factors would have contributed. An independent management, a good board which represented all parties, strong minority shareholders, and a diversified institutional base so that no shareholder dominated. The first three are pretty much in place but the fourth was not achieved because PNB had since 2008 been holding a stake of just under 33% and with two other GLFs, the stake came to over 50%. But was there a way of dispersing shareholding?

One deal being negotiated, it was reported, was for Sime Daby, a PNB company, to take a 20% stake through the issue of new shares in exchange for land banks. If it had come through, it would have helped to dilute PNB's shareholding. Still, Sime is related.

The underlying problem is this. GLFs and GLCs have lots of money and not many places to put them in. Good companies attract their attention but if they take control, and especially if they take management control as well, the move can destroy value.

Some of PNB's property purchase and privatisation acts in the past have not been particularly successful, if at all. The major reason is key staff leave after GLCs take control. That's a phenomenon that's happened quite a few times.

So far, PNB's stake in SP Setia had not been a problem. PNB had its two board representatives and it was quite satisfied with its stake. A balance seemed to have been reached with senior management, especially Liew who is also a major shareholder.

But that has been thrown askew with PNB's latest move. Part of the solution will be to convince the market that there will not be management interference unless things go wrong. But the only assurance of that is if stakes are far below 50%, perhaps not more than 30%.

PNB is primarily a passive investor. Thus its motivation should not be to stop dilution of its shareholding or moves to widen shareholding among companies it owns. Control should not be its primary aim.

Instead, it must focus on getting best value for its current stake, which may well be achieved by continuing to be clearly a passive investor. That's better than having a bigger stake in a less valuable company.  Perhaps it could have put its RM3bil in other investments. But it looks like it's a bit too late for that.

l Managing editor P Gunasegaram is plainly perplexed by PNB's bid to take over SP Setia. Any explanations?

Leave it to the real businessmen !

ON THE BEAT WITH WONG CHUN WAI

Questions are being raised as to why Permodalan Nasional Bhd is making a takeover bid on SP Setia, a reputable housing developer.

IT may not have caught the attention of ordinary Malaysians but it is a big story that is now the hottest topic among the business community.

Housing developer SP Setia is a reputable name that many Malaysians are familiar with because of the quality homes it builds.

It has also ventured outside Malaysia and made its presence felt in Vietnam, Australia, Singapore and even Britain.

The man at the helm of SP Setia is 52-year-old Tan Sri Liew Kee Sin, a down-to-earth bank officer-turned-developer.

Some would even say SP Setia is Liew Kee Sin and Liew Kee Sin is SP Setia.

Fiercely proud of his humble beginnings in Johor – his father was a lorry driver – the Universiti Malaya graduate wanted to study law but was offered economics instead.

SP Setia started off as a construction company – a syarikat pembinaan as conveyed in its initials SP.

Liew turned it into a big-time property developer when he injected two projects – Pusat Bandar Puchong and Bukit Indah Ampang – into the company in 1996.

Liew has faced many challenges but he is now looking at the biggest fight of his career – one that is heavily staked against him.

Permodalan Nasional Bhd (PNB), the country’s largest asset manager and owner of 33% of SP Setia, is making a bid to take over the company.

On Friday, PNB bought an additional 23.5 million shares in the open market for RM3.868 a share, just 3.2 sen shy of its proposed takeover price of RM3.90.

PNB, with a RM150bil cash chest, is seeking to raise its stake to over 50% with its RM3.90 offer, which is about an 11% premium over the closing price before the announcement of its notice of takeover.

Such a takeover bid is not unusual in the corporate world, and more so when Liew only has an 11.3% stake in the company.

Other major shareholders of SP Setia include the Employees Provident Fund (EPF) with 13.4%, Kumpulan Wang Amanah Persaraan with 5% and over 40% are in the hands of minority shareholders.
But the manner in which it was done has led to much unhappiness.

Despite having two PNB directors on the board, there was no courtesy of a verbal notification prior to the takeover move.

The general offer notice only reached the company on Wednesday at 8.30am, just before the market opened.

Some may argue that the element of surprise was for strategic reasons but there was still no call even after news broke out of the takeover bid.

In a nutshell, relations have been strained.

PNB has issued a statement saying it wishes to maintain the management team, which is known to be fiercely loyal to Liew, but no one is sure how events will unfold in the coming days.

However, questions have been raised as to why PNB is wanting to take over a company that is being run competently instead of remaining as a passive investor that is satisfied with good investment returns.

If the Government is actively pushing for the private sector to be the engine of growth, we have the right to ask why the GLCs are competing with the private sector.

Widening its shareholding base is one thing but controlling private companies will lead to speculation over its agenda, cause unnecessary concerns as well as send the wrong signals.

The whole exercise will cost PNB RM3bil, which is chicken feed to them, but there are political and economic ramifications that the country’s leaders should take note of.

It may not be such a grand scheme in the end for PNB if Liew decides to leave SP Setia and set up his own venture, and gets his senior management team to join him.

PNB may then find itself in a spot even after gaining control of the company.

No one would believe that there would not be interference from PNB, so let’s not kid Malaysian investors.

Civil servants who manage public funds should leave the business of running businesses and making money to the real businessmen.

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CEO, the Least Popular Job in Silicon Valley

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Potential CEOs are opting for quicker dollars at startups and investment firms

 

Illustration by Sophia Martineck

By Peter Burrows

Dave DeWalt is known within Silicon Valley for his technical chops, his charisma, and his business accomplishments, which include reinvigorating security software maker McAfee and selling it to Intel (INTC) in 2010 for $7.7 billion. At 47, he now has bigger ambitions. “Running a big-cap company is considered the crowning achievement in many people’s careers, and I feel that way as well,” says DeWalt.

Such talk makes DeWalt an anomaly. In tech circles, the C-suite at a publicly traded company is no longer the be-all and end-all. Just look at the troubles Yahoo! (YHOO) and Hewlett-Packard (HPQ) have recently had finding new leaders. HP canned former SAP (SAP) Chief Executive Officer Léo Apotheker after just 11 months—then faced a barrage of criticism for replacing him with HP director and former EBay (EBAY) CEO Meg Whitman without bothering to look beyond its own boardroom.

Industry consolidation has created a small number of very large technology companies such as HP, Cisco (CSCO), and Microsoft (MSFT). They’ve stumbled in recent years as disruptive developments like the mobile revolution and the dash to the cloud shake the entire sector. As the job of leading these companies gets tougher, there are fewer talented leaders with the skills—and inclination—to do it. Rather than wait for high-profile CEOs such as Cisco’s John Chambers, Microsoft’s Steve Ballmer, and Research In Motion’s (RIMM) Mike Lazaridis and Jim Balsillie to step down, many potential replacements have decamped for more exciting, and potentially more lucrative, gigs at startups or as investors. “This is the first time in tech history that you have this many companies with CEOs approaching 60 that don’t have any obvious successors,” says John Thompson, vice-chairman of recruiting firm Heidrick & Struggles (HSII).



Consider Cisco. With 62-year-old Chambers now in his 16th year as CEO, many of his most capable lieutenants have given up waiting for their chance to succeed him. The list of departures since 2007 includes former Chief Development Officer Charles Giancarlo (now a private equity partner at Silver Lake), longtime general manager Tony Bates (who jumped to Skype just before it was purchased by Microsoft in May), and former head of the data center business Jayshree Ullal (now CEO of Arista Networks). While the accomplishments of Chambers and other longtime CEOs including Ballmer are undeniable, their long tenure has sapped the strength of the back bench, says Heidrick’s Thompson. Now a common belief is that both companies will need to go outside for their next CEO—not an easy task when the competition for talent includes hot pre-IPO companies such as Facebook. “The people who could possibly do these jobs realize it would be easier to create a new company rather than try to get an old stodgy one to adopt new ideas,” says Trip Hawkins, CEO of game developer Digital Chocolate.

Boards of directors get low marks on recruitment and retention, too. Few give much attention to succession planning until crisis hits, says Jeffrey A. Sonnenfeld, senior associate dean of the Yale University School of Management. New hires such as Bartz and Apotheker are set up for failure as boards prioritize near-term earnings over long-term risk-taking. “We’ve been weeding the qualified people out of the system for the past 15 years,” says Roger McNamee, a longtime technology investor and co-founder of private equity firm Elevation Partners.

Nor have tech companies excelled at developing CEOs. Once executives prove themselves in a given area—say, software engineering—they rarely go through General Electric (GE) -style development programs to get exposure to a business’s full breadth. There are exceptions: Intel and IBM (IBM) are both organized so that top executives get to run multibillion-dollar business units. IBM Senior Vice-President Michael E. Daniels, for instance, runs the $56 billion services business. At Intel, young executives have an apprentice system where they shadow top executives (current CEO Paul S. Otellini spent years carrying Andy Grove’s bags). As a result, both companies have succeeded at finding internal candidates for the top job. But this is not the norm in Silicon Valley, where most companies are organized along strictly functional lines such as marketing. “The tech industry is great at producing technology, but it’s not producing leaders,” says Rosabeth Moss Kanter, a professor of administration at Harvard.

To break the cycle, some tech industry veterans say it’s time for a new approach to choosing CEOs. Forget the old idea of finding an older, well-known operations or sales executive to maximize earnings and soothe nervous shareholders. Too often, those experiments—Dell’s (DELL) Kevin Rollins, Apple’s (AAPL) John Sculley, Yahoo’s Carol Bartz—have failed, says McNamee. Now Old Guard tech companies need to find risk-takers willing to bet big on new visions. That’s hard enough for entrepreneurs such as Amazon.com’s (AMZN) Jeff Bezos. It may be even harder at companies settling into middle age.“Somebody is going to have to take some risks, and bring in younger CEOs for a while,” says McNamee.

To find them, some boards are taking a larger role in succession planning. Egon Zehnder International has been testing a new approach for two years, in which board members use a number of techniques such as mentorship programs to groom internal candidates, says Karena Strella, managing director of the firm’s U.S. unit. The goal is to take some focus off past accomplishments and identify impassioned, adaptable people. Then it’s up to the board to back them, says Thompson. “People forget that it took Steve Jobs seven years to really move the needle at Apple,” he says. “If you used that standard today, he would have been fired long ago.”

The bottom line: Shortsighted boards and the long tenure of some CEOs have led to a succession crisis at big-cap tech companies.

Burrows is a senior writer for Bloomberg Businessweek, based in San Francisco.

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