Get Ready For Bad Time Ahead!

– As Malaysia’s Economy & Corporate Debt Get Worse, Retrenchment Has

Just Begun
You know the time is really bad when new stalls spring up like mushrooms in your neighbourhood. The sight of
stalls selling “nasi lemak”, fruits, homemade buns and cakes, cookies, and even face masks by the road side to
earn some extra money could only mean one thing – people were struggling to make ends meet. And it could only
get worse.

If you think the worst was over because a nationwide lockdown, declared on March 18, had been lifted, think
again. Whether the lockdown – MCO (movement control order) – was a mistake is debatable. Exactly why was it
justifiable for a lockdown in March when the daily cases spiked to 190 cases, but the same lockdown is not required
now despite a spike of 691 new cases?

With the Coronavirus new infection cases skyrocket to 3-digit thanks to arrogant ministers and politicians who
ignored health procedures, business and economy, which were already struggling to mount a meaningful growth,
have gone from bad to worse. In fact, it’s not an exaggeration to suggest that government is fast losing control as
a new wave of clusters of Covid-19 spread like wildfire.

To make matters worse, the six months loan repayment moratorium on all bank loans for individuals and SMEs
had expired on 30 September 2020. In essence, business owners and wage earners have to resume loan
repayments this month (October). The moratorium had allowed millions of people and businesses to enjoy
temporary relief for loans totaling RM66.6 billion (as of July 31).

Of the RM66.6 billion, business sector utilized RM23.3 billion, while the public used RM43.3 billion. A 3-month
“targeted moratorium extension” for individuals who have lost their jobs and are yet to find new employment has
since been announced. Those who were still employed, but had undergone pay cuts would have their monthly loan
payments reduced in line with their new salaries – depending on type of loan.

Make no mistake. The moratorium was merely a temporary measure to allow a “delay” in loan payments from April
1, 2020, to September 30, 2020. The existing monthly interest charged for the loan amount will continue to add up
(the decision to compound interest was later removed by all major banks after major complaints). Hence borrowers
still have to pay, one way or another.

There have been calls for the government to extend the loan moratorium to everyone again until the year end. A
delay bankruptcy proceedings against borrowers who failed to service their loans has also been proposed. The
Federation of Malaysian Manufacturers (FMM) has even urged the government to consider extending the loan
moratorium period for another six months to March 2021.

The real retrenchment has just begun. The latest big gun that has announced layoffs is AirAsia. The low-cost
airline confirmed the retrenchment of 10% of their 24,000 employees last week. This is the company’s second round
of job cuts where 2,400 employees were terminated. In early June, 250 of AirAsia’s staff were axed due to the
Coronavirus pandemic.

1
Another airline – Malaysia Airlines – could be shut down if its restructuring plan, which is in last leg of negotiation
with its lessors, fails. The national airline, notorious for its financial problems for as long as one can remember
due to incompetence and political interference, urgently requires a fresh cash injection from shareholder, state fund
Khazanah Nasional Berhad (KNB), to keep it afloat over the next 18 months.

But airline isn’t the only sector that is cutting jobs by the thousands. Travel, leisure, retail, hospitality and even
property sectors will start contributing to job losses at an industrial scale. Survey shows about 60% of Malaysian
workers do not have the means to raise even RM1,000 for household expenses, if they were to suddenly lose their
jobs due to the Covid-19 pandemic.

Election in Sabah spread the virus from the Borneo state to nationwide, almost all major shopping malls – Suria
KLCC, Mid Valley, The Garden, 1-Utama, Sunway Pyramid and Bangsar Shopping Centre – have seen more new
cases of Covid-19. Banks, restaurants and a mosque at the Subang Jaya airport are among a long list of places
infected.

Unlike 1997-98 Asian Financial Crisis, the government will find it hard to milk money from the national oil company
Petronas to bail out large companies such as Malaysia Airlines. The reliance on Petronas to provide financial
lifelines will be limited this time round simply because the company itself is in financial trouble.

Petronas, long known as the cash cow of Malaysia, has posted a quarterly net loss of RM21 billion for the period
ending June 30 against a profit of RM14.7 billion in the same quarter last year. To add salt to injury, other large
state-owned investment companies were plagued with massive debt themselves, further limiting the government’s
ability to carry out rescues.

For example, Khazanah Holdings, the sovereign wealth fund of Malaysia whose strategic stakes included power
utility Tenaga Nasional, telecommunications giant Telekom Malaysia, property group UEM Sunrise, telco operator
Axiata Group and of course, national carrier Malaysia Airlines, had registered a net debt of RM57.6 billion as at
the end of March this year.

Permodalan Nasional Bhd (PNB), one of the largest fund management companies set up in 1978 to realise the
government’s New Economic Policy (NEP), a controversial racist and discrimination policy, too was not doing
well. Despite having conglomerate Sime Darby and auto giant UMW under its stable, PNB posted a
combined net debt of RM23.8 billion.

2
Lembaga Tabung Angkatan Tentera (LTAT) was once considered among the country’s best-managed pension
funds, producing a stable annual dividend of 6% to 8% and backed by a strong balance sheet for years. But after
an investigative audit last year (2019), the armed forces pension fund was actually having
financial mismanagement and irregularities.

The government discovered that LTAT had been overstating its assets, fabricating transactions and was paying
more dividends than it earned.

LTAT’s crown jewel, Boustead Group, controls four publicly listed companies – Affin Bank Bhd, Boustead
Plantations Bhd, Boustead Heavy Industries Corp Bhd (BHIC) and Pharmaniaga Bhd. Yet, due to mismanagement,
LTAT registered net debt of RM7.8 billion. Khazanah, PNB and EPF (Employee Provident Fund) are the biggest
GLICs (government-linked investment company).

Clearly, most of the government-linked investment companies were in deep financial trouble themselves. Even
casino tycoon Lim Kok Tay of the Genting Group, one of the richest men in Malaysia, has plunged into financial
trouble due to Coronavirus. Billionaire Lim stunned investors last month when his cruise operator Genting Hong
Kong announced that it would suspend all payments to creditors.

Formerly known as Star Cruises, Genting Hong Kong owed a total of US$3.4 billion as of July 31, creating a cash
crunch that the company blamed on the Coronavirus pandemic. The industry has been badly crippled by lockdown
measures and travel curbs across the globe. But financial troubles were not only confined in Hong Kong.

Retrenchment back home saw some 3,000 jobs slashed at Genting Malaysia Berhad – represents about 15% of
its 20,000 employees. Prior to the job cuts, the company had implemented company-wide pay cuts in April, the first
of its kind since the company was formed in 1965, suggesting the level of serious economic storm brought by the
Coronavirus.

Almost half of manufacturing companies said they are planning to cut costs by retrenching up to 30% of their workers
by the end of this year. Even Petronas plans to cut salaries of its employees despite assurance there won’t be any
retrenchment, at least for now. As a new wave of Covid-19 coincides with the end of loan moratorium, the situation
can only get worse.

Source : http://www.financetwitter.com/2020/10/get-ready