☕️ Malaysia's Next Scandal: Sabah Development Bank's RM5 bil NPL

1. MARKET SUMMARY 📈

The market is up, up, up.

Bursa is looking hot as the daily average trading value surged 59% to RM3.27 bil in the first half of the year compared to RM2.06 bil during the same corresponding period in 2023. There were 24 new IPOs so far, and to hit 28 by end of the year.

The S&P 500 hit a record 5,600 for the first time, marking its 37th record this year.

2. NUMBERS AT A GLANCE 🔢

The Digital Investment Office (DIO) approved RM161.97 bil in digital investments from 2021 to March 2024, surpassing the RM70 bil target set for 2025 by the Malaysia Digital Economy Blueprint (MyDigital). MIDA’s deputy CEO Sivasuriyamoorthy Sundara Raja highlighted the country's success in attracting investments, particularly in hyperscale data centres. Funny how the government defines digital so broadly that data centre investments are considered digital investments.

In the week ending June 24, 40 Chinese banks disappeared. They were merged into larger ones as part of ongoing regulatory reforms. The main challenge lies with small, rural banks, of which there are about 3,800. These banks, holding RMB55 trillion in assets (13% of the total banking system), have long been poorly managed, with many burdened by non-performing loans and exposure to the property crisis. Some banks reported that up to 40% of their loans are non-performing. Cleaning up this mess is an extremely delicate task. One solution that has been put forward involves steady but meagre recapitalisation. S&P Global, a rating agency, estimates that it will take a decade to complete the project. Regulators are emphasising consolidation because they lack mechanisms to allow banks to fail and exit the market. Sounds like zombification method is preferred over total reset.

A recent Businessolver survey revealed a concerning trend — 52% of CEOs (in the US) consider their workplace culture toxic, a 10-point rise from 2023. This is higher than the nearly one in three employees (33%) who reported a toxic work environment. The survey also found that employees in toxic cultures were 47% more likely to suffer mental health issues. However, the most striking finding was that 55% of CEOs reported experiencing mental health challenges in the past year, a significant increase of 24 percentage points from the previous year. This underscores the profound impact of workplace culture on business leaders.

3. IN MALAYSIA 🇲🇾

Is our country getting more Malaysia or less?

• Education Minister Fadhlina Sidek told the Parliament that those who scored 10As and above in their SPM but still do not get their matriculation program’s offer letter will get theirs by next month. This came after PM Anwar Ibrahim’s announcement on June 30 stating that all SPM students who scored 10As and above would get to enter the program. Traditionally, the matriculation program is Bumiputera heavy, with 90% of its slots reserved for the Bumis while non-Bumis only get a mere 10%. Towards more merit-based enrolment at public education institutions.

• Bayan Baru MP Sim Tze Tzin is sounding the alarm over the declining rate of marriage for Chinese Malaysians. According to him, while the marriage rate among Bumiputera is increasing by a whopping 47%, the marriage rate within the Chinese community has been declining by a third from 2016 to 2022. Sim quoted that several factors affected marriage decisions, such as financial concerns, finding a suitable partner, and focusing on career. Sim also added that the low marriage rate of Chinese Malaysians led to a lower fertility rate. This situation could lead to many future scenarios - more Bumiputera-based political messaging as the future population will consist of more Bumis and the survival of vernacular schools.

• Chinese national-type primary schools (SJKC) may slowly be turning into SMKs as the number of Bumiputera student enrolment into SJKC has increased steadily from 11.67% in 2014 to 18.52% this year. While SJKCs are turning into SMKs, SMKs are becoming more Bumi-dominant as the Bumis student enrolment in the national schools increased from 93.81% to 95.12% from 2014 to 2024.

Razak Baginda is complicit in Altantunya’s murder
After almost 20 years, Altantunya’s family may have a bit of closure as Judge Vazeer Alam Mydin Meera said that Abdul Razak Baginda’s decision not to take the witness stand implied his complicity in the murder of Mongolian model Altantuya Shaariibuu. The decision to imply that Razak was complicit in the murder was made under Section 114(g) of the Evidence Act 1950. The verdict by the Judge was made in relation to the lawsuit filed by Altantunya’s family against Razak, former police commandos Azilah Hadri and Sirul Azhar Umar, as well as the federal government.

For those who are too young to know who was the deceased, Altantuya was murdered in October 2006 and her remains were blown up with military-grade explosives. A separate criminal court convicted Azilah and Sirul of the murder and sentenced them to death in April 2009, though their motive was never known. However, the criminal court acquitted Razak of abetting the murder without his defence being called in October 2008.

The new scandal in town - SDBank
Sabah State Finance Minister Masidi Manjun stated that the previous management of the state-owned Sabah Development Bank (SDBank) masked more than RM5 bil of losses from non-performing loans (NPL). According to Masidi, up to 75% of the RM6.6 bil loans issued by the bank are NPLs. For decades, SDBank utilised creative accounting to cover up the losses from NPLs by giving fresh loans to borrowers that have NPLs, so that they can pay their overdues with the new loans. Masidi stated that SDBank has been nicknamed by the market as a 'bank of last resort', meaning borrowers turned down by other banks would try their luck there. SDBank's new board and management had lodged a report with the MACC in April over alleged abuse in loan issuance.

Shorts

• Bank Negara Malaysia (BNM) maintained its overnight policy rate (OPR) at 3%. The last time BNM raised the OPR was in May 2023, raised from 2.75% to 3%. BNM said that the current OPR rate remains supportive of the economy and is consistent with the current assessment of inflation and growth prospects. We can expect a stronger MYR - the likelihood of the US Federal Reserve cutting rate this coming September might bode well for the ringgit once the interest rate differential narrows.

• Economy Minister Rafizi Ramli announced that the public and private sectors will together bear the cost of developing the infrastructure within the Johor-Singapore Special Economic Zone (JS-SEZ). Rafizi also revealed that JS-SEZ will be encompassing six local authorities, including Johor Bahru, Iskandar Puteri, Kulai, Pasir Gudang, Kota Tinggi, and partially Pontian, totalling a land area of over 3,505 square kilometres. The finalised joint agreement between the nations will be signed in September.

• Bad enough business is declining without an end in sight, Astro Malaysia Holdings Bhd’s 2 wholly-owned subsidiaries (Astro Shaw Sdn Bhd and MEASAT Broadcast Networks Systems Sdn Bhd) have been slapped with an additional tax bill of RM734.88 mil, including penalties from LHDN for the years of assessment of 2019 to 2023. This is about half of its market cap of RM1.59 bil. The notices for additional assessments were issued as production costs during the said years were disallowed for the deduction.

4. AROUND THE WORLD 🌎

NATO accuses China for the first time of enabling Russia-Ukraine war
The 32-member military alliance, in a joint declaration at its summit in Washington DC, has accused China for the first time of being “a decisive enabler of Russia’s war against Ukraine” as they believe China has supplied Russia with equipment such as chips and integrated circuits to build weapons Russia used to attack Ukraine. It also included an implicit threat that China would face the consequences. China slammed NATO’s accusation, saying it should not interfere with trade between Russia and China and that NATO should reflect on the root cause of the crisis instead of shifting blame.

This declaration marks a key shift in NATO’s stance on China, as the alliance usually used bland language when discussing matters concerning China in the past. European countries have historically been hesitant to stand against Beijing. NATO member and Finland’s President Alexander Stubb said last week that China has so much influence on Russia that it could effectively end the war in Ukraine. Excuse us for the whataboutism — by the same logic, NATO should turn their heads and take a look at the US — Uncle Sam is complicit in the genocide in Gaza. Being Israel’s biggest funder, the US could also effectively end this genocide.

There was no mention at all of the Gaza war in the 38-point joint declaration during the summit, though some leaders did speak up. Spanish PM Pedro Sanchez has called on the bloc to show the same “unity and consistency” for Gaza as they have demonstrated for Ukraine and not apply double standards. 

America’s biggest nonalcoholic beer brand doubles valuation
Meet Athletic Brew Company - America’s leading nonalcoholic beer* brewer. The company raised an additional USD50 mil equity funding, doubling its valuation from its previous funding round (beverage company Keurig Dr Pepper invested USD50 mil for a minority stake) 18 months ago to USD800 mil. The company’s success is attributed to growing health and wellness trends driving consumer interest in nonalcoholic beverages. In a survey, more Americans are actively trying to drink less alcohol, with the proportion going as high as 61% for Generation Z. 

Founded in 2018, the company has since grown to become the 20th largest brewer in the US, despite offering nonalcoholic options and it holds over 19% market share within the nonalcoholic beer category. Last year, the company sold over 100 mil cans and generated revenue of over USD90 mil.

*Nonalcoholic beers are beers that have either had the alcohol removed or have been brewed to contain less alcohol than the legal limit. According to the US Food & Drug Administration (FDA), beverages can claim to be nonalcoholic as long as they don’t exceed the limit of 0.5% alcohol by volume (ABV). 
Learn: Everything you need to know about nonalcoholic beer.

If you are curious whether nonalcoholic beer is halal, the answer is no - the Islamic Religious Council of Singapore explains here. TLDR: it’s not about the alcohol content, but the underlying activity (i.e. drinking) is haram. Hence, an alternative/hack/workaround to something that is haram is, therefore, also haram.  

Health and beauty retailer Watsons parent to revive multi-billion IPO
After postponing a 2014 USD6 bil IPO, A.S Watson Group is reviving its plan to list once more. This is according to its major shareholder, Singapore’s sovereign wealth fund, Temasek, which owns nearly 25% of the international health and beauty company, with Hong Kong conglomerate CK Hutchinson owning the remainder (owned by billionaire Superman Li Ka-shing). The 2014 plan to float the company was postponed following Temasek’s USD5.7 bil stake purchase, at an implied valuation of about USD23 bil.

A.S. Watson also owns Superdrug in the  UK and the Parknshop supermarket chain in Hong Kong. The company is real old - it was founded 180 years ago and is the world’s largest health and beauty retailer, operating around 16,500 stores under 12 retail brands in 28 markets, including Malaysia. The company saw revenue rising by 8% in 2023 to USD23.48 bil. 

Shorts

1. MrBeast for President 2036
   With a country ineffectively run by gerontocracy and the presumptive presidential candidates for the 2024 US election being so bad that Jimmy Donaldson (aka MrBeast) has joked about running for president himself, but irony if the age limit is lowered from 35 years old. At 26, MrBeast will only be eligible when he turns 35 in 2033. In a viral tweet, Donaldson believes he could fix the country by abandoning political parties and taking a centrist approach to everything. If a reality TV star (i.e. Donald Trump) could become president, Donaldson equally stands a chance too. 

2. Former Indonesian agri minister sentenced to prison for corruption
   An Indonesian court sentenced former agricultural minister Syahrul Yasin Limpo to 10 years in prison for corruption involving travel in private jets and jewellery for his wife (kindly do not be confused with a similar but larger scale case at its neighbour’s) of more than IDR44 bil (RM12.74). He also has to pay a fine of IDR300 mil (RM86.8k) and compensation of IDR14.6 bil (RM4.23 mil). Limpo was the sixth minister in President Joko Widodo’s cabinet to face corruption charges. Earlier this year, the former communications minister was sentenced to 15 years in jail and Jokowi’s social affairs and fisheries minister was jailed in 2021. There’s something to learn here from Indonesia. 

5. FOR YOUR EYES 📺

1. How 7-Eleven is turning its 13.1k+ stores in the US by leveraging on data to be more like 7-Eleven in Japan

2. How Vietnam outperformed Malaysia in education in terms of PISA assessment

3. A lighter content to end the week. This kid gave a great answer to a game, even flooring the clown.

malaysia.tribune

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