Malaysian sovereign wealth fund Khazanah Nasional Bhd said on Tuesday it will split its $33 billion portfolio into commercial and strategic holdings, as it prepares to cut stakes in some large firms in a bid to improve returns under a new strategy.
The change comes at a time when Prime Minister Mahathir Mohamad looks to raise money for government coffers depleted by a fiscal deficit and debt from a multi-billion-dollar scandal at state investment fund 1Malaysia Development Bhd (1MDB).
Khazanah's commercial fund is transitioning to a more strategic asset-allocation based portfolio in the next five years, with 60 percent in public equity, 30 percent in private firms and 10 percent in real assets, Managing Director Shahril Ridza Ridzuan told a briefing.
"The commercial fund is really gearing up towards being a long-term real return provider for the government," said Shahril, who took charge in August. "By being much more portfolio-based, you will have basically a lot more transactions happening as well."
Reuters reported last month, citing sources, that Khazanah's new strategy was aimed at delivering more cash to the government by pruning stakes in non-strategic assets.
Khazanah will split investments in over 100 firms spanning more than 20 countries into two categories, Reuters reported.
On Tuesday, Khazanah said the realisable asset value of its portfolio fell to 136 billion ringgit ($33.4 billion) in 2018 from 157 billion ringgit a year prior.
Its investments in companies including 27 percent-owned CIMB Group Holdings Bhd and 37 percent-owned Axiata Group Bhd as well as in China's Alibaba Group Holding Ltd would become part of its commercial fund.
Khazanah's stakes in CIMB, Axiata and IHH Healthcare Bhd are together worth $12.2 billion, Reuters calculations showed based on Monday closing share prices.
In November, Khazanah agreed to sell a 16 percent stake in IHH for about $2 billion, a transaction it expects to complete by March-end.
The commercial fund, which is aimed at growing financial assets and diversifying national revenue sources, will target a return equivalent to Malaysia's Consumer Price Index plus 3 percent on a five-year rolling basis, Khazanah said.
A big chunk of Khazanah's assets is in only a few companies, which would have to be restructured gradually to enable a more balanced portfolio spread over sectors and geographies, Shahril said. The government also needed Khazanah as an alternative source of revenue to supplement its national budget, he said.
Firms such as state utility Tenaga Nasional Bhd, Malaysia Airlines, Malaysia Airports Holdings Bhd and Telekom Malaysia Bhd will be part of Khazanah's strategic fund.
For the first time in a decade, Khazanah said it swung to a loss before tax of 6.27 billion ringgit in 2018 from a profit before tax of 2.89 billion in 2017, hit by reduced divestment, higher impairments and a lower dividend income.
Shahril said Khazanah expected to return to profit this year. The fund announced a dividend of 1.5 billion ringgit to the government for 2018.
Shahril also said the government needed to take a call on its investment in struggling Malaysia Airlines.
"The question really to be asked essentially is for every dollar invested in Malaysia Airlines, is it generating other economic benefits to the country? The government then needs to decide for itself what is the right level of investment or support for the airline at this point in time," Shahril said.