Overview of Khazanah

Malaysia-Africa High-level Knowledge

Exchange Seminar
Kuala Lumpur
September 21-22, 2006

Agenda

Overview of the Mandate

Progress to date
Investment Focus
GLC Transformation
Summary and Appendix

Who We Are and Our Role

Khazanah is Malaysias strategic investment arm, entrusted to manage the commercial assets
held by the government, and to undertake strategic investments in new industries and
geographies.

Khazanah is also tasked in shaping selected strategic industries in Malaysia, nurturing their
development with the aim of pursuing the nation's long-term economic interests.

Khazanah is also the key agency mandated to drive shareholder value creation, efficiency
gains and enhance corporate governance in companies controlled by the government,
commonly known as Government-Linked Companies, or GLCs.

Khazanah is set up as a company, and has an eight-member board comprising

representatives from both the public and private sectors.

Prime Minister Abdullah Ahmad Badawi is Chairman of the Board. Second Finance Minister
Nor Mohamed Yakcop and Central Bank Governor Zeti Akhtar Aziz are also members of
Khazanahs board.

Khazanahs management team is headed by Managing Director Azman Mokhtar and the team
comprises of professionals with extensive regional and global experience in investments,
finance and consulting.
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Our Framework

decisive action requires nothing less than a remaking of Malaysia Inc

The Government would like to see Khazanah emerge as one of the biggest
and most dynamic investment houses in the region emerge stronger,
more nimble and able to create more value
Dato Seri Abdullah Ahmad Badawi,
Prime Minister of Malaysia
14 May 2004

via four Strategic Pillars

Key themes of our Mission

Legacy
investments

Streamline, restructure

GLC transformation

Increase value:
shareholder + strategic

New
investments

New sectors, cross

border

Strategic investment house

Sustainable value creation
Nation-building and national
competitiveness

Performance culture
Human Capital Active leadership
Management development

and success measured by KPIs

Financial metrics as primary
KPI: TSR and economic profit,
ROE, Net Worth
Strategic value creation:
capability building in customer
acceptance, sectoral and
geographic exposure, market
penetration, human and
knowledge capital, technology
Institution building: processes,
charter, systems and controls,
work culture, brand equity
3

Our Mandate

Leading strategic
investment house that creates
sustainable value for a globally competitive
Malaysia

Accomplish
Strategic Vision
and Mission

Legacy
investments

GLC
transformation

New
investments

Human Capital
Management

Streamline,
repair,
restructure
portfolio

Increase
shareholder
value,
strategic value

New strategic
sectors and
geographies

Active
development
of Human
Capital for
the nation

rd

3 : Building capacity in talent, processes, knowledge and infrastructure

2nd: Core values: integrity, diligence, teamwork, professionalism, mutual respect

Execute Strategic
Pillars

Get foundations
right, build
capacity

1st Foundation: a focus on long-term nation-building

The Historical Context of Micro-Economic Restructuring

From 1987

Phase I

Phase II

Phase III

Phase IV

Privatisations
PLUS and other
expressways
IPPs
Mobile telcos

1997

2001

2004

& Partial Public Listing;

MAS, TM, TNB, PGAS
Co-existence of large GLCs
and aggressive ownermanager firms
Asian Economic Crisis
Stabilization, Capital Controls
CDRC, Danaharta, Danamodal
Reflationary monetary and fiscal policies
Banking consolidation
Corporate restructurings, including
Mostly war-time financial restructuring,
Renationalization; institutional holding and professional mgmt.
Danasaham/Renong/UEM Group Restructuring
MRCB, KUB Restructuring
MAS Widespread Asset Unbundling
GLC Transformation
Mostly operational (peace-time) restructuring
Khazanah Revamp
Culture of High Performance; KPI and PLC
Leadership changes BOD and management
Build on previous: UEM, MAS, MRCB
Initial focus on key GLCs TNB, TM, SD,
Focus to increase to industry structures
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The Role of Government in Economic Management The

Right Objectives in the Right Boxes

Roles of Government
Developer
and Public
Goods

Regulator

Providing level and conducive playing field

Protection of public interest
Enforcement

Investor

Government owns and operates enterprises

Creates economic value
Differentiated investment focus between

Provider of public goods, infrastructure or services

Provision of law and order
More socio-economic in nature
Clustered under MOF Inc. public transport,
sewerage etc.

Khazanah, EPF, PNB, KWAP, TH due to

differences in return objectives, risk appetite,
investment horizon, liquidity requirements,
and beneficial owners

Khazanah as GOMs
strategic investment arm
Necessarily the risk taker
among government
agencies
Focus on shareholder value
creation, both majority and
minorities
Careful not to crowd out
private sector. Balanced coexistence with GLCs
Optimal and evolving
holdings in companies,
sectors and holding levels
reflecting changes in
strategic emphasis

Five-Pillar Terms of Engagement Framework with GLCs

Description
Leadership
Bench

Strategy

Systems
and
Controls

Industry
Structure

Monitor &
Empower

Ensure professional, capable, experienced and appropriate

Board of Directors
Senior Management team

Drive through the Boards and management, high-quality implementable

business strategy

Place key systems and controls to underwrite growth and value creation:
e.g. Governance, Risk Management, Performance Management, Talent
Management, Procurement, Internal Audit, Investor Relations

Drive or give inputs to how industry structures evolve optimal

competitive environment and regulatory structure

Leverage inter-company synergies

Once the above in place, do not micro-manage

Continuous monitoring of progress
Empower management to carry out its job

Agenda

Overview of the Mandate

Progress to date
Investment Focus
GLC Transformation
Summary and Appendix

Malaysian economy remains a beacon of stability

Steady, well-diversified GDP growth: 5.8% 2006F (5.7% H1/2006, 5.25% 2005, 7.1% 2004).
Inflation moderating (4%yoy avg in Jun-Jul) after a 21% hike in fuel-product prices in February
2006 (after 3 hikes in 2005) caused March inflation to spike to 4.9%yoy

Strong BOP: current account surplus > 16% of GDP, with growing trade surplus and shrinking
services deficit: foreign visitor arrivals soared to 16.4 million in 2005 from 5.5 million in 1998.

Foreign investments robust: FDI inflows of 3% of GDP in 2005 and 3.9% of GDP in 2004, but
large portfolio outflows in H2 2005 after Ringgit peg was removed (portfolio inflows renewed in Q1
2006).

Strong foreign reserves (at US$80.14bn 8/05, up 47%yoy) 9 months import cover and 6x ST
external debt. Reserves up US$1.5bn in 1st month post RM float.

Fiscal discipline. Gradual consolidation fiscal deficit of 3.5% of GDP in 2006E (from 3.8% in 05,
4.3% in 04 and 5.4% in 2003). Strong revenue growth and cuts in fuel subsidies a fiscal surplus
(4.3% of GDP) in H1 2006; 4-quarter moving average of the fiscal deficit shrank to just 1.4% of GDP
in June 2006.

Strong banking system. RWCR of 12.9% and a net NPL ratio of 4.2% at 7/06.

Malaysia: The investors choice within the region

Economic strength

Supportive government policies

Natural resources - oil, gas, tin, timber, palm oil,

rubber

GDP growth 2005: 5.2%; 2006F: 5.8%

Gross national savings 2005: 37%GNP; 2006F:

38.1%GNP
Current account surplus 2005: 16.4% of GNP;
2006F: 17.2%GNP
Unemployment rate 2005: 3.5%; 2006F: 3.5%
Inflation(CPI) 2005: 3.0%; 2006F: 3.5-4.0%
Reserves - USD79.7bn and 8 months of retained
imports as at 31 July 2006

Pro-business policies
Responsive government
Liberal investment policies
Attractive tax and other incentives
Liberal exchange control regime
Intellectual property protection

Source: Bank Negara Malaysia

Educated workforce

Developed infrastructure

Talented, young, educated and productive workforce

Multilingual workforce speaking two or three

Network of well-maintained highways and railways

Well-equipped seaports and airports
High quality telecommunications network and

languages, including English

Comprehensive system of vocational and industrial
training, including advanced skills training.
Harmonious industrial relations with minimal trade
disputes

services

Fully developed industrial parks, including free

industrial zones, technology parks and Multimedia
Super Corridor

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The Ninth Malaysia Plan - ambitious, yet internally

consistent

Ambitious growth targets (especially given the performance in the past two
plan periods), but there is consistency between its goal of accelerating growth
through efficiency gains and the emphasis on enhancing human capital and
service delivery to deliver such gain

Emphasis on value-add, knowledge and human capital relevant to Malaysias

next phase of development; signified by greater importance of Private Finance
Initiatives in development allocation (RM20bn out of the RM220bn total)

We expect sector regulatory issues to be better-addressed over the next five

years

Emphasis on implementation (e.g., formation of National Implementation Task

Force) denotes governments commitment to execute the plan and reduces
execution risk significantly

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As at 26 May 2006, based on weekly close

Decomposition of Total Shareholder Return

of GLC-23 from 14 May 04 to 26 May 06
170
K-10

160

PNB-9
PET-3

150

GLC-23
KLCI ex GLC-23

140

141.7 Petronas-3

KLCI

130.7
129.4
128.0
126.4
125.6

130

GLC-23
PNB-9
KLCI
Khazanah-10
KLCI ex GLC

120

110

100

90
May-04

Aug-04

Nov-04

Source: Bloomberg; Khazanah analysis

Feb-05

May-05

Aug-05

Nov-05

Feb-06

May-06
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Agenda

Overview of the Mandate

Progress to date
Investment Focus
GLC Transformation
Summary and Appendix

13

As at 5 May 2006

Investments Holding Structure

Khazanah Nasional Berhad

Healthcare

Auto /
Industrial Products

Property /
Construction

Transportation

Financial
Institutions

Communications
&
Media

Power

Technology

Others

Conglomerate

9.9%
10.87%

Apollo
Hospitals

42.74%

PROTON

100%

Penerbangan
Malaysia

87.52%

100%

69.34%

15.0%

34.09%
50.01%

Modenas

Lippo Bank

STLR

MAS

UDA
Holdings

BI Walden
Ventures
Ketiga

100%

Atlantic
Quantum

39.31%

Tenaga
Nasional

40.15%

10.38%

DRB-Hicom

Telekom

Parkson
Retail

80.0%
95.85%

Crystal Clear
Technology

20.0%

Northern
Utility

100%
20.0%

33.33%

Sunshare
Investments

UEM

Valuecap
10.0%

Faber

9.12%

37.93%

Megasteel

Miyazu
Seisakusho

25.67%
72.74%

Malaysia
Airport
15.59%

26.34%

PLUS
Expressways

Tradewinds
Hotels &
Resorts

Putrajaya
Holdings

75.28%
30.0%

29.85%

12.0%

SWEC

Bank
Muamalat

MobileOne
Ltd
51.09%

30.0%

Silterra
Malaysia

MTDC

56.92%

RHB Bank
16.81%

40.21%
6.23%

Pharmaniaga

33.33%

EON

22.3%
8.55%

Westport

Bumiputra
Commerce

Spring Hill
Bioventures

25.0%

Ho Hup
17.20%

16.67%

0.53%

MISC

MSC Venture
One

AIC
Technology

62.37%

Opus
International

53.63%

CIMA

Parkmay
24.85%

UEM
Builders

10.0%

10.0%

25.0%

Royal Mint

Eon
Capital

4.88%
51.7%

3.55%
0.16%

PT
Excel
comindo

UEM World
2.55%

30.04%
72.55%

54.48%

43.83%
21.47%

Astro All
Asia

17.24%

Pos
Malaysia

AIC Microelectronics

19.96%

Dnonce

Time
dotCom

Southern
Bank

Malayan
Banking

Time
Engineering
RHB
Capital
45.03%

Listed Company

Unlisted Company

Updates as at 04 APRIL 2006

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Investments and Divestments

Selected Achievements

New
Investments
Selected
Achievements

Funding

Domestic
Investments

Source: Khazanah

12 new discretionary investments in the last two years. The portfolio of

these new investments are up by RM318 million

Shuaibah 3 IWPP USD2.5bn project, and first privatisation by Saudi

government. Already won several international awards - Power Deal of the
year for Europe and Middle East by PFI and Desalination deal of the year by
Global Water

Landmark USD414 million PLUS Exchangeable Bond in December 2004

RM3.2bn Islamic MTN and CP, the largest Sukuk Musyarakah issuance, in
March 2006

Increased presence in domestic banking sector to spur industry consolidation

BCHB/CIMB stake

Driving efforts into the development of South Johor Economic Region

Spearheading the development of certain aspects of the agriculture sector,

including supply chain management in fresh produce, aquaculture, high-value
tuna farming and herbal products

Considerable investments and capex by key investee companies such as

Tenaga, TM, UEM Group
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Khazanahs International Investments

Parkson Retail Group Limited, China

Shuaibah Phase 3 IWPP, Saudi Arabia

Apollo Hospitals Enterprise Ltd, India

MobileOne Limited, Singapore

PT Bank Lippo,
Indonesia
Excelcomindo,
Indonesia
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As at 31 May 2006

Investment Portfolio Distribution Analysis

Breakdown of Portfolio by Sector

Utilities & Power
24.5%
Transportation
14.7%

Automotive
2.5%

FIG
14.5%

Healthcare
0.3%

Infrastructure
&
Construction
12.0%

Technology
0.2%
Property
1.4%

Other
1.1%

Media & Comm

28.6%

Breakdown of Portfolio by Country/ Region

Singapore, India,
Japan, China,
Middle East
2%

Indonesia
4%

Malaysia
94%
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Agenda

Overview of the Mandate

Progress to date
Investment Focus
GLC Transformation
Summary and Appendix

18

GLC Transformation is Critical for Malaysia

Significant part of
economy

Capital Market constituent: 54% of KL Composite Index

Employer: 5% of workforce

Provider of
strategic utilities
and services

Utilities e.g. public transport, water

Services e.g. telecommunications, airlines, banking

Executor of
industrial policy
and development

E.g. automotive, semi-conductors

Builds
international
linkages

Foreign ventures
Investments in new growth sectors

Policy instrument
to develop
Bumiputera
community

Human capital
Suppliers

Source: GLC Transformation Manual launched on 29 July 2005

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GLC Transformation Initiatives (2005/6)

No.

Initiatives

Description

Output

Launch

1.0

Enhancing Board
Effectiveness

To enhance Board effectiveness through revamping Board

practices and processes

Green Book

Launched

2.0

Strengthening
Directors Capabilities

To develop a strategy to match Directors to the right Boards and

also to establish a Directors Academy

Directors Academy

4th Quarter 06

3.0

Enhancing GLIC M&M

Functions

To reinforce the ability of GLICs to monitor and manage individual

GLCs

Blueprint for GLICs

2nd Quarter 06

4.0

Improving Regulatory
Environment

To enhance regulatory capabilities at GLCs and create a

Regulatory Knowledge Network

Programme for Managing

Regulatory Environment

Launched

5.0

Achieving Value
through Social
Responsibility

To guide GLCs in becoming responsible corporate citizens while

creating value for their shareholders and stakeholders

Silver Book

3rd Quarter 06

6.0

Reviewing and
Revamping
Procurement Practices

To enhance the effectiveness and efficiency of the procurement

processes in GLCs

Red Book

Launched

7.0

Optimising Capital
Management Practices

To establish guidelines for GLCs to optimise their capital structure

Purple Book

4th Quarter 06

8.0

Strengthening Talent
Management Practices

To improve GLCs capabilities in attracting, developing and

retaining talent through the adoption of best practices

Orange Book

4th Quarter 06

9.0

Intensifying
Performance
Management Practices

To encourage adoption of performance management best

practices at GLCs

Blue Book Version 2

Launched

Announcement of
Headline KPIs

Launched

Programme on ValueBased Management

3rd Quarter 06

Programme on the
Framework for
Continuous Improvement

3rd Quarter 06

10.0

Enhancing Operational
Efficiency and
Effectiveness

Updated as of September 06

To enhance operational efficiency and effectiveness through the

adoption of a Framework for Continuous Improvement

3
3

Source: Joint Working Team

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Agenda

Overview of the Mandate

Progress to date
Investment Focus
GLC Transformation
Summary and Appendix

21

In Summary
Strategic
Strategic Mandate
Mandate
Legacy investments
New investments
GLC Transformation
Human Capital Management
South Johor Economic
Region
BCIC Agenda
Agri. Food Corp.

Investment
Investment &
& Divestment
Divestment
New investments up RM318m
PT Bank Lippo
PT Excelcomindo
MobileOne
Apollo
Shuaibah 3 IWPP
Parkson
Funding
PLUS Exchangeable Bonds
Islamic CP/MTN
Divestments
PLUS, Bintulu Port, Jardine
C&C, YTL Power

Restructuring
Restructuring
&
& Reorganisation
Reorganisation
Turnaround on-track
SilTerra
MTDC
MAS
Exit
Northern Utilities
CCT
Ongoing
Proton
Malaysia Airports
Time/Time DotCom

GLC
GLC Transformation
Transformation
Program on track
Launch of GLCT Manual
Launch of initiative
books - Blue, Red and
Green Books
Headline KPIs
Quick wins/efficiency
gains at various GLCs

Performance
Performance to
to Date
Date
(as
(as at
at 31
31 May
May 2006)
2006)

Capacity
Capacity Building
Building
Human capital build-up
on track
Risk management
framework in place
Physical infrastructure
upgrade completed

31 May
2006

31 May
2005

14 May
2004

RNAV
(RMbn)

65.0

62.8

50.9

Net Worth
(RMbn)

40.0

42.0

33.3

ICT & processes

upgraded

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Thank You
Visit our website at : www.khazanah.com.my

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