Friday, October 24, 2008

Why is EPF lending my retirement money to Valuecap?

One question from my RM5bn for Valuecap post has been answered. Datuk Seri Najib Tun Razak has said that the RM5bn additional investment in Valuecap will be provided by the Employees Provident Fund (EPF). But that answer creates even more questions:

  1. EPF already invests a substantial amount in the stock market and has its own team of fund managers and analysts. In fact, it held RM73bn of equities as of end June. If it thinks share prices are such good value now, it should be investing the RM5bn directly. Why lend it out to someone else?
  2. EPF is actually making a competitor stronger! Valuecap is going to take the money and buy shares. EPF also buys shares. What if Valuecap wants to buy the same shares as EPF? Both will end up competing and paying a higher price than necessary. The result? A very happy seller, but less profit for EPF which means smaller dividends for all us contributors.
  3. “The value of shares can go up as well as down.” The standard disclaimer in all prospectuses. Will that RM5bn sum extended to Valuecap be guaranteed? If not, EPF should be charging a very high interest rate to compensate for the risk. Which brings me to the last question:
  4. What interest rate will Valuecap be charged and how long will the loan be for?


Hasbullah Pit said...

Persoalan tambahan.

Ketika urusan "pinjaman" itu, Najib disebelah Valuecap atau KWSP?

Trashed said...

A loan interest rate of 6-7% will probably be higher than current MGS, so there's a interest premium that can be derived for the benefit of the members.

As for credit risk, if there is a Malaysian Govt Guarantee, then that is an acceptable collateral.

Has ValueCap the capability to repay ? Is the purpose of the loan acceptable to EPF ?

The eyebrows are raised because this is not quite an arms length transaction as all parties are related.

Also the lender of last resort is the govt of Malaysia a.k.a the tax payer.

nckeat88 said...

Hmm1 How come you never predicted this economy crisis and Dr M's advisor Matthia Chang already warn people since end 2007 that KLSE will crash below 900 and Dow below 10500?

Anonymous said...

much more information need to be released on valuecap. the public has not been able to place valuecap's current credit rating due to lack of information on the corporate performance of the institution.
maybe the government do have an idea to stimulate the market but why risk at such a high risk and volatile equity market right now?
the question of 'who is valuecap' remains unanswered other than just being a mere fund management firm initiated by the government.

Anonymous said...

Chi Chang,I do agree with you to a certain extent. I look at it from 2angles i.e. financing and investment. Borrowing from EPF is merely a financing decision. If the money is not coming from EPF, Khazanah and PNB may issue bonds and inject the funds to valule cap as additional capital. End of the day, EPF may be the bondholder as well. To be fair to EPF, they can't invest all the fund into equity market. If the yield is good and it is guaranteed by government, it may not be a bad idea to lend the money to value cap. Besides, EPF never commented on the valuation of current equity market.
However, the investment decision (value cap to invest RM5bil in undervalue stocks) is highly questionable. What are the multiplying effects of this RM5bil?
Besides, what are the terms of the mandate given to value cap?