Malaysia-Africa High-level Knowledge Exchange Seminar

Kuala Lumpur September 21-22, 2006

Overview of KhazanahOverview of Khazanah

1

Agenda

• Overview of the Mandate

• Progress to date

• Investment Focus

• GLC Transformation

• Summary and Appendix

2

• Khazanah is Malaysia’s 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 Khazanah’s board.

• Khazanah’s 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.

Who We Are and Our Role

3

Dato’ Seri Abdullah Ahmad Badawi, Prime Minister of Malaysia14 May 2004

Legacy investments Streamline, restructure

GLC trans-formation

Increase value: shareholder + strategic

New investments

New sectors, cross border

Active leadership development

… via four Strategic Pillars … 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

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”

Key themes of our Mission…

• Strategic investment house

• Sustainable value creation

• Nation-building and national competitiveness

• Performance culture

Human Capital Management

4

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

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

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

Leading strategicinvestment house that creates

sustainable value for a globally competitive Malaysia

Our Mandate

Legacy investments

Streamline, repair,

restructure portfolio

New investments

New strategic sectors and geographies

GLCtransformation

Increase shareholder

value, strategic value

Human CapitalManagement

Active development

of Human Capital for the nation

1 2 3 4

Accomplish Strategic Vision

and Mission

Execute Strategic Pillars

Get foundations right, build

capacity

5

The Historical Context of Micro-Economic Restructuring

PrivatisationsPLUS and other expresswaysIPPsMobile telcos

From 1987 1997 2001 2004

Asian Economic CrisisStabilization, Capital ControlsCDRC, Danaharta, DanamodalReflationary monetary and fiscal policiesBanking consolidation

& Partial Public Listing;MAS, TM, TNB, PGASCo-existence of large GLCs and aggressive owner-manager firms

Corporate restructurings, includingMostly “war-time” financial restructuring, Renationalization; institutional holding and professional mgmt. Danasaham/Renong/UEM Group RestructuringMRCB, KUB RestructuringMAS – “Widespread Asset Unbundling”

GLC TransformationMostly operational (“peace-time”) restructuringKhazanah Revamp“Culture of High Performance”; KPI and PLCLeadership changes – BOD and managementBuild on previous: UEM, MAS, MRCBInitial focus on key GLCs – TNB, TM, SD, Focus to increase to industry structures

Phase IPhase I

Phase IIPhase II

Phase IIIPhase III

Phase IVPhase IV

6

The Role of Government in Economic Management – The Right Objectives in the Right Boxes

Developer and Public Goods

Regulator

Investor

• 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.

• Providing level and conducive playing field• Protection of public interest• Enforcement

• Government owns and operates enterprises• Creates economic value• Differentiated investment focus between

Khazanah, EPF, PNB, KWAP, TH due to differences in return objectives, risk appetite,investment horizon, liquidity requirements, and beneficial owners

Khazanah as GOM’s 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 co-existence with GLCs

• Optimal and evolving holdings in companies, sectors and holding levels reflecting changes in strategic emphasis

Roles of Government

7

Five-Pillar Terms of Engagement Framework with GLCs

Description

LeadershipBench

• Ensure professional, capable, experienced and appropriate – Board of Directors– Senior Management team

Strategy • Drive through the Boards and management, high-quality implementable business strategy

Systems and Controls

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

Industry Structure

• Drive or give inputs to how industry structures evolve – optimal competitive environment and regulatory structure

• Leverage inter-company synergies

Monitor & Empower

• Once the above in place, do not micro-manage• Continuous monitoring of progress• Empower management to carry out its job

8

Agenda

• Overview of the Mandate

• Progress to date

• Investment Focus

• GLC Transformation

• Summary and Appendix

9

• 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.

Malaysian economy remains a beacon of stability

10

Malaysia: The investors choice within the region

• Network of well-maintained highways and railways • Well-equipped seaports and airports • High quality telecommunications network and

services • Fully developed industrial parks, including free

industrial zones, technology parks and Multimedia Super Corridor

• Talented, young, educated and productive workforce • Multilingual workforce speaking two or three

languages, including English • Comprehensive system of vocational and industrial

training, including advanced skills training. • Harmonious industrial relations with minimal trade

disputes

Developed infrastructureEducated workforce

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

• 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

Source: Bank Negara Malaysia

Supportive government policiesEconomic strength

11

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 Malaysia’s 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 government’s commitment to execute the plan and reduces execution risk significantly

12

90

100

110

120

130

140

150

160

170

May-04 Aug-04 Nov-04 Feb-05 May-05 Aug-05 Nov-05 Feb-06 May-06

Source: Bloomberg; Khazanah analysis

GLC-23130.7

KLCI ex GLC125.6Khazanah-10126.4

Decomposition of Total Shareholder Return of GLC-23 from 14 May 04 to 26 May 06

As at 26 May 2006, based on weekly close

PNB-9129.4KLCI128.0

Petronas-3141.7

K-10

PNB-9

PET-3

GLC-23

KLCI ex GLC-23

KLCI

13

Agenda

• Overview of the Mandate

• Progress to date

• Investment Focus

• GLC Transformation

• Summary and Appendix

14

Investments Holding Structure As at 5 May 2006

Khazanah Nasional Berhad

51.7%

DRB-Hicom10.38%40.15%

30.04%

Astro AllAsia

21.47%

Telekom

PTExcel

comindo

20.0%

Tenaga Nasional

39.31%

25.0%

19.96%

AIC Micro-electronics

MTDC51.09%

33.33% Spring HillBioventures

95.85%

SilterraMalaysia

D’nonce

AIC Technology

25.0%

Auto /Industrial Products

Transportation FinancialInstitutions

Technology PowerCommunications

&Media

Property / Construction Conglomerate

72.74% MalaysiaAirport

PLUS Expressways

26.34%

BumiputraCommerce

9.12%

BI WaldenVentures

Ketiga

33.33%

30.0% BankMuamalat

6.23%

Megasteel

15.0%Modenas

MSC VentureOne

30.0%

15.59% Putrajaya Holdings

34.09%

RHB Bank

42.74%STLR

100%

EON

10.0% Tradewinds Hotels & Resorts

25.67%

Westport8.55%

MISC0.53%

Royal Mint

22.3%

Valuecap

10.0%

PROTON

Eon Capital

UEM World

54.48%

Pharmaniaga

UEM Builders

CIMA

OpusInternational

62.37%

53.63% 24.85%

37.93%

40.21%

Time Engineering

45.03%

43.83%

50.01% UDA Holdings

10.0%

Malayan Banking

MAS

100%

100%

Penerbangan Malaysia

69.34%

2.55%

Ho Hup17.20%

72.55%

Parkmay

4.88%

RHB Capital

0.16%

SWEC12.0%

Healthcare

Apollo Hospitals

87.52%

Unlisted CompanyListed Company

16.67%

Faber

PosMalaysia

29.85%

MobileOneLtd

Others

17.24%

AtlanticQuantum

75.28%

Lippo Bank

Time dotCom

80.0%

NorthernUtility

20.0%

MiyazuSeisakusho

UEM

SouthernBank

3.55%

Crystal ClearTechnology

100%

SunshareInvestments

16.81%

56.92%

Updates as at 04 APRIL 2006

ParksonRetail

ParksonRetail

9.9%

10.87%

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Investments and Divestments – Selected Achievements

Source: Khazanah

Funding

New Investments –

SelectedAchievements

Domestic Investments

• 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

16

Khazanah’s International Investments

Apollo Hospitals Enterprise Ltd, India

Shuaibah Phase 3 IWPP, Saudi Arabia

Parkson Retail Group Limited, China

Excelcomindo, Indonesia

PT Bank Lippo, Indonesia

MobileOne Limited, Singapore

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Investment Portfolio Distribution AnalysisAs at 31 May 2006

Breakdown of Portfolio by Country/ Region

Breakdown of Portfolio by Sector

Automotive2.5% FIG

14.5%Healthcare

0.3%

Infrastructure &

Construction12.0%

Media & Comm28.6%Other

1.1%Property

1.4%

Technology0.2%

Transportation14.7%

Utilities & Power24.5%

Singapore, India,Japan, China,Middle East

2%

Indonesia4%

Malaysia94%

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Agenda

• Overview of the Mandate

• Progress to date

• Investment Focus

• GLC Transformation

• Summary and Appendix

19

• Capital Market constituent: 54% of KL Composite Index• Employer: 5% of workforce

• Utilities e.g. public transport, water• Services e.g. telecommunications, airlines, banking

• E.g. automotive, semi-conductors

• Foreign ventures• Investments in new growth sectors

• Human capital• Suppliers

GLC Transformation is Critical for Malaysia

Source: GLC Transformation Manual launched on 29 July 2005

Significant part of economy

Provider of strategic utilities

and services

Executor of industrial policy and development

Builds international linkages

Policy instrument to develop Bumiputera community

20Updated as of September ’06 Source: Joint Working Team

3rd Quarter ’06Programme on the Framework for Continuous Improvement

To enhance operational efficiency and effectiveness through the adoption of a Framework for Continuous Improvement

Enhancing Operational Efficiency and Effectiveness

10.0

Launched

Launched

3rd Quarter ‘06

Blue Book Version 2

Announcement of Headline KPIs

Programme on Value-Based Management

To encourage adoption of performance management best practices at GLCs

Intensifying Performance Management Practices

9.0

LaunchedProgramme for Managing Regulatory Environment

To enhance regulatory capabilities at GLCs and create a Regulatory Knowledge Network

Improving Regulatory Environment

4.0

3rd Quarter ‘06Silver BookTo guide GLCs in becoming responsible corporate citizens while creating value for their shareholders and stakeholders

Achieving Value through Social Responsibility

5.0

LaunchedRed BookTo enhance the effectiveness and efficiency of the procurement processes in GLCs

Reviewing and RevampingProcurement Practices

6.0

4th Quarter ‘06Purple BookTo establish guidelines for GLCs to optimise their capital structureOptimising Capital Management Practices

7.0

4th Quarter ‘06Orange BookTo improve GLCs capabilities in attracting, developing and retaining talent through the adoption of best practices

Strengthening Talent Management Practices

8.0

2nd Quarter ‘06Blueprint for GLICsTo reinforce the ability of GLICs to monitor and manage individual GLCs

Enhancing GLIC M&M Functions

3.0

4th Quarter ‘06Directors AcademyTo develop a strategy to match Directors to the right Boards andalso to establish a Directors Academy

Strengthening Directors Capabilities

2.0

LaunchedGreen BookTo enhance Board effectiveness through revamping Board practices and processes

Enhancing Board Effectiveness

1.0No. Initiatives Description Output Launch

GLC Transformation Initiatives (2005/6)

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Agenda

• Overview of the Mandate

• Progress to date

• Investment Focus

• GLC Transformation

• Summary and Appendix

22

In Summary

40.0

65.0

31 May 2006

33.342.0Net Worth (RMbn)

50.962.8RNAV (RMbn)

14 May 2004

31 May 2005

Strategic MandateStrategic Mandate

• Legacy investments• New investments• GLC Transformation• Human Capital Management• South Johor Economic

Region• BCIC Agenda• Agri. Food Corp.

Capacity BuildingCapacity Building

• Human capital build-up on track

• Risk management framework in place

• Physical infrastructure upgrade completed

• ICT & processes upgraded

Restructuring & ReorganisationRestructuring

& Reorganisation

Turnaround on-track• SilTerra• MTDC• MASExit• Northern Utilities• CCTOngoing• Proton• Malaysia Airports• Time/Time DotCom

Investment & DivestmentInvestment & Divestment

• New investments up RM318mPT Bank LippoPT ExcelcomindoMobileOneApolloShuaibah 3 IWPPParkson

• Funding PLUS Exchangeable BondsIslamic CP/MTN

• DivestmentsPLUS, Bintulu Port, Jardine C&C, YTL Power

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

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Thank YouVisit our website at : www.khazanah.com.my