Malaysian corporates have 'lazy' balance sheets: Bain & Co

KUALA LUMPUR: Malaysian corporates have “lazy balance sheets” whereby they are not putting their equity to work, not embarking on enough mergers and acquisitions (M&As) overseas and not divesting enough of their non-core assets, said management and consulting firm Bain & Company.
Its partner and Asia Pacific head of financial investors practice Suvir Varma (pix) said Malaysian listed companies are sitting on a US$71.9 billion (RM308 billion) cash pile.

“What’s the value of holding all the cash on the balance sheet? A shareholder advocate would say you either return the cash to your shareholders or you do something with that cash. If you can’t do anything with your core business, then do deals,” he told a media roundtable titled “Deal Activity in Malaysia” here yesterday.
He said the “lazy balance sheets” phenomenon is more pronounced in Malaysia, even though it is a consistent theme across many Asian markets, except China and India.

“In Singapore, Malaysia and Indonesia, there are still companies with ‘lazy balance sheets’. Thai corporates have been going out and doing deals. Malaysia is not the only country but it’s among a few in Southeast Asia that still have a preponderance of too much cash and not enough use for that cash,” said Suvir.
Southeast Asian companies are under pressure to outperform and M&As can be a key lever for delivering growth and superior performance. Frequent and material acquirers do outperform competitors, according to Suvir.
“Data shows serial acquirers who are regularly using M&As as a growth factor over time have higher total shareholder returns than those who don’t,” he explained.
Nonetheless, he said it is not seeing enough outbound M&As from Malaysia. Malaysian corporates are active acquirers, but focused locally. Malaysia is ranked second in M&As within Southeast Asia, based on M&A deal value by acquirer.
“Malaysian corporates with much cash on their balance sheets, good capability and cost positions should be looking externally to do M&As. India and Indonesia have similar currency volatility (like Malaysia) but their corporates are going out a lot more. Ultimately, you’ve got to be out there finding growth,” said Suvir.
He said one reason why deals are not happening is that shareholders are not demanding better returns; another is that corporates have the view that they can generate more growth and profit domestically. It is also a question of corporates having the internal capability and risk tolerance to execute international expansion.
On consolidation, Bain’s view is that it is the survival of the fittest where there is value in combining forces to gain critical scale and vantage to compete against regional champions and behemonths. He questioned if asset owners can extract more value by divesting non-core assets and focusing on core businesses.
“On the flip side of consolidation, we’re not seeing enough corporate carve-outs. You’ve phenomenal conglomerates with multi-core businesses. They have non-core assets. I don’t believe Malaysian corporates have moved fast enough in divesting themselves of non-core assets.”