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The Shareholder Revving State Companies

Malaysian carmaker Proton has a ton of critics, including some minority shareholders, who doubt that it can have a bright future without protectionist tariffs. But for now it has the strong backing of the shareholder that counts: Khazanah Holdings, the state investment firm that owns a controlling 43% stake. Khazanah actually has increased its Proton holdings in recent years, taking over the 8% interest once held by Mitsubishi Motors, Proton's original partner. "We have been buyers of Proton because we see this as an undervalued company," says Azman Mokhtar, head of Khazanah.

Few are inclined to dismiss Azman's view lightly. He was a highly respected investment banker before taking on the task of radically transforming Khazanah a year ago. He wants the state investment firm, which manages $16.5 billion in shares of 50 Malaysian companies, to serve as a role model in corporate governance and at the same time to help make Malaysian companies globally competitive by investing overseas. "My job is to maximize returns for our ultimate stakeholders -- the people of Malaysia," says Azman.

Azman, 44, caught the eye of Finance Minister Nor Mohamad Yakcop when he was tapped to help restructure Malaysia Airlines in 2001. The Cambridge University graduate and onetime analyst for UBS and Citigroup Smith Barney gave up a lucrative job as head of corporate finance boutique Binafikr in Kuala Lumpur to take charge at Khazanah.

Khazanah has a controlling stake in most of Malaysia's big state companies, including Proton, Malaysia Airlines, state utility Tenaga Nasional, Telekom Malaysia, and the country's second-largest bank, CIMB. In Azman's first year as CEO, Khazanah reported total share-holder returns of 15.6% -- 4.8 percentage points higher than the benchmark Kuala Lumpur Composite Index. Still, Azman isn't pleased with the results so far.

Azman has forced several listed companies to open their books to minority shareholders and generally improve their corporate governance. At the operational level Azman has backed the restructuring of several companies. He folded a state-run commercial bank into investment bank CIMB to form a new institution that would be more competitive regionally. Azman has also pushed overseas. The holding company now owns a controlling interest in Indonesia's Lippo Bank. It also is teaming up with Malaysia Airports to take over and manage airports in India.

One of Azman's projects has been Proton. It was Azman, together with former Prime Minister Mahathir Mohamad, who persuaded Volkswagen to cement a strategic alliance with the Malaysian car manufacturer last year in an effort to make Proton more competitive.

Until recently, state companies in Malaysia were run as government departments. Now, Azman is trying to inject them with some entrepreneurial energy. He is linking CEO bonuses to the companies' returns and wants other execs to think like private sector managers whose job is to maximize profits. He has hired top-gun investment bankers, management consultants, and accountants as advisers. The idea, says Azman, is to create a "rigorous performance culture." Next on the agenda: more consolidation and corporate restructuring. Proton will be a target of that effort, but it'll be just one among many for Khazanah's ambitious new boss.

By Assif Shameen in Kuala Lumpur

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