Assessing the RM40bil Battersea project

In  Assessing the RM40bil Battersea project, the writer is right to voice some concerns regarding such a big project that requires billions of ringgit to develop and to finalise, and it is hoped that the companies, together with the EPF holding 500billion of public money in trust, have made the correct assumptions, and the financial models show good returns as required for such a flagship investment.

However, in my limited experience with local blue chip corporations making huge investments in foreign countries, one factor that has been consistently overlooked by these corporations is the fluctuation of the foreign currency during the investment, and then in the revenue generation periods. As the world's economies become more volatile and uncertain from day to day, (even the breakup of the Eurozone is not an impossible event), I wonder if these companies, and the EPF have considered, in their financial proposals, the rise and fall of the ringgit compared with the Sterling, and the effects on the of such fluctuations on the capital drawdowns and profits.

A 20% gross profit can turn into a break even  or loss situation, if currency values fluctuate more than 5%. If the sterling strengthens at the time of capital injection, more than the anticipated ringgit capital may have to be sourced.

I have also known of projects that have seen the profits wiped out because of delays in getting approval, permits and licences, and in supply and implementation bottlenecks. And I am not speaking of SMEs but big corporations too.

Big corporations such as Sime Darby can take such a business risk, as it's expected business strategy to seek growth, but should the EPF, which is responsible to protect the public's welfare fund,  do so?

Yes, if the project is too big to swallow, we may get choked.