Commentary: Zetrix's financial collapse poses a major governance test for Anwar's government

Commentary A deepening financial crisis at Zetrix AI, a provider for digital government services, is presenting the Anwar Ibrahim administration with a governance dilemma, writes CNA’s Leslie Lopez. The financial turmoil at Zetrix AI, Malaysia's premier IT solutions provider to the government, is stirring a fresh debate on the country's decades-old privatisation policy. New: You can now listen to articles. This audio is generated by an AI tool. KUALA LUMPUR: Every so often, Malaysia’s privatisation programme – an ambitious crown jewel in former Prime Minister Mahathir Mohamad’s economic agenda – produces a failure spectacular enough to reopen the whole question on its merits.The unfolding crisis at Zetrix AI, formerly known as My EG Services, threatens to become one such moment.Since August, the shares of the company listed on the local stock exchange have collapsed by more than 90 per cent, wiping out more than RM5 billion (US$1.23 billion) in market capitalisation, making it the largest destruction of listed-market wealth of the Anwar Ibrahim prime ministership.But the collapsing stock price, which now hovers at around 6 sen from over 70 sen then, is only part of the story. Interstate buses on the road in Kuala Lumpur, Malaysia. (Photo: CNA/Fadza Ishak) Zetrix was not created through the sale of a state-owned enterprise, nor can its current financial difficulties be attributed to a single government policy. But its original business model represents a familiar Malaysian arrangement: a private concessionaire collecting transaction-based revenue from services citizens previously obtained directly from the state.The government has acknowledged that the company, which operates collection services across multiple areas of public administration, including the renewal of road tax and licences, owes the Road Transports Department over RM314 million in unpaid collections from May 19 to Sep 30. The company is also facing a serious challenge under its RM2 billion sukuk programme after a breach of a shareholder-related covenant triggered a dissolution event. Zetrix has said immediate repayment of the full outstanding amount is not required and that all scheduled payments have been made. It is continuing discussions with sukukholders and the trustee over the next steps.That is what makes the financial crisis ripping through the company more than just a stock market rout. It goes to the durability of the economic model that has long blurred the boundaries between public service, private profit and political power.A FLAWED MODEL? Backed by abundant credit and a booming stock market in the early 1990s, the transfer of public services – including toll road concessions, national sewerage networks, the national airline, power generation installations and other public services – into private hands became the cornerstone of Dr Mahathir’s industrialisation agenda.At its best, privatisation mobilised private capital, accelerated the construction of roads and power plants and introduced managerial disciplines that government departments often struggle with. At its worst, it became a patronage-driven model that blended business and politics, with the state remaining exposed in the event of failure. The first serious stress test came when the 1997 regional financial crisis hit. Collapsing financial markets and slumping stock prices exposed the heavily leveraged and fragile finances of several politically connected corporations. The state was forced to intervene through debt restructurings, recapitalisation and selected takeovers.Zetrix represents a technology variant of the privatisation model, but the underlying governance questions are similar.A SPECTACULAR RISE AND FALLIncorporated as MyEG, the company developed an online infrastructure for the renewal of road tax and police summonses under a 15-year concession. It was listed on the local exchange in 2007 and quickly expanded its services beyond motoring into other areas such as foreign worker permit renewals and by 2017 was already expanding into the Philippines before expanding its business footprint into Indonesia and Bangladesh.Before its troubles began in September this year, Zetrix had established itself as a profitable, but increasingly complex group spanning extensive government collections, commercial services, overseas payments and blockchain assets.Its founder and main shareholder, Wong Thean Soon, had not only gained a strong following among retail investors but also institutional entities, such as the World Bank-linked International Finance Corp, that bought a 2.5 per cent stake in the company in February when its shares were trading at 78 sen a piece. HOW THE MARKET ROUT BECAME A GOVERNANCE PROBLEMThen in late August came the grief. Shares of Zetrix slumped under heavy selling of shares pledged by Mr Wong to brokerages and financial institutions. The forced disposals reduced the tech entrepreneur’s shareholding from nearly 30 per cent to below 2 per cent. The collapse in ownership triggered a potential breach of a covenant governing the company’s RM2 billion sukuk programme, which required Wong to retain a minimum 2 per cent interest in the company, while a local rating agency has downgraded the Islamic bond offering, citing financial and liquidity pressures.The political hot potato is who was holding the paper. In recent days, Rafizi Ramli – the former Parti Keadilan Rakyat (PKR) strategist who now leads the opposition Bersama party – demanded that Prime Minister Anwar Ibrahim disclose the full extent of public funds' exposure to the collapse, alongside the future of the immigration systems the company runs. Mr Rafizi, a politician who once headed the economy portfolio in the Anwar Cabinet, said that among the state agencies holding the shares included the Employees Provident Fund and KWAP, the pension fund of the civil service. The government has yet to respond. Rafizi Ramli, the former PKR strategist who now leads the opposition Bersama party, has seized on the troubles at IT solutions provider Zetrix and is demanding that PM Anwar makes full disclosure on the fallout suffered by state agencies. (Photo: CNA/Zamzahuri Abas) More damaging for the Anwar government is the RM314 million that Transport Minister Anthony Loke said Zetrix and its corporate units failed to remit to his ministry between May and end September this year. Mr Loke is reported by local media that the authorities had issued Zetrix 35 reminders and the government had received a RM231 million post-dated cheque that later could not be processed following instructions from the company.DILEMMA FOR THE ANWAR GOVERNMENTMoney collected from citizens on behalf of the government should never be ordinary working capital. The fact that such funds were accumulated without prompt remittances not only raises questions about the processes of the company but also the government’s own enforcement and monitoring systems.So how does the government deal with an e-solutions provider that has an extensive presence across its public administration collection platforms at a time when its one-time controlling shareholder no longer has any dominant or leadership position?For starters, the absence of any corporate leadership is no substitute for any state bailout.The government must disclose why Zetrix was allowed to hold on to government funds for an extended period of time and initiate a full audit on the outsourcing and handling of third-party public funds that have been awarded under the national privatisation programme.It must also allow the company’s creditors and management to sort out the corporate wreckage and make sure that all monies owed to the Treasury is accounted for.