March 2, 2020 / 4:37 AM / a month ago

UPDATE 2-Malaysia's Khazanah swings to record annual profit after flurry of share sales

* Profit from operations climbs to record $1.8 billion

* Gains from divestments jump more than seven times

* Impairments shrink by a third, debt cut by 17% (Adds comments on outlook for 2020, Malaysia Airlines sale)

By Liz Lee

KUALA LUMPUR, March 2 (Reuters) - Malaysian sovereign wealth fund Khazanah Nasional Bhd swung to a record profit last year, booking a huge jump in gains from divestments as it aggressively shrunk its portfolio to raise funds for a debt-laden government.

But it said the coronavirus outbreak had ensured that this year would be much tougher.

“This year will be particularly challenging as an already uncertain global economy is harmed by the ongoing (spread of) COVID-19,” Managing Director Shahril Ridza Ridzuan said in a statement on Monday.

Khazanah, which has an employee infected with the new coronavirus, cancelled a briefing on the results, saying it was working with health authorities and office building management on necessary measures and precautions.

The fund’s profit from operations climbed to 7.36 billion ringgit ($1.8 billion) for 2019, compared with a loss of 6.27 billion ringgit in the previous year.

Gains on divestments grew more than seven times to 9.9 billion ringgit, while impairments shrunk by a third to 4.9 billion ringgit. Debt fell 17% to 45.8 billion ringgit.

Khazanah did not disclose details of its divestments. A former government minister told parliament in November, however, that it had sold shares in seven foreign firms including Alibaba Group Holding Ltd and Indian tech firm Infosys Ltd over 16 months.

The earnings result will give the government a dividend of 1 billion ringgit ($240 million).

Khazanah, which split its portfolio last year into commercial and strategic holdings, said its commercial fund’s net asset value stood at 73.1 billion ringgit at the end of 2019 and that it will continue to diversify the fund.

It did not disclose the net asset value for its strategic fund, which houses ailing national carrier Malaysia Airlines, but said that fund recorded an overall return of 2.9%.

It also said it has received nine proposals from potential partners for Malaysia Airlines, and has shortlisted four.

The Malaysian government has been seeking a strategic partner for its national airline, which has struggled to recover from two tragedies in 2014 - the mysterious disappearance of flight MH370 and the shooting down of flight MH17 over eastern Ukraine.

Japan Airlines, domestic carrier AirAsia Group Bhd and the Malaysian arm of Indonesia’s Lion Air, Malindo Air are among firms that have shown interest in investing, sources have told Reuters.

The fund, which is the sole owner of the carrier, said it will continue to work closely with the government and the airline in reviewing the proposals and finalising a decision.

$1 = 4.1930 ringgit Reporting by Liz Lee; Editing by Edwina Gibbs

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