Supermax Corp Bhd, a Malaysian medical glove maker that produces up to 2.4 billion pieces of gloves annually – accounting for 12% of the world demand – has scrapped a plan to purchase two pieces of freehold land in Setia Alam, Selangor. The company is no small potato as it supplies about 20% of gloves to the United States’ market during the Covid-19 pandemic.

 

The company plunged into a scandal last year when the U.S. banned imports of its Malaysian-made latex gloves due to allegations of using forced labours. In response, it promised to meet the International Labour Organisation’s standards for its employees’ living and working conditions. It had paid US$6 million to migrant workers to cover recruitment fees and other costs.

 

But the company has a bigger problem than investigations over human rights violation by foreign countries, which could be fixed by improving its poor labour practices. How do you fix the government’s New Economic Policy (NEP), a controversial racist and discrimination policy introduced after the 1969 racial riots and was supposed to end 20 years later, but has been extended indefinitely?

The New Economic Policy, derived from “Ketuanan Melayu”, an ideology of Malay supremacy espoused by UMNO (United Malays National Organization), means 30% of company shares must be given to Bumiputeras (so-called the sons of the soil). Supermax finally saw how NEP has become worse than a culture of handouts, rent seeking and patronage.

 

It had wanted to buy the land in Selangor, the richest state in Malaysia, to build an operations headquarters for its wholly-owned subsidiary Maxter Glove Manufacturing Sdn Bhd. It was ready to splash a whopping RM73.49 million for the two pieces of land (RM35.01 million and RM38.48 million each), measuring 1.99ha. But it was not a walk in the park, even though Selangor is being ruled by the Opposition.

 

The sale and purchase agreement (SPA) was initiated on Sept 21, 2020. In March 2021, the Economic Planning Unit (EPU), a government agency under the Prime Minister’s Department, approved the transfer of ownership of the land to Supermax’s Maxter from S P Setia Bhd’s subsidiary Bandar Setia Alam Sdn Bhd with one stunning condition – 30% Bumiputera equity ownership.

Meaning, even before the Malaysian Chinese-owned company could lay a single brick to build its headquarters, the 30% of the land must be given to Bumiputeras or ethnic Malays. The daylight robbery has entered a new level. On May 24, 2021, Supermax appealed for the EPU condition to be waived, but was subsequently rejected on Dec 15, 2021, forcing the company to walk away.

 

Supermax, founded by Stanley Thai and his wife Cheryl Tan in 1987, has a market capitalization of RM3.2 billion – even at a time when its stock price had plunged from above RM10 a pop to merely RM1.18 today. Despite tough competition as many new glove players had jumped onto the bandwagon, it recorded RM638.5 million net profits (RM1.45 billion revenue) for the quarter ended Sept 2021.

 

The company, which also makes contact lens, has previously committed to invest RM1.39 billion in new plants in Malaysia, creating lots of job opportunities. But the EPU’s rejection to waive the discriminatory and unfair 30% Bumiputera equity ownership could be a wake-up call that the more money a local Chinese company makes, the more the corrupt and greedy Malay elites will want to rob.

The fact that the EPU had bulldozed the 30% Bumiputera equity ownership condition during the previous Muhyiddin Yassin regime, and rejected the appeal for the condition to be dropped under the current Ismail Sabri government, speaks volumes about the deteriorating business climate, even for a local company that has been contributing to the economy since 35 years ago.

 

Corrupt politicians linked to Muhyiddin and Ismail understood very well that Supermax is not only a very successful company that exports to 165 countries, but a cash cow. Therefore, the scramble to get a piece of the company, which made Stanley a billionaire with a net worth of RM4.2 billion during the peak of the pandemic, had started even before a piece of land could be acquired.

 

However, the medical gloves manufacturer was well prepared, judging by “Clause 2A.4” of the agreement where it says the purchaser (Supermax) can terminate the SPA if the conditions imposed by EPU are not acceptable. It’s not rocket science that it’s better to keep the RM73.49 million under the pillow than to give 30% (RM22 million) to some Malay elite parasites.

The excessive greed has not only spooked Supermax into terminating the investment deal, but also delivered a blow to SP Setia, a property development company founded by Liew Kee Sin in 1974 before Permodalan Nasional Bhd (PNB) launched a “hostile takeover” for the company in 2011 after acquiring more than 30% stake in open market, triggering a conditional takeover.

 

It was a wise decision to abort the purchase of the land. Supermax owners and stakeholders should understand that the greed of the parasites will not stop at 30% Bumiputera equity ownership. It was already bad that local business community, especially non-Malay, has been subject to the unfair policy of having to surrender 30% stake of their business to the so-called Bumiputera.

 

But as exposed by the frustrated Federation of Malaysian Freight Forwarders (FMFF) last year, the greed has escalated. The 30% requirement is already outdated. Now, they want 51% stake of your companies – forcing local logistics companies owned by non-Malays to give up 51% of their business to Bumiputera. You can either surrender or close down your business.

By forcing non-Malays to give up 51% of their business, it simply means the owners (mostly Chinese), who have been working very hard for decades building their businesses, can no longer control and run their companies. In the same breath, there’s nothing to stop the Bersatu and UMNO rent seekers from forcefully demanding 51% of Supermax stake (or even 100% ownership) at a later stage.

 

To make matters worse, the 30% Bumiputera equity ownership has been a never-ending process. All listed companies, included Supermax, must meet the 30% mandatory rule before approved for public listing, which means the company had already given up 30% of its stake to Bumiputera. However, there’s nothing to stop the lazy and greedy elite Bumiputeras from selling for a quick profit.

 

After they sold, obviously the Bumiputeras’ stake will drop. Companies like Supermax will be forced to “top-up” the 30% stake again – essentially giving up more shares. As a result, the Chinese business owners will work endlessly to generate revenue while the Malay elites enjoy the profits forever. Yes, instead of encourage, nurture and protect local businesses, the government is terrorizing them.

The clueless, incompetent and corrupt government did not realize that not only Supermax’s plan to build an operations headquarters will generate the much needed jobs, it will also pay 24% corporate tax, which will go to the government. Now that the company had cancelled its RM73.49 million investment (excluded any spillover effects from the project), the stupid government basically gets nothing at all.

 

In actuality, Maxter Glove Manufacturing was part of a much bigger business. Did the clueless government know that Supermax Corp Bhd has incorporated a new wholly-owned subsidiary – Maxter Healthcare Inc in Delaware, U.S., at the end of 2020? Besides building a national headquarters in the U.S., the new subsidiary will manufacture medical gloves and other personal protective equipment.

 

When the new manufacturing complex on a 215-acre land in Brazoria County, Texas, is completed, it will have the capacity to produce 1.6 billion gloves per month or 19.2 billion gloves per annum. With a total capital expenditure of US$550 million, Maxter Healthcare will manage not only its North America manufacturing plant, but also a R&D (research and development) centre.

In short, Supermax has already diversified to overseas as the management was not interested in putting all the eggs in one basket. In fact, the new mega plant in America will be Supermax’s 18th manufacturing facility worldwide. Here’s the best part – the U.S. does not have any silly racist and discrimination policy, such as Malaysia’s 30% Bumiputera equity ownership.

 

Armed with automation, robotic engineering, manufacturing with Artificial Intelligence (AI) and Industry Revolution 4.0., Maxter will eventually be able to provide 20% to 25% of the demand and consumption in the U.S., making Malaysia even more irrelevant. And Supermax can certainly slowly shut down its local plants and relocate to Vietnam, Cambodia or even Indonesia.

 

When push comes to shove, Supermax can always relocate or shift its headquarters to neighbouring countries, especially Singapore, to transform it as a foreign company, making the NEP rules invalid. Do you think Stanley Thai is so dumb as to wait till the despicable UMNO crooks rob Supermax until there’s nothing left before taking the necessary steps to safeguard his business empire?

 

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February 16th, 2022 by financetwitter

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