umno's bailouts

From: DAP MALAYSIA <dap.malaysia@p...>
Date: Wed Mar 14, 2001 11:50am
Subject: [BUNGARAYA] Police report on EPF and Time dotCom

-------------------------------------------------------------------------
This is the list for the Democratic Action Party of Malaysia. To subscribe,
send "subscribe" in email body to <bungaraya-request@l...>
-------------------------------------------------------------------------

Media Statement by DAP National Chairman Lim Kit Siang in Kuala Lumpur on Wednesday, 14th March 2001:

Police report against EPF to allow police to initiate investigations on Sun report on EPF's taking up unsubscribed public portion of Time dotCom and to ascertain the losses suffered by 9.7 million EPF contributors after the counter crashed by 31 per cent of its IPO price in first two days of debut
=============================================================

A police report has been lodged based on the The Sun report dated Monday,
12th March 2001, that EPF, Kumpulan Wang Amanah Pencen (KWAP) and
Pengurusan Danaharta Nasional Bhd "are believed to have taken up the
unsubscribed public portion of the Time dotCom Bhd initial public offering
(IPO)".

The Sun report states:
"EPF takes up unsubscribed Time dotCom shares?
"By Sidek Kamiso

"Kuala Lumpur: Kumpulan Wang Amanah Pencen (KWAP), the Employees Provident Fund (EPF) and Pengurusan Danaharta Nasional Bhd are believed to have taken up the unsubscribed public portion of the Time dotCom Bhd initial public offering (IPO).

"Time dotCom's initial stock sale of 571 million shares at RM3.30 each under
its IPO was undersubscribed by 75% when applications closed on Feb 13. Only
142.86 million shares were subscribed.

"An official familiar with the listing exercise said Time dotCom is believed to have submitted to the Registrar of Companies (ROC) the Form 29B, which
contains details of the purchase of the two institutions and Danaharta.

"The purchase by the three funds would allow Time dotCom to meet the listing
requirement.

"Under the KLSE listing requirement, a company with more than RM100 million
in paid-up capital is required to have at least 1,250 shareholders and not less than 25% of the shares must be held by the public.

"An announcement on the shareholders including the parties taking up the
unsubscribed shares is expected this week.

"The company will make its debut on the Kuala Lumpur Stock Exchange today."

On 17th February 2001, I had issued a media statement asking EPF and other
government-linked funds and agencies to declare whether there is any
government directive that they take up the Time dotCom subscription shortfall and warned that EPF monies should not be tapped for the bailout of the Time dotCom IPO.

My statement said:

"Although Time dotCom's RM1.89 billion IPO fell flat on its face making
double history as the country's biggest offering as well as the biggest flop when it was undersubscribed by 75 per cent, Tan Sri Halim Saad is laughing all the way to the bank.

"This is because Time dotCom will be Malaysia's only telecoms unit with zero debt with some RM 900 million in cash as the joint lead underwriters Commerce International Merchant Bankers Bhd, Perwira Affin Merchant Bank Bhd and Affin-UOB Securities Sdn Bhd had fully underwritten the issue and would now have to pay RM1.415 billion cash for the unsubscribed portion.

"This will have far-reaching implications not only for the banking industry
but raises the question about the future of corporate restructuring in the
country.

"I had yesterday said that Malaysian taxpayers are very concerned that the
government would be embarking on another scandalous bailout - this time the
RM1.4 billion bailout of the Time dotCom IPO undersubscription fiasco by
using government-linked funds and agencies like EPF, SOCSO, Tabung Haji to
take up the shortfall."

I had then posed the following question:

"Why was the full issue of RM1.89 billion fully underwritten by the underwriters concerned when the market reaction to the IPO at RM3.30 per share was that it was over-priced and that its value was more at RM2 per share? Was there any political pressure and/or any undertaking that government-linked funds and agencies like EPF, SOCSO, Tabung Haji and other public trust and provident funds would be tapped to make up for any shortfall in the event of undersubscription?

"As the market is quite unanimous that when Time dotCom makes it public
debut next month, its share price will nosedive below the IPO price, managers of EPF, SOCSO, Tabung Haji and other government-linked funds and agencies should declare whether there is any government directive, written or unwritten, that they take up the subscription shortfall.

"In any event, these government-linked funds and agencies should be aware
that the public are very vigilant and want full transparency to ensure that these funds should not be tapped for another bail-out operation for a private company, however well-connected politically, to buy up the undersubscribed IPO portion of Time dotCom at RM3.30 per share."

A day earlier, on 16th February 2001, I had said in a media statement that it was clearly not in the public interest for government-linked funds and agencies to be tapped to mount another bail-out operation to buy up the undersubscribed IPO portion at RM3.30 per share and warned that after the RM1.79 billion government bailout of Tan Sri Tajudin Ramli's 29.09 per cent of MAS stake through Naluri and the RM6 billion bailout for the two LRT companies, STAR and PUTRA, another billion-ringgit bailout for Halim Saad's Time dotCom IPO "will be the last straw to break the camel's back".

On its first two days of nightmare debut on the market, Time dotCom crashed
by 31 per cent of its initial public offer (IPO) price, dropping to RM2.43 on Monday and RM2.28 yesterday.

This would mean that if the Sun report is correct that EPF, KWAP and
Danaharta had taken up the RM1.415 billion unsubscribed public portion of the Time dotCom IPO shortfall, these three institutions would have suffered a astronomical loss of RM439 million in the past two days as a result of the 31 per cent crash of its IPO price, which is a criminal breach of trust and a criminal misapplication of public funds.

The EPF Chairman, Tan Sri Halim Ali, had neither responded to concerns
expressed in the past month by the 9.7 million EPF contributors about the
misuse of EPF monies for the bail-out of the Time dotCom IPO, nor issued any
denials in the past two days in response to the Sun report that it was one of the three government-linked agencies which had taken up the unsubscribed public portion of the Time dotCom IPO.

In his letter to the Sun on Monday, Halim said that "The EPF's decision to
invest in any project, company or fund, has always been based on the criteria of security, liquidity and yield".

What basis of security, liquidity and yield can EPF plead in justification for taking up the unsubscribed public portion of Time dotCom IPO, when EPF can now buy the Time dotCom shares in the market at 31 per cent discount of the IPO price?

It is a criminal breach of trust and criminal misuse of public funds for the EPF to use the savings of 9.7 million EPF contributors to participate in bailing out the RM1.415 billion Time dotCom IPO undersubscription shortfall when the stock could be bought from the market at one third its price.

The 9.7 million EPF contributors are entitled to an immediate public accounting from the EPF Chairman as to whether EPF had suffered the bulk of the staggering RM439 million losses in the last two days as a result of taking up the RM1.415 billion unsubscribed public portion of Time dotCom, the actual amount invested by EPF in the Time dotCom and the actual losses suffered as a result of the 30 per discount over its public offer price in the last two days, the reasons for the EPF decision as well as why the EPF has declared the lowest dividend in 25 years when it declared 6% dividend for last year.

This police report against the EPF for possible criminal breach of trust and
criminal misuse of EPF monies for taking part in the bail-out of the RM1.415
billion Time dotCom IPO undersubscription shortfall when all market analysts
expect the counter to nosedive on its public listing debut is based on the
precedent set by the police itself in lodging a police report on the Mingguan Malaysia report of March 4, 2001 that Parti Keadilan National Youth chief Ezam Mohamad Nor had said that he was launching street demonstrations every day to topple the government in order to initiate investigations.

The lodging of the police report and police investigations on EPF and Time
dotCom do not absolve Halim Ali from his responsibility as EPF Chairman to
comply with the principles of accountability and transparency to the 9.7 million EPF contributors to explain without any delay whether EPF had suffered the bulk of the staggering RM439 million losses in the last two days as a result fo taking up the RM1.415 billion unsubscribed public portion of Time dotCom.

- Lim Kit Siang -

Tan Sri Dato' Paduka (Dr) Ting Pek Khiing Strikes Again!
Ekran Berhad published the following announce- ment in the Star about what its beloved chairman, Tan Sri Dato' Paduka (Dr) Ting Pek Khiing aka Tan Sri Dato' Paduka (Dr) Candonodam Ting, about his inability to pay an initial installment of seven per cent of loans he took from the company. This advertisement appears on page 38 of the Star of 17 January 01:
--------------------

Ekran Berhad ("Ekran" or "Company")
Company No 224747-K
(Incorporated in Malaysia"

NOTICE

1. SETTLEMENT OF AMOUNT OF RM712,939,000 owing by Tan
Sri Dato' Paduka (Dr) Ting Pek Khiing ("Tan Sri
Ting" to Ekran; and

2. PROPOSED REVISED UTILISATION OF PROCEEDS from the
Rights issue herinafter, collectively, referred to
as the proposals.

FURTHER TO THE announcement made on behalf of the Directors of Ekran on 6 November 2000, Amanah Merchant Bank Berhad, on behalf of the Directors of Ekran, wishes to announce that the Board of Directors has granted approval to Tan Sri Ting for a final extension of time until 30 January 2001 for the settlement of the initial cash payment of RM50 million pursuant to the Settlement Agreement dated 29 June 2000
entered between Tan Sri Ting and Ekran.

The application to the Securities Commission in relation to the Proposals will now be submitted by 28 February 2001 instead of 31 January 2001 as previously announced.

This announcement is dated 16 January 2001"

--------------------

     Tan Sri Dato' Paduka (Dr) Candonodam Ting, in other words, owes the company he controls as chairman nearly RM750 million, a three-quarters of a billion. He owes others, including banks, about or more than this, making him a billion-ringgit debtor. The company and its chairman broke the law and listing rules of the KLSE and the Securities Commission with this debt. Yet no action is taken against him and the company. Its share price at 75 sen is half as much as its low for the year and, like the debt he cannot repay Ekran, is a fraction of what its once was.

     He is a super crony, and like super cronies, every project he is given is troubled; the biggest, in fact Southeast Asia's largest infrastructure project, the Bakun Hydroelectric Dam, collapsed spectacularly. He tried to build it on a shoe-string, parcelling out subcontracts to companies he controlled, wanted the foreign contractor to be responsible for cost overruns it was not responsible for. Remarkably, he was also the project managers. It was built to fail, and fail it did. He was helped with timber concessions which earned him more than RM2 million, but little of that was diverted to the building of the dam. When this was pointed out, he sued for RM100 million. He does not want to proceed with the defamation action, which confirms all that was said in the article he was upset about.

     Now he needs more time to pay the first instalmanet of RM50 million, or about seven per cent of the sum owed. But he is still a super crony. At the Ekran AGM recently, Tan Sri Dato' Paduka (Dr) Candododam proudly reported of two projects which he could not reveal -- for reasons of confidentiality, you understand -- would transform Ekran the property pygmy into an engineering giant which would make even Bechtel Corporation shiver at the sound of its name! It is to be given the ancilliary works for the Sepanga Bay submarine base in Sabah and for the revised Bakun Hydroelectric project. He was given Bakun to recover costs of the Langkawi projects which were done without Treasury approval; now he is given two huge engineering projects to rescue him from his debts to Ekran. The projects are given to him personally not to Ekran so he makes money injecting them into Ekran to reduce his debt. And, hey presto, it is cleared.

     Were it as simple! This is the theory and the plan. But in Bolehland, it does not work so simply. As the Super Bumiputra aka internationally known business man of unquestioned repute, one Tan Sri Dato' Seri (not yet Dr, but there is time for that!) Vincent Tan, knows only too well there's many a slip betwixt the cup and the lip. If Tan Sri Dato' Paduka (Dr) Candonodam had attempted to resolve his debts earlier on similar lines a few years earlier, he could well have got away. Now, with the Renong bailout, the MAS bailout, the LRT bailout, the Park May-Intrakota bus bailout, the Monorail bailout, a Tan Sri Dato' Paduka (Dr) Ting bailout would raise the hatred of Malaysians fed up with the government's throwing of good money after bad. But, no doubt, hope springs eternal in the human breast!

- MGG Pillai

Saturday January 6
Govt bailouts affect credibility, says transparency head
K Kabilan

9:30am, Sat: In order for Malaysia to be internationally recognised and have an acceptable capital market, standards of corporate governance must be impeccable and the government should not keep bailing out unsuccessful businesses, an anti-corruption proponent said today.

Tunku Abdul Aziz, who is the vice-chairman of Transparency International, said that the government could no longer afford to use public funds to bail out crony businessmen.

Abdul Aziz, who is also the president of the Kuala Lumpur Society for Transparency and Integrity, said this in a paper he presented at the Institute of Southeast Asian Studies� Regional Outlook Forum 2001, which began in Singapore yesterday.

In the paper titled Challenges Facing Corporate Governance in Southeast Asia, Abdul Aziz said that like certain other countries, after many years in the denial mode, Malaysia finally came clean in admitting that the government engaged in many rescue operations during the financial crisis.

He said that the deputy prime minister Abdullah Ahmad Badawi had admitted that a more laissez-faire government would have allowed many key companies to sink.

�He said that the government was well aware of the rumblings and discontent among the professional business community that the government should not continue to protect those who have blatantly mismanaged their corporate empires and have repeatedly come back crying for help,� said Abdul Aziz.

MAS bailout

He, however, noted that this did not stop the government from again using public funds to bail out the debt-ridden and incompetently managed national flag carrier, Malaysia Airlines, by purchasing the 29 percent stake of its chairman at RM8 per share when the shares were trading at around RM3.60 each.

�The perception, rightly or wrongly, is that it is not MAS that is being saved but the chairman of MAS is being let off the hook with his original investments intact.�

�It is only in cronyland that you are rewarded for running a national airline into the ground. The fact that he is politically well-connected lends credence to the suspicion that this is just another victory for cronyism,� he added.

�And yet, when it was suggested that it was a bailout, Daim Zainuddin, the Malaysian finance minister is on record as saying, �No, it is not true, it is a wrong perception.� He rationalized cynically by suggesting that it was a deal done on a �willing buyer and willing seller� basis,� said Abdul Aziz.

He added it was this sort of unaccountable official behaviour that stopped investors dead in their tracks.

Similarly, he said, in Malaysia the protection of minority shareholder interests have been compromised through transactions which have conflicts between the interests of the company itself and its major shareholders.

He said that if Malaysia was to be fair to its own investors and minority shareholders and become an internationally recognised and acceptable capital market, standards of corporate governance would have to be nothing less than impeccable.

�There are strong arguments � for capital controls and fixed exchange rates. But there is none whatsoever for poor corporate governance and insufficient protection of minority shareholder interests,� he said.

Global trends

He added that no change or improvement in the way business operations are managed can be sustained if the attitude to good governance is out of step with contemporary global trends and this applies both to government and corporate leadership.

�The principles of good governance, grounded as they are in trusteeship, stewardship, transparency, accountability and integrity, are as relevant to the governance of a state as it is to the management of a public listed company,� said Abdul Aziz.

He added that the challenges facing corporate governance in Southeast Asia stem from the somewhat relaxed cultural, social, and political attitudes to stewardship.

Abdul Aziz said this was what led a government to secretly dip its sticky fingers in the national pension fund to support an undercover operation to corner the international tin market, which in the event proved to be an unmitigated disaster.

�And how else do you explain a government, using public funds and the dubious expertise of its central bank, to speculate on the international money markets? It is mind boggling to say the least,� he said.

Public censure

He added that in a more open and democratic society, such unethical behaviour would not only have attracted the most severe public censure but also brought the government down.

Corporate governance practice in Southeast Asia remains, at best, �patchy and uneven and, at worst, downright unwholesome in ethical terms,� said Abdul Aziz.

He said that it was quite apparent from all this that effective supervision by the various regulatory bodies remains problematic.

He also said that an important institution that underpins good corporate governance is the judiciary.

�Again, with the exception of Singapore, the integrity of the judicial system in each of the countries coming under the purview of our discussion cannot be taken for granted. Can the courts be relied upon to dispense justice without fear or favour?� he asked.

He added that there must also be a sufficient political will to ensure that the change in the pipeline is of such quality as to sustain long-term growth.

Saturday December 23

RM8 billion bailout: A Borneo perspective
Tony Thien

3:46pm, Sat: What do the people of Sarawak and Sabah think of the federal government throwing so much money to save Malaysia Airlines and its outgoing executive chairman Tajudin Ramli and the light rail transit companies in the Klang Valley area?

Firstly, it is interesting to note that both have one thing in common - they deal with public transportation, which is perhaps principally the reason the government has been forced to step in, even though it means digging deep into the pockets to find the money to do so. The cost to taxpayers and the country in these bailouts is close to RM8 billion which can in fact help to build tens of thousands of houses for the country's poor.

Secondly, it is not necessarily an indication that the policy on privatisation has failed, but rather the wrong choices (of people) to handle privatisation have been made. It was a big mistake to choose someone who had to rely entirely on borrowed money at such the high cost to take over an airline when he had little, or no, experience.

It's one thing to be willing to work hard and quite another to know what exactly needs to be done. Virgin Airlines' Richard Branson learned the hard way, he stumbled but picked up again, and that explains where he is today, a successful entrepreneur who learned without much help from others but on his own.

Finance Minister Daim Zainuddin is probably right that the RM8 paid to Tajudin for Naluri shares in MAS may not be too high. But it could be less, perhaps around RM6, after a reasonable premium is added to the market price. The reason is simple: The price that was finally concluded took into account MAS' net tangible assets.

This would mean that if about 30 percent is worth RM1.8 billion then anyone who can come up with about RM5.6 billion can be the sole owner of the airline. If you bring the cash in from outside in US dollars that will amount to less than US$2 billion, certainly cheap to own the rights and assets of a national airline like MAS. Of course, the government will not be so foolish to let the airline go that cheap, not to foreigners anyway.

Domestic services

Some reports blaming MAS' losses over the years partly on domestic services make Sarawakians and Sabahans somewhat guilty. If the airline management feel it cannot make money why not allow other airlines, including foreign airlines, to fly to the two East Malaysian states?

Sarawak, which is so keen to promote tourism, has been asking the federal government to allow Singapore Airlines to increase its frequencies from Singapore to Kuching and vice versa from twice to thrice weekly, or more, or better still to daily services. Also, the state has been clamouring for similar services to be introduced from Singapore to Miri, the northern gateway to Sarawak.

Since Air Asia and Transmile entered the picture, at least people in the two states have other options to fly out to Kuala Lumpur. Perhaps it is competition and the way it is organising and running its services that has driven MAS' profits down.

Air accessibility, or the lack of it, and the rather high fare are some of the key grievances of the people of Sarawak and Sabah. They want more air connections involving as many airlines as possible and to let the market regulate its own fares.

Entrepreneurial failures

The latest announcement concerning the federal government's proposal to take over the assets of the light rail transit companies operating in Klang Valley area has also raised concern in Sarawak and Sabah.

This is going to cost at least RM6 billion. Where is the money going to come from? According to latest reports, Malaysia's foreign reserves are already down to US$29 billion within a short period of time. Can the government afford to act like a rich man trying to dole out aid to entrepreneurial failures?

Is the money going to come again from Petronas, which depends on the oil and gas produced in Sarawak and Sabah as well as Terengganu for about 50 percent of its revenue? After MISC and Proton, which company is going to be next? This the question that is frequently asked now.

Some of the country's poorest roads are still to be found in Sarawak and Sabah. The so-called Pan-Borneo Highway is at best a series of new and old roads, upgraded occasionally at various parts and linked together to form a highway.

Why not get PLUS to take over and build the equivalent to the North-South Expressway between Sarawak and Sabah? Perhaps the people of the two states would not mind if at the end of the day the government has to come to the rescue of the privatised entity. At least there is a real highway.

Abandoned projects

When the ultra-modern city of Kuala Lumpur cannot even tackle simple flash foods every time there is rain, causing massive jams, it's ironic that people could even think of taking over and trying to build a light rail transit system.

The pieces of eyesore created by half-finished or abandoned public transport projects in Kuala Lumpur stand as a symbol to visitors from the rest of the country of Malaysia's inability to plan and carry out what basically is something very simple to help improve public transport system.

What guarantee is there that when the government takes over the assets of the light rail companies and asks the same people to operate the services on a lease back, they would not fail again? Why not ask others, including outsiders, who have the necessary experiences to organise an integrated public transport system, not only in Kuala Lumpur but also other major cities and towns throughout the country?
------------------------------------------------------------
TONY THIEN is a freelance writer based in Kuching.

PRIVATISATION:
Now You See, Now You Don't!
HARAKAH 16-31 January 2001
By: MGG Pillai

The Prime Minister is still sold on privatising government assets to cronies, courtiers and siblings. The few that collapsed, he infers, are "inconsequential". These things happen in the normal run of business. But he was less than ingenious in his recent interview to Bernama, his annual tour de horizon that in recent years raises more questions than answers. He did not privatise these assets after due diligence. It was handed out to favoured business men, with often a large sweetener to boot. And all we guaranteed to fail, as indeed it has.
     With it is the failure of the New Economic Policy, not for its inherent shortcomings but for its ill-thought-out political agenda. MAS is in deep straits because of what he now insists is the social contract. It is important, he now says, that Malays be spoonfed. No effort is made to have them stand on their own feet. But there was no mention of this social contract when they were privatised.

     In fact, what brought this country to its present levels is how policies are implemented. Civil servants defang desirable policies such that success only postpones the heavy cost to a date in the future and makes sure that no institution of government can pull its own weight. Frighteningly, it would now take decades before we can begin to rebuild them. In the meanwhile, we degenerate as a nation.

     The government must now bail-out the continually indebted privatised entities because it must continue to employ Malays to keep the social contract, such as it is, alive. What has the government done in the past 30 years to break away from this pernicious cycle? Precious little.

     The six billionaires this created are all in debt, consequently giving all bumiputra entrepreneurs a bad name: they are all, in the public eye, failures. They are not. Those outside the government loop survive, often well, without government help or assistance. They are themselves angry at this bailout of cronies.

     The Chinese business men press-ganged are handpicked not for their ability but for their lack of it. So, Tan Sri Ting Pek Khiing, a former tractor driver, and his Ekran empire keeps going with projects which prove their incompetence: after making a mess of the Bakun hydroelectrice project, he is given another chance to build it; besides, he also gets an important subcontract for the submarine base at Sepanga Bay in Sabah. The former car salesman and insurance agent, Tan Sri Vincent Tan, cannot rise from his inability to run companies and businesses without fresh infusions of government projects.

     Let us look at the "few" failures: MISC, Westport, MAS, Renong, UEM, IWK. The failed star is the Tan Sri Halim Saad stable, with more than RM30 billion in debt. These seven companies owe a quarter of what KLSE stocks now are worth: about RM80 billion or US$20 billion. Let us take a few other examples. The two LRT companies, Star and Putra, are in debt to RM6 billion.

     The two bus companies, ParkMay and Intrakota, RM2.7 billion. MRCB RM1.4 billion, its associate companies NSTP RM1.9 billion, TV3 RM700 million. The list goes on. When you add the cronies' and courtiers' corporate debt, it could quintuple. In other words, the total debt now of KLSE companies equal what KLSE stocks were worth -- US$400 billion -- before the 1997 decline. The GDP, then, of US$100 biilion was a quarter of what KLSE stocks were worth. The GDP remains the same but the KLSE stocks are worth less.

     What went wrong? All these assets were privatised for no reason than for its stakeholders to make lots of money. The North-South Highway and all privatised highways were built not by competitive tender but in such a way that the privatised company would be loaded with debt it cannot repay. Then this heavily indebted company is listed on the stock exchange, with the promoters making a second killing. Even with tolls increased regularly, the companies cannot repay its loans.

     The government finds creative reasons to say why the management could not do better. But the companies had no incentive to do better. The government takes over the debts and then returns it to the management that caused the debts in the first place. If the government is serious about turning a profit, it should bring in a different management chosen for their competence and not political reliability.

     Look at just one company, MAS. Tan Sri Tajuddin Ramli's 29.9 per cent stake in MAS was acquired not for cash as he now claims but by manipulating MAS and Malaysian Helicopter Services share prices. MHS price was pushed nearly four times and MAS pushed down a third so that two MAS shares equalled one MHS share. MHS changed its name to Naluri.

     He then went raided MAS. The planes were transferred to a Labuan registered company called MAS Capital, which then leased the planes back to MAS. The catering and maintence departments were privatised to companies in his stable. One TR subsidiary insures the 100 or so MAS planes for about RM2 billion each, so a pilot tells me.

     Now, with RM9 billion in debt, MAS's TR stake is sold to the government at what he paid for it -- RM8 a share, but without planes and services. In other words, the government has bought a virtual airline in acquiring the TR stake. Tan Sri Tajuddin himself is in debt to about RM1 billion. So, he needs to be rescued, come what may. But why is he being paid RM8 in cash when it would be far cheaper to return the Naluri shares back to him? Or buy the controlling stake on the open market, either buying up MAS or Naluri shares?

     Indeed, with the government's golden share which equals 51 per cent of the share capital, why did it have to buy the MAS shares when it could have controlled it behind the scenes to rescue MAS. Further, why did not the government use the golden share to prevent Tan Sri Tajuddin from stripping MAS of its assets?

     Every crony is mollycoddled so that he does not ever face the market place. They should be left to their own devices. So thoroughly indebted they are that future generations would continue to pay for the mistakes now long after they are forgotten. The RM18 billion the Plus Highway owes is scandalous, especially since the management is returned to the same group that brought this debt about. Meanwhile, Renong goes about crowing that its RM30 billion debt is about to disappear into the government safety net.

     The Prime Minister insists the cronies, courtiers and siblings did badly because the KLSE went weak. But they failed because they looked upon the companies they acquired as a monkey sees flowers. None had any intention to hold on to them and create a business. Their only aim was to make as much money in the shortest time possible. But they believed this is best done by being indebted as quickly as possible.

     The government believed that paper profits they made in a burgeoning stock market was proof of success. And they flaunted their wealth. Their fleet of planes, by and large, have been repossessed. Each of these instant tycoons fell over each other to buy the latest model of motor cars and acquired wives, mistresses, baubles as if there was no tomorrow. In this make-believe world they did not see reality.

     What frightens is that the Prime Minister and his cabinet cares not a whit what this does to future generations. Or if Malaysia would survive this heavy debt. They announce projects and plans worth tens of billions. They is no money. But they brazen it through with more privatisation and more projects, lulling the people into believing that somehow by the skin of its teetch the country would survive. Were it that simple!


- MGG Pillai -

From Singapore Business Times
20 April 1998
Cost of corporate bailouts
M'sia must ensure transparency to placate investors' fears
By Eddie Toh

THE B-word (as in bailout) was the buzzword in market circles in Kuala Lumpur this past fortnight.

Investors watched every move of key players for any signs of whether public or private funds were being used to rescue major corporatefigures as the first casua lties of the current economic downturn began to surface.

The slump in the value of the ringgit and higher interest rates have meant that many corporate bigwigs and their listed vehicles are starting to feel the effects of past corporate forays. Besides massive losses recorded by many listed companies, the stock market saw in the past fortnight the first corporate bloodletting in the form of receiverships and winding-up petitions: Wembley Industries Holdings Bhd and SCK Group Bhd became the first listed companies to
be placed in the hands of receivers.

So far, the casualties have been limited to companies with little national interest at stake. For instance, the main asset of Wembley �a 32.8 per cent unit of Ekran Bhd � is a commercial development with a proposed 79-storey office tower in Kuala Lumpur.

Questions are beginning to be raised about what the policy approach would be for companies with assets that are of strategic interest to the country.

For instance, the Employees Provident Fund (EPF) is said to be close to buying a substantial stake in highway concessionaire Plus � a unit of debt-laden Un itedEngineers Malaysia � for 1.5 billion Malaysian ringgit (S$631.6 million). Should this happen, the issue is whether this investment is the best way to optimise the EPF's cash hoard.

Two other major developments last week also brought the issue of bailouts to the fore. First, Tajudin Ramli announced a restructuring of national carrier Malaysia Airlines to help retire his personal debt of about RM800 million.

Meanwhile, Ekran said in a private letter to the Kuala Lumpur Stock Exchange that a new substantial shareholder would emerge in the firm. It is understood that Ting Pek Khiing is in the midst of selling his
entire 55.7 per cent stake in Ekran, the developer of the shelved Bakun dam project in Sarawak.

In both cases, the major shareholders need fresh capital. Mr Tajudin borrowed RM1.8 billion a few years ago to buy MAS. Mr Ting has to raise over RM1 billion to pay loans taken to finance his subscription of shares in a poorly received Ekran rights issue last year.

Since the interest of major shareholders is at stake, the regulatory authorities must see to it that these restructuring exercises will not disadvantage minority shareholders.

In the complex MAS deal, Mr Tajudin plans to sell MAS' aircraft to a new company, MAS Capital, at their book value of RM9.5 billion. MAS Capital will obtain fresh loans by revaluing the planes at their current market value of RM14 billion and lea se the planes back to
MAS. MAS Capital shares would be issued free to the airline's currents hareholders. MAS Capital will then use some of the funds to buy part of Mr Tajudin's stake in his two companies -- Technology Resources Industries and Malaysian Helicopter Services � so that he can reduce his personal debts.

Investors dumped MAS shares on concern that major shareholders were bei ng bailed out, a charge scoffed at by Prime Minister Mahathir Mohamad who said no rules had been broken.

To convince the sceptics that this is no bailout, Mr Tajudin has to show that MAS will benefit from the lease-back arrangement of the planes. In addition, he has a more daunting task of convincing MAS minority shareholders, who will own a stake in MAS Capital, that there are indeed merits in injecting his personal stable in MAS Capital.

Similarly, Mr Ting must ensure that minority shareholders will not bear the brunt of his corporate exercise. His purported plan to sell his entire holding to a new shareholder at a premium to market price will trigger a general offer under normal circumstances.

The authorities will therefore have to make sure that the offer is extended to other shareholders in the company. A waiver, while allowed in exceptional circum stances under bourse rules, will be seen as a bailout for Mr Ting.

Similarly, Mr Ting or the new substantial shareholder in Ekran must abstain from voting on a separate plan to allow minority shareholders to vote on the merits of the exercise. This involves his earlier plan to inject his 49 per cent in PWE Industries Bhd and 32 per cent in Granite Industries Bhd into Ekran for a total of RM924.45 million. The
pro posals will have to be revised drastically as the combined stakes are worth less than RM150 million today.

With more restructuring exercises surfacing in the coming weeks and months, the government can take steps to placate investors and the general public over fears of bailout.

First, the government must fully justify the use of public funds to help the private sector. Second, the regulatory authorities must ensure that any restructuring exercise initiated by the major shareholder in a public company is conducted at arm's length.

Tuesday April 10

Crony companies' bailouts costly: economist
Ng Boon Hooi

7:14pm, Tue: A local economist yesterday said that while the number of bailouts of troubled companies was small, these bailouts have been very costly to the country.

Universiti Malaya associate professor Dr Edmund Terence Gomez said that the government has failed to learn any lesson from the 1997 financial crisis.

He said that financial institutions that are controlled by the government or politically well-connected businessmen, are being used to channel loans to a privileged few who are facing problems in servicing their debts.

According to him, 15 corporate groups accounted for 20 percent of Malaysia�s entire bank loans during the economic crisis.

�Of the RM39 billion loaned by banks for share acquisition, almost 45 percent were given to the individuals. One company, the Umno-linked Renong, had accumulated debts constituting more than five percent of loans in the Malaysian banking system.�

Gomez was speaking at a seminar organised by DAP on �Bailouts and buyouts - Are EPF, Pensions Trust Fund and Public Monies Safe?� in Kuala Lumpur yesterday.

He added that former Umno deputy chief Anwar Ibrahim has alleged that less than 10 people linked to party leaders were jointly responsible for the loans worth around RM70 billion. Among those named by Anwar included tycoons Halim Saad (left) and Tajudin Ramli (right).

Gomez also said the banks with the most non-performing loans were mainly government-owned institutions including Sime Bank and Bank Bumiputra.

The government has bought over Bank Bumiputra�s non-performing loans, he said, adding that Sime Bank�s debts were absorbed by the government before the takeover by the well-connected Rashid Hussain group.

Varied criteria

Gomez, who is from UM�s Faculty of Economics and Administration, said that the criteria for those bailed out are based on a variety of considerations.

�Some are personal like the case of Mirzan Mahathir (Prime Minister Dr Mahathir Mohamad�s son) and Tajudin Ramli, and others are to ensure Mahathir�s vision of creating the Malay conglomerates is not derailed,� he said.

The questions not asked when these bailouts were implemented were how these projects were conceived in the first place and whether the contracts awarded to implement these projects had been done in an open and transparent manner, said the economist.

�We know that even Mahathir�s entire cabinet questioned the feasibility of his heavy industry projects, including the Proton car project. I have never heard (Finance Minister) Daim Zainuddin publicly endorsing the heavy industry projects,� he said.

However, Gomez said that Mahathir has begun to be much more selective in the award of government concessions, especially during the 1990s after he had strengthened his position in Umno.

�The prime minister had a genuine belief in his ability to pick winners who could help fulfill his vision of creating Malay capitalists,� he said.

Renong�s huge debt

But Gomez singled out Renong as an example of how Mahathir has failed in his mission.

�Renong�s huge debt were accumulated through the pattern of growth it adopted, that is through the acquisition of companies in almost all major industries.

�This also had to do with the Mahathir�s desire to create huge companies that would emerge as enterprises of international repute,� Gomez said.

He pointed out that the government has asked Renong to serve �national interest� by the acquisition of key companies even when it was not ready.

Gomez cited the example of the conglomerate being used to bail out the National Steel Company (NSC) in the Philippines owned by the now discredited politician-cum-businessman and former member of parliament, Joseph Chong.

�Although Halim Saad may have been instructed to take over the steel plant in the Philippines, ostensibly because it was in line with Mahathir�s desire that Renong expand its activities abroad, diversify its interests, was Renong qualified to move into this business? Was the viability of the venture adequately assessed given the problems that Perwaja Steel faced in the same industry in Malaysia?� he asked.

�I feel that the issue of �national interest� was a convenient ploy to justify Mahathir�s mistake,� he said.

Renong�s takeover of NSC, with loans from a number of government-owned banks, has led to a severe debt problems for the company following the 1997 crisis.

Last year, Pengurusan Danaharta Nasional (Danaharta), Malaysia's national debt restructuring agency, took over the multi-billion ringgit loan of Hong Kong's Hottick Investment, the company used by Renong�s Halim as a vehicle to take over NSC.

This steel company is on the brink of liquidation, rendering the RM3 billion loan to near scrap value, as the lending banks had only the worthless scrips of NSC but not its assets as security.

The lending banks for the takeover are Malayan Banking, RHB Bank, Bank Bumiputra and Commerce Asset-Holding Bhd.

National interest

Gomez questioned whether companies like Renong should be bailed out because they were used to undertake projects in the �national interest�.

�Is it really necessary to have a company the size of Renong as a symbol of the development of Malay capital, especially when it is clear that this private company does not represent the interests of all bumiputras?

�Who remains accountable for the pattern of growth undertaken by Renong that contributed to its debt problem, and should the public, state-owned enterprises and institutions be used to bail out Renong?�

Gomez added that the same problem was seen in a number of other major companies in the country, including Malaysia Airlines System, which have important assets but are or were led by the people without the expertise to develop such companies.

In the case of Renong, Gomez suggested that it could have reduced its debt by divesting its interests in a number of companies which were still quite profitable, particularly in non-core activities, which would have forced Renong to be more focused.

He added that such divestment, which other companies were forced to undertake to reduce the debts, indicated to them the need to reassess their style of business and rationalise their operations.

�This was not the case with Renong, with the government trying to institute all sorts of bailouts which have been a burden to the public, and not in the interests of the minority shareholders,� he said.

He said that it is widely believed that many of the companies that have been bailed out are linked to proteges of Daim.

�However, among the wide range of corporate assets owned by Halim Saad, Wan Azmi Wan Hamzah (left) and Tajudin Ramli, it is difficult to distinguish between assets belonging to them and those being held in trust for Daim or Umno,� he said, adding that former deputy premier Anwar has revealed the documents signed by Halim, Wan Azmi and Tajudin confirming that they owned such corporate assets on behalf of Daim and Umno.

However, Daim has strongly denied the allegations.

Cut link

Gomez added that while Mahathir�s intentions might have been noble when he selectively distributed government concessions to develop domestic, especially bumiputra, capital, the outcome has been costly for the nation.

�If the selection process had been transparent and based on criteria different from that of political or personal affiliations, this need not have been the case,� he said.

He stressed that the close link between politics and business is contributing to the government�s inability to institute proper and much needed corporate reforms.

�Unless there is greater attempt to delink politics from the business, as our history has indicated, we will continue to see the abuse of the government institutions, like Employees Provident Fund (EPF), to protect the interests of a small group of people,� he said.

The EPF has been recently criticised for investing RM269.28 million in Halim�s Time dotCom. The initial public offering of the firm last month saw its shares plummeted by almost half at the Kuala Lumpur Stock Exchange.