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FEER: In Bad Company
By S. Jayasankaran
2/3/2001 8:03 pm Fri
[Commerce Asset Holding (CAHB) memang tidak telus. Ia terlalu banyak
menyerap hutang lapuk buat kroni dan asyik menganggap perniagaan mereka
berbaloi untuk dibeli. Malangnya saham CAHB sendiri tidak laku dan
terjunam teruk sekali. Itulah panduan apakah nasihat CAHB harus diterima
pakai oleh pelabur syarikat kroni.
CAHB adalah kenderaan kroni untuk membuang hutang untuk ditanggung oleh dana
awam dan pasaran saham. Ia dimilikki oleh kroni juga, patutlah ia asyik
membantu mereka walaupun rugi. (CAHB: Renong 12%, NSTP 13%, Kerajaan 32%)
Source: The Far Eastern Economic Review
Issue cover-dated 8th March 2001
In Bad Company
By S. Jayasankaran
Razali Ali struggled to keep the frustration out of his voice. The
chief executive of financial-services company Commerce Asset Holding
was explaining why the company had embarked on a share-buyback
exercise. "The true value of our shares isn't reflected in the price,"
he told a press conference on February 26.
Quite. Over a year, the shares of Commerce, which wholly owns
Bumiputra-Commerce, the country's second-largest bank, have fallen
almost 40% to 7.35 ringgit ($1.93) apiece. Nor is it likely to recover
any time soon. Only six of the 25 Malaysian securities houses covering
the stock rate it a "buy"--the rest have it as a "sell" or, in the
less-than-subtle analyst reluctance to calling a spade a spade, a
Call it the Commerce paradox. That's when investors shun a company
with good, proven management only because they're suspicious about its
owners. And Commerce has two large, politically connected shareholders
that loom over its fortunes. The Renong conglomerate owns 12% of the
group while the New Straits Times Press has 13%. Both are close to
Malaysia's ruling party, both are moving to cut debt and both want to
sell out. That means there is a potentially large overhang of Commerce
shares waiting to be unloaded which, by definition, would drive its
Make that three large shareholders. The third: the government itself,
which owns 32% of Commerce. That's been both a blessing and a curse.
In 1999, it enabled Commerce to take over state-owned Bank Bumiputra,
arguably the country's worst bank: Over 14 years, it's been rescued
three times to the tune of billions of taxpayers' ringgit. Still, the
Bumiputra-Commerce merger was possible only because the government
promised to take over Bumiputra's bad loans at full value. So far,
Commerce has sold 10 billion ringgit worth of such loans to the
But it's created other problems going forward. Staffing exploded to
11,000 people and costs now constitute 46% of revenue compared to the
industry's 35% average. But layoffs are politically sensitive because
they involve ethnic Malays. Bank Bumiputra is overwhelmingly Malay.
Commerce can afford to cut up to 2,000 jobs, analysts estimate, but
that's near impossible given the highly charged political atmosphere
currently. Razali says "the board has yet to consider" any layoff
schemes. In short, cost cuts would come slowly, a realization that's
been factored into Commerce's share price.
The major unease over Commerce, however, is its exposure to a current
flotation. In February, Renong proposed selling 22% of its
telecommunications concern, Time dotCom, to investors for 1.69 billion
ringgit. Ten banks, led by Commerce's merchant-banking unit,
underwrote the issue.
But the public stayed away and the offer was 75% undersubscribed. It
doesn't matter to Renong --it will after all get its money from the
underwriters--but analysts tracking Commerce fear that the
underwriters would get stuck holding the shares.
"If the shares tank on listing, say by one ringgit, we think in the
worst case Commerce could have to make provisions for at least 100
million ringgit," says Gan Kim Khoon, the research head for
Arab-Malaysian Securities in Kuala Lumpur. "That's why there is so
much negativity over the stock."
Indeed, the impact of Time dotCom on Commerce's balance sheet was the
most frequently asked question at the press conference on February 26.
Commerce's management gave evasive replies--for example, saying "it's
well within our capability"--which didn't help matters with analysts
They really should have been more frank. Highly placed sources reveal
that Commerce sub-underwrote out most of its Time dotCom allocation to
government agencies, so that its net exposure could be even less than
20 million shares. That's peanuts in an offer of over 400 million
shares and would do little damage to Commerce's balance sheet, even if
the shares tank badly.
Moreover, the listing would also retire close to 4 billion ringgit of
Renong group debt, some of which would add positively to Commerce's
balance sheet in the form of writebacks. (The group was and is a big
lender to Renong--but the conglomerate does not have representation on
Perhaps the lack of transparency on Commerce's part has hurt it. But
if there's a broader moral to this particular story, it is this: The
concern that some Malaysian companies depend upon political
connections and government support for their survival tends to hurt
anybody even remotely connected with them.
The shares of the various Renong group companies are all trading at
30%-70% discounts to net asset values. Although it's managed
independently of Renong and is reasonably profitable--519 million
ringgit in net profit for the year to December 31, 2000, up 34% from
the previous year--Commerce is being tarred by the same brush. No
wonder Razali seems frustrated.