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Post-Mortem
Issue cover-dated June 7, 2001

Shroff - Malaysia's Postal Privatization Puzzles

By S. Jayasankaran

A pregnant silence has descended upon the privatization of Malaysia's postal services. On May 24, Phileo Allied, a financial-services company listed on the Kuala Lumpur stock exchange, announced that it was buying Pos Malaysia, the national postal-service company, from the Ministry of Finance for 800 million ringgit ($210.5 million).

Phileo said it would pay the government 550 million ringgit in cash and the balance through a five-year, 5% convertible loan from the government. At the end of the period, Phileo would either make a bullet repayment or the government would convert its loan into equity, in which case it would emerge as Phileo's single largest shareholder with a 32.9% stake.

Straightforward enough? No, at least not in Malaysia. Pos Malaysia is a profitable company -- it earned a net profit of 53 million ringgit in 2000 -- and could have listed under its own steam without resorting to a back-door entry. More puzzlingly, bankers and financial executives familiar with the company insist that Pos Malaysia's board had ruled against a listing this year because of poor market conditions.

Given its ethnic context, the deal is also puzzling because of its potential political repercussions. Race looms large in Malaysia. So when an avowedly ethnic Chinese company like Phileo Allied buys the national postal service with its -- albeit decidedly diminished -- monopoly, its 740 branches and its vast property holdings all over the country, it's bound to raise eyebrows.

Indeed, the background of the postal service clearly indicates that it was always meant to serve Malay interests. After Pos Malaysia was corporatized in the mid-1990s, the government took up 60% of its equity while the remainder was held by National Equity Corporation, better known by its Malay acronym, PNB, a state-backed agency entrusted with the economic empowerment of ethnic Malays.

And PNB is no ordinary concern. Owned by a foundation chaired by Premier Mahathir Mohamad, PNB is the trustee of four huge unit trusts explicitly designed to advance Malays economically. The vast majority of their more than 7 million unit holders are Malays, who have reaped dividends of at least 10% a year since 1981.

Thus, PNB's stake in Pos Malaysia implied that the eventual listing of Pos Malaysia would serve ethnic Malay interests. Indeed, Malaysia's privatization policy explicitly states that it would be used to foster Malay corporate interests. But, inexplicably, senior government officials say that PNB sold its stake in Pos Malaysia back to the government in April.

The deal wasn't announced -- it didn't have to be, as neither company is listed -- so few details have emerged. PNB chief executive Hamad Kama Piah Che Othman didn't respond to the REVIEW's faxed questions about the sale.

This could raise hackles in the United Malays National Organization, or Umno -- the leading party in the ruling National Front coalition -- as Phileo Allied is, on paper at least, currently controlled by ethnic Chinese interests. But so far the silence has been deafening.

Nobody's asking questions, nor is there concern in the vernacular Malay media, normally quick to seize on issues deemed detrimental to Malay interests. Utusan Malaysia, the country's largest selling Malay newspaper, called the deal "shocking" but didn't say why.

A senior Umno official told the REVIEW he was surprised at the deal but "was amazed" at the indifference it inspired. But another Umno insider says that "people are asking questions about the deal's lack of transparency," and he expects it to become a heated issue at the Umno general assembly scheduled for June.

Even so, Phileo was attractive because of its 1.2 billion ringgit cash hoard. Last year, it sold off its banking business and ended up as a cash-rich shell. Meanwhile, the government has a so-called golden share in Phileo which allows it sweeping veto powers. In addition, it can take over the company in five years anyway, given its equity kicker clause.

That's why some analysts think that, eventually, a Malay businessman will control Phileo. "The government's got five years to find him, "says a managing director of a listed company, "because I cannot believe that the postal services will be controlled by Chinese interests."

Interestingly, that Malay businessman could have been Mokhzani Mahathir, the premier's son. Through two listed companies, Mokhzani owned 28% of Avenue Assets which, in turn, held close to 20% of Phileo Allied.

But in late April, Mokhzani sold both listed companies to little-known businessman Lim Tong Yong at a loss to "withdraw" from business. He said that his decision was to shield his father from accusations of nepotism.

Shahrir Samad, a member of Umno's powerful Supreme Council, is grateful for that. "If he was still at Phileo, the opposition would have been whacking us for cronyism, nepotism, you name it," he says.

(END) Dow Jones Newswires 30-05-01