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BTS: Malaysia Inc Must Deal With Debts

15/6/2001 6:48 pm Fri

[Sekarang syarikat milik kerjaaan sendiri sudah bermasalah. Bukan itu sahaja, malah pasaran bon pula sudah mula sakit. Mengapa Malaysia sekarang asyik sakit sahaja? Sebabnya mudah sahaja - doktor yang merawatnya sudah tidak mampu bekerja atau mencari pekerja membantunya kerana terlalu banyak masalah yang menghempap dirinya. Yang tinggal pekerja yang haprak sepertinya jua. Mahathir telah membawa ekonomi Malaysia ke satu era yang semakin kronik. Semakin lama dia dibiarkan berkuasa, semakin sukar untuk memulihkan negara. Itulah yang sedang berlaku di Indonesia dimana orang yang pakar seperti Edwin Gerungan pun sudah bosan dan menggeleng kepala. Akibatnya Indonesia bergolak dan semakin huru-hara kerana tanpa wang yang mencukupi rakyat akan mencuba jalan lain untuk mencarinya. Ini termasuklah menyeberang ke Malaysia atau melibatkan diri dalam aktiviti haram. Tidak kurang pula yang merusuh dengan kaum atau ugama sebagai alasan. Itu semua mudah dilakukan kerana sudah terdesak dihimpit oleh krisis wang. Bukankah sudah banyak jenayah terancang muncul hari ini di Malaysia? Itu semua adalah tanda bahawa ribut ekonomi akan datang melanda dan semua pihak termasuk pihak polis juga akan terkena. - Editor] story/0,2276,11506,00.html?

The Business Times, Singapore
15th June 2001


Malaysia Inc must deal with debts

THE default on a RM55 million (S$26.3 million) debt last Friday by Johor Corporation, the investment arm of the Johor state government, is a worrying development. Although the sum involved is relatively small, it raises concerns about the health of other state economic development corporations (SEDCs).

After all, Johor Corp was regarded as one of the better-managed SEDCs among the 13 state governments. Indeed, the National Economic Action Council, headed by former finance minister Daim Zainuddin, had urged other SEDCs to emulate the Johor Corp business model.

The real cause of Johor Corp's default has yet to be made public, but it's clear that the problems go back to the heady days prior to the 1997 crisis when Malaysian companies and SEDCs resorted to easy loans to finance their business ventures.

When the crunch came, many could not service their loans and the ratio of NPLs in the Malaysian banking system, based on the three-month classification, rocketed to 23 per cent from under 5 per cent. Many companies declared huge losses due to the spike in interest costs, dwindling business and foreign exchange losses. In Johor Corp's case, it is thought to have been saddled with RM5.4 billion in debts. So last week's default could portend more shocks to come.

To the credit of the Malaysian government, it set up three agencies to tackle the debt woes - Pengurusan Danaharta, Danamodal Nasional and the Corporate Debt Restructuring Committee (CDRC). Danaharta and Danamodal did an excellent job in rescuing the banking sector. The former mopped up NPLs from stricken banks, while the latter recapitalised weak financial institutions. The CDRC also moved fast to resolve the biggest headache in the corporate sector - Renong group's short-term liability of RM8 billion.

However, much of the good work has been undone by companies' reluctance to bite the bullet and repair their balance sheets. Many have dragged their feet despite the economic recovery of the last two years. Some have simply reshuffled their assets, instead of disposing them to raise cash.

For instance, Renong has yet to carry out its promise to sell assets to repay Plus, the highway operator, which had issued RM8.4 billion in bonds to rescue Renong and associate United Engineers Malaysia. The amount due to Plus, a UEM subsidiary, will balloon to RM16 billion at the end of the bond tenure in 2006. Delayed debt restructuring exercises will not only weigh down the individual companies but also have a profound impact on stockmarket sentiment and the country's image. Foreign fund managers will continue to shun Malaysian listed companies if they fail to clean up their balance sheets. Even healthy companies will not be spared.

Greater danger

But the greater danger is the potential impairment of Malaysia's sovereign rating at a time when the federal government is set to issue bonds to help finance its fiscal deficit. Petronas - the Malaysian government-owned oil major and a Fortune 500 company - managed only to sell half of its US$1 billion bond issue in 1999 due to the negative perception of Malaysia and other Asian countries then. Furthermore, Petronas had to price its bonds 320 basis points above five-year US Treasuries. The Johor Corp default will inevitably raise questions about the ability of state governments to manage their financial affairs.

It is clear that Malaysia Inc must resolve its debt woes fast. Otherwise, the debt overhang will make it harder for Malaysia to sustain its economic recovery. pi_news_id=740836&pi_ctry=my&pi_lang=en

Malaysia's investment tide turning to stocks from bonds

By Benjamin Low

KUALA LUMPUR (Reuters) - The investment tide in Malaysia is turning away from bonds and back to a resurgent equity market.

With eyes on a second-half rebound for equities, investors have rediscovered an appetite for risk-taking, leaving the safety of the bond market in search of battered shares.

"I see some fund managers trying to sell their bonds to go into equities," one bond dealer said.

Malaysia's benchmark stock index, the Kuala Lumpur Composite Index has risen six percent in the past week, buoyed by new-found optimism that the worst may be over.

Just two months earlier, the KLCI represented Asia's worst-performing market, showing a loss of 18 percent on the year-to-date.

Growing confidence in Malaysian shares stems from the Composite Index's ability to hold above 550 points in the past month despite plenty of bad news on company earnings.

That has prompted many to conclude the market has bottomed, making now the time to start picking up cheap shares.

"The market is sending a signal that it already knows all about the negative things," said Nik Azhar Abdullah, who helps manage 1.0 billion ringgit at Commerce Asset Fund Managers.

"For people who have low exposure to equities, they don't mind increasing their exposure right now because the downside is quite limited."

The benchmark index cracked 600 points on Thursday, but remains at about half its high of February 2000. At 12 times estimated earnings for 2001, stocks are also trading well below the average of 20 times seen during the past 10 years.


At the same time, interest in the bond market has waned.

"The bond market has slowed down a lot in the past month," a bond dealer said.

Bonds rallied from December through to April, caught up in a frantic rush for low-risk instruments as money fled the slumping stock market.

The country's most actively traded issue, the three-year MGS paper maturing in March 2003, rose to 102.50 ringgit in April from around 100.8 ringgit at end-November as yields shrank to 3.1 percent from 4.1 percent.

But what seemed then like an endless buying spree has since fizzled out, leaving bond prices drifting in a tight range and moving the action back the way of equities.

Against this backdrop, the government has reopened its 5.0 billion ringgit seven-year Malaysian Government Securities (MGS) with maturity on August 16, 2006.

Bank Negara Malaysia said on Thursday it received bids at an average yield of 3.915 percent, within market expectations.

To be sure, the sale was not short of takers.

The central bank received 267 bids amounting to 9.4 billion ringgit, representing a subscription rate of 1.9 times.

Insurance companies and pension funds, which regularly buy such bonds to lock-in benchmark return requirements, were again the main customers.

But for the investment community at large, bonds are losing their appeal.

"I would go a bit slow on bonds because yields are so low," said Connie Ong, chief investment officer at KLCS Asset Management, which manages over 500 million ringgit.

"The returns from equities, even with the higher risk premium, appear to be slightly better."

Government bonds yield between three to four percent.

In contrast, the Malaysian stock market has an earnings yield of about seven percent and return on equity of an average 15 percent, analysts estimate.


Still, investing in Malaysian assets, be it bonds or stocks, remains risky business.

Concerns about political instability, poor corporate governance and a devaluation of the ringgit currency has added to risk premiums.

To reflect that higher risk, analysts have put the Composite Index's fair value at a price-earnings ratio of 15 times, a discount of 25 percent to the 10-year average.

As for bonds, fears of a recurrence of massive defaults seen during the Asian financial crisis in 1997 have grown recently.

The slowing economy has already claimed two casualties after Gadek (Malaysia) Bhd and state-owned Perbadanan Johor last month failed to make good on their debt obligations.

"The bond defaults are the repercussions of unsustainable financial reform policies both pre- and post-crisis with many companies still struggling with their debt burdens," ABN Amro Bank said in report.

"It has been four years since the crisis began and one wonders if there were any real lessons learnt," it added.