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AWSJ: Malaysian Government Plans To Wrest Control of Renong
By Leslie Lopez

18/7/2001 9:14 pm Wed

[Nampaknya game sudah 'over' untuk Halim Saad yang dulunya begitu dimanja. Tetapi ini semua silapmata belaka untuk mengabui mata. Jika tidak pasti seseorang perlu didenda. Soalnya mengapa tiada? - Editor]

The Asian Wall Street Journal

18th July 2001

Malaysian Government Plans
To Wrest Control of Renong



KUALA LUMPUR, Malaysia -- The Malaysian government is planning a takeover bid that could wrest control of Renong Group away from its controlling shareholder -- and signal a new tack toward handling the country's bad-debt problem.

One of Malaysia's biggest conglomerates, Renong's businesses run banks and toll roads, own oil and gas fields, and develop and build real estate. it also is the country's biggest corporate debtor. but Renong, the former investment arm of Prime Minister Mahathir Mohamad's ruling party, has made slow progress in restructuring its 13 billion ringgit ($3.42 billion) of outstanding debt. And this is prompting the government to take action.

According to senior financial executives and government officials close to the plan, a government agency will announce a takeover plan for United Engineers Malaysia Bhd., which owns a 32.6% stake in Renong, as early as next week. As a result of Renong's convoluted and complex equity structure, a successful takeover bid by the government would result in businessman Halim Saad -- Renong's main shareholder and executive chairman -- losing control of his business empire.

A change in ownership at the Renong Group would be the biggest aftershock to date following the departure in June of Malaysia's former finance minister, Tun Daim Zainuddin. Tun Daim, until recently a close adviser and ally of Dr. Mahathir, and who also was considered one of Tan Sri Halim's top benefactors.

Senior government officials close to the planned UEM takeover say the exercise, which could cost the government as much as two billion ringgit, was directed personally by Dr. Mahathir last week.

Intricate Shareholdings

Azman Yahya, managing director of the government agency set up to dispose of Malaysia's bad loans, Pengurusan Danaharta Nasional Bhd., will supervise the government's takeover bid, financial executives say. Should the bid succeed, Datuk Azman is then expected to succeed Tan Sri Halim and head the new management team in charge of Renong Group.

Renong Bhd. and UEM are both publicly listed. In addition to UEM's stake in Renong, Renong controls a 37.1% interest in UEM. Through a complex shareholding structure, the two concerns control an additional nine listed companies, which at one time represented the core business investments of Dr. Mahathir's party, the United Malays National Organization, or UNMO. Tan Sri Halim owns a 16.5% equity interest in Renong and effectively controls the entire group.

Under Tun Daim's tenure as finance minister, several heavily indebted companies with good political connections received state help, drawing public criticism.

A government bid to take over UEM would appear not to be the same type of state-backed bailout. The government expects a large number of acceptances for its takeover offer will come from banks that hold UEM shares as collateral for loans to Renong Group and from minority shareholders of the company.

Moreover, removing Tan Sri Halim as head of Renong is intended to send a message that politically well-connected companies and business groups will no longer be afforded special treatment, and top management will be punished for past excesses, government officials say.

Kuala Lumpur expects to accumulate at least 45% of UEM shares through its bid, according to a senior financial executive familiar with the plan. He added that the price offered will be slightly above market value. Speculation of a possible bid stoked heavy trading in UEM shares, which closed up 16% Tuesday at 3.56 ringgit apiece, a gain of 50 sen from Monday.

Heavy Debt Load

In mid-1997, when Asia fell into a deep financial crisis, Renong had 26 billion ringgit in debt, accounting for roughly 5% of total loans in the Malaysian banking system at the time. Both Renong and UEM have restructured a combined 8.4 billion ringgit in debt through the issuance of seven-year bonds in early 1999. Renong also paid the entire four billion ringgit in debt owed by another associate company, Time Engineering Bhd., early this year with proceeds from the listing of its wholly owned telecommunications subsidiary.

But roughly 13 billion ringgit of the group's debt has yet to be restructured and there also is the eventual payout on the seven-year bonds. No coupon payment will be made on the bonds, but Renong and its affiliates will have to pay out 16 billion ringgit to its bondholders when the issue expires in 2006.

Complicating the Renong debt problem is a 3.2 billion ringgit personal debt Tan Sri Halim owes to UEM. That debt to UEM is a result of a put option Tan Sri Halim entered into in early 1998, which commits him to purchase 32% of UEM's holdings in Renong. Partial payment of 100 million ringgit for the put option fell due last Saturday and Tan Sri Halim was given a 60-day extension -- his second extension since February -- by the UEM board to make good on his installment payment.

One government official involved in the UEM takeover plan says that should the plan succeed, Renong, under the leadership of Danaharta's Datuk Azman, would consider selling some of group's assets to retire its debt. More complex, however, will be the settlement of the bonds Renong issued, which the government official described as a "huge headache."

Financial executives close to the UEM takeover plan say Dr. Mahathir decided to enlist Danaharta's Datuk Azman because of the 37-year-old former banker's strong track record at the asset-management company, which has emerged as a prime mover in getting Malaysia's battered banking system back on its feet.

Datuk Azman declined to comment.