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KQ: Illusions From UEM Takeover
By Kim Quek

25/7/2001 7:50 am Wed

[Kes Renong-UEM yang hangat kini lebih bersifat ingin menunjuk sahaja itupun masih gagal untuk memberitahu segala-galanya kerana ia akan terpalit kepada kerajaan juga. Renong kaya dengan projek kerana kerajaan memberi projek penswastaan kepadanya tanpa kaedah yang sepatutnya kerana ada sesuatu di dalam Renong milik Umno.

Sepatutnya kepincangan dan kemanjaan Renong yang menjadi fokus bukannya mengambil-alih sahaja. Langkah kerajaan itu hanya menyelamatkan penyangak yang telah lama bermain bawah meja. Kes ini tidak ubah seperti kes BBMB yang ditelan agar semua hutang terpadam tanpa diketahui sesiapa. Tiada sesiapa pun didenda walaupun wang telah lesap dengan begitu banyaknya kerana penyangak juga yang memegang segala rekod celanya.
- Editor



The Government has been orchestrating a market hype that its current move to re-structure UEM-Renong is the ultimate remedy to the malaise that has plagued the Kuala Lumpur Stock Exchange.

By building up Halim Saad as the bogeyman, and by capitalizing on his Renong Group's notoriety as symbol of Malaysia's cronyism, Mahathir hopes to convince investors that all will be well, once Halim is put away and UEM-Renong is reined in under his control. The message is out that the days of dubious government favouritism towards selected tycoons are over, and transparent governance is in, and investors should feel at ease to invest.

But the truth is Halim is but a proxy for the powers that be and therefore not a key to the solution, and cronyism will not go away unless there is a fundamental change in government policy in managing the assets and resources of this Country.

For a start, the present practice of awarding billions of ringgit of government contracts and privatized projects without proper tenders must be replaced by transparent tenders with clear-cut parameters; and the Anti-Corruption Agency must be transformed from a mere arm of the Prime Minister to a truly independent body, packed with adequate legislative muscles and answerable only to Parliament.

Without introducing the above changes, the present exercise of Halim bashing and UEM-Renong restructuring can only be viewed as a PR effort to drum up support for the stock market.

In fact, it is worse than that. It is a camouflage to the real intent, which is to bail out Halim again, this time, to save him from having to dump billions of ringgit down the drain (all the time not forgetting his role as proxy to the powers that be). Halim is obligated under a put option committed in early 1998 to buy 32% of Renong from UEM at the agreed amount of 3,200 million ringgit cash. This commitment is a financial disaster for Halim, because the market value of 32% of Renong is now only 600 million ringgit at the last closing price of RM 0.80 per share, thus requiring Halim to loose the whopping amount of 2,600 million ringgit.

In comes government investment arm Khazana Nasional which offers to take over UEM on condition that acceptance to its offer is not less than 90%. This is to facilitate UEM's delisting, allowing it to disappear from the radar screen of the public. And UEM will then be at better ease to exempt Halim from honouring his put option, saving him billions of cash and losses.

To the vital question of whether UEM will eventually ask Halim to pay up his due under the put option if the take over is successful, Sheriff Kassim, Managing Director of Khazana was evasive in his answer, merely saying that the issue will be dealt with later, while Khazana was concentrating on the immediate task of taking over and de-listing. On the same issue, Mahathir appears to be more forthright. He was quoted by the press to have raised the question of 'whether Halim could be made liable for the put option which is considered a debt.' Mahathir further said: 'If we take over, I think we take over the debts as well. We can't take over the assets and not take over the debts'. (Straits Times 24th July). Mahathir has therefore implied that there is no need for Halim to meet his obligation to UEM.

Mahathir's statement is of course incorrect, for he has confused Halim's personal liability to UEM as UEM's own liability. Halim's liability to UEM will not disappear automatically upon Khazana's take over of UEM, though UEM may decide to rescind its earlier decision to accept the put option given by Halim, thereby freeing Halim of this liability. Mahathir's error aside, his muddled headed answer nevertheless has inadvertently allowed an insight into the truth behind this take over - freeing Halim from billions of ringgit of liabilities and losses.

If the intention is not to bail out Halim as the authorities would want us to believe, then why must Khazana insist on de-listing UEM? The official justification of gaining a freer hand to carry out the re-structuring is unacceptable, as compliance with stock exchange rules and regulations may only lengthen the re-structuring time somewhat but cannot obstruct it. On the hand, advantages galore if the take over is limited to securing only a controlling interest while keeping UEM's listed status. Apart from saving billions of ringgit of cash for the people's coffers (present cost is RM 3.8 billions), the entire restructuring process can be turned into a confidence-building showpiece through transparent dealings and maximum public participation. Through this process, the market can even be rejuvenated in a limited sense. It is therefore obvious that the latter option is the automatic choice, if the intention is to instill and regain public confidence in the stock market, and not to bail out Halim.

The stock market is to a large extent a reflection of the political and economic health of a country. The problem with Malaysia is its deteriorating political leadership. Due to the leadership's failure to recognize and address the structural weaknesses that have in the first place caused the recent financial and economic crisis that has ravaged this region, Malaysia has not recovered from it. In fact, Malaysia has suffered rapid deteriorations in all fronts in the past few years, causing its ranking in various international indices to slip very badly, whether it is in the administration of justice, human rights, economic competitiveness or education.

To the misfortune of Malaysia, Prime Minister Mahathir seems to have only one answer to dissenting voices to his rule, and that is: increased repression by using laws from the formidable arsenal of repressive legislations that he has built up in his 2 decades of rule, as shown recently by the trigger happy manner in which these repressive laws are increasingly abused to punish and imprison his opponents. Compounding the worsening political scenario locally, is the PM's recalcitrance in attacking foreigners as anything from rogue traders to colonizers, and more lately, extending these attacks to embrace market liberalization and globalisation. These developments have of course further eroded investors' confidence in this Country, both foreign and local, direct and portfolio investments.

Looking from this perspective, the present exercise to take over UEM can only be viewed as another massive bail out of cronies, and its supposed confidence boosting effect is but a mirage.

Kim Quek.