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BizEdge: Cover Story: The big clean-up
By The Edge Team

29/7/2001 3:05 am Sun

[Rencana ini mungkin sedikit pro-kerajaan tetapi tidak mengapa kerana ada sesuatu yang berguna buat kita. Orang 'Putra Jaya' nampaknya telah menemui Halim Saad dan memberi kata dua. Yang menariknya Halim tidak pula menentang usaha menelan syarikatnya.

Hutang Halim dikatakan akan difikirkan kemudian nanti oleh Sherif tetapi Mahathir menyebut liabiliti (maknanya hutang atau tanggungan) itu pun secara otomatik akan bertukar tangan juga (Rujuk NST atau Rencana terbaru oleh Kim Quek). Tetapi Edge Weekly tidak menyebut pun fakta ini.

Apa yang menarik Mahathir kini mula meletakkan orang-orang tertentu dalam institusi 'telan-menelan' untuk menangani syarikat-syarikat di negara ini. Dijangka syarikat milik individu yang 'bermasalah' akan diinstitusikan satu persatu. Tetapi mereka semua terpaksa mengikut arahan dari Mahathir juga kerana dialah Menteri Kewangan sekarang. Ini bermakna semua syarikat penting akan masuk di dalam cengkamannya. Siapa yang ingin mengambil harta itu perlu mendapat restu Mahathir.....

Ada banyak tafsiran dalam istilah 'bermasalah' itu... ia bukan sekadar masalah ekonomi sahaja malah kepentingan politik juga. Daim dijangka akan berdiam kerana dia perlu mengemis dengan Mahathir jika inginkan bantuan atau wang. Tetapi menurut sumber risik KM2, Daim mempunyai dana sebanyak RM35 bilion di London sahaja yang tidak diketahui sesiapa melainkan orang tertentu sahaja. Namun dia mungkin akan berpura sesak dan miskin agar ramai terpedaya - termasuk Mahathir juga!
- Editor

The Edge Weekly, Malaysia
27th July 2001

Cover Story: The big clean-up

Government acts to buy UEM to free stock market of burden

By The Edge Team

The clean-up has begun. A Special Purpose Vehicle (SPV) led by Khazanah Nasional Bhd will make a general offer for United Engineers Malaysia Bhd (UEM) shares on Monday at around RM4.60 a share. This will mark the first in a series of government-initiated moves to break up the debt-laden UEM/Renong group of companies. It will also see the exit of Tan Sri Halim Saad, long regarded as the leading member of a group of elite businessmen associated with former finance minister and ex-Umno treasurer Tun Daim Zainuddin, from one of the country's biggest conglomerates.

The SPV is expected to be headed by Pengurusan Danaharta Nasional Bhd managing director Datuk Azman Yahya, who is at present "assisting" in the exercise. Azman may also oversee the Corporate Debt Restructuring Committee (CDRC) to enable him to have more powers to do the job.

Controlling stake in UEM

It is understood that the government is confident of getting at least 51 per cent acceptance off the mark. Renong Bhd has a 37.92 per cent stake in UEM (as at April 2001), which the SPV will take over. The Employees Provident Fund (EPF) and other government-linked agencies have another strategic 13 per cent which together add up to the crucial controlling stake.

Sources also say that talks to buy UEM shares will also be held with bond holders and banks which are holding both UEM and Renong shares as collateral against debts.

The other parties in the SPV will include Kumpulan Wang Amanah Pencen (KWAP) "and other agencies which have money", a source tells The Edge. "Wow, finally," was how key individuals involved in the exercise reacted when they were first informed two weeks ago that "Putrajaya" was going to move in, first on UEM and then on to others.

"This is a real restructuring, not just a debt restructuring," says an insider. He adds that this is just the first such exercise. "There may be others, where we see that shares are trading below value. We will monitor it."

Insiders involved in the exercise, which caught many people by surprise, say that the government had finally come to the conclusion that it must step in to get the country's corporate debt restructuring going. They say that foot-dragging by controlling shareholders of these troubled companies had held up the process.

The delay in solving the corporate debt problem is weighing down not just the stock market but also the banking system, and needed to be resolved.

"The government had to come in," says one source. "The stock market is such an important part of the economy. It is a great wealth creator. The government recognises this. That is why we are moving fast. We need to show that we are serious and recognise what the market and the economy need."

Analysts also point out that the risk of default on the debts was high and that would have added pressure to the banking system. Sources say apart from Azman, the financial adviser to the Prime Minister, Tan Sri Nor Mohamed Yakcop (pic), is a leading figure in the exercise.

Insiders also say that unlike previous occasions of government intervention, individuals responsible for problems faced by their companies will not be spared.

And to drive home the message that the government is absolutely serious, the UEM/Renong group was chosen to be the first in the "clean-up".

Taking UEM private

In the first phase of this exercise, once the acquisition of shares is completed, UEM will be taken private followed by a major and much needed restructuring of its assets and debts. The group will be broken up by industries and the debt restructured, some of it paid off, some rearranged.

The second step will involve the hiving-off of these assets to identified institutions. Some of the industries may even be listed, such as Projek Lebuhraya Utara Selatan (PLUS). The second phase could also include the de-listing of Renong itself. UEM has a 32 per cent stake in Renong, thanks to a late-1997 acquisition that sparked off the run on the local stock market. The market never recovered fully and according to sources, the powers that be at Putrajya have been aware for a while that an end had to be found to the whole saga.

The source explains that the reason UEM was selected over Renong to lead the exercise was because its assets were more easily identifiable. Also, UEM has to be taken private because it would be faster to carry out the restructuring without having to go through more bureaucracy and red tape.

As to the pricing of UEM at about RM4.60, the source points out that it is almost a 30 per cent premium over the last traded share price and 50 per cent more than its average price over the last six months. "This is a GO and the government is behind it. We cannot use taxpayers' money and pay too high a price," the source adds.

UEM's break-up value, assuming full provisions for all debts, is estimated at between RM3.40 and RM3.90. Before provisions, the break-up value is estimated at between RM6.90 and RM7.90.

"After that (breaking up the group), we want to give it back (to the people). We need to realise the value of the assets. It's about wealth creation," the source says, adding that the government will more likely institutionalise ownership of the assets. "Let the institutions such as PNB, EPF and others enjoy the value. We want to give it back," he stresses. "No more individuals," he adds.

Describing the news as a "spring cleaning of corporate Malaysia", analysts say this is the best news to hit the market in a long time. Putrajaya, sources say, has recognised that the UEM-Renong-Tan Sri Halim saga was the weightiest millstone around the neck of the market. "They saw that something had to be done and that responsibility had to be taken," says the source.

Put obligation to stay

The source says that the official stand is that Halim will still have to meet all his obligations, including the put option he granted UEM in 1998 for a 32 per cent stake in Renong. Other than Halim's put which is now estimated at about RM3.5 billion, the group has total debts valued at about RM24 billion.

It is expected that the exercise to take UEM private will take three months, and the remaining steps should be completed going into the new year.

If other minority shareholders do not take up the GO to give the SPV the crucial 75 per cent it needs to trigger the de-listing of UEM, the exercise may fail.

But those involved are confident they can get the required number. "The minorities must remember that if they do not take this offer, they will be stuck with the debts of the group," one insider says. "There is no other way."

An industry source says that Halim himself had come up with a restructuring plan that includes taking UEM private but was unable to raise the funds to see it through.

"He just could not raise the money. There was a major confidence issue. The higher-ups realised this and recognised that it was time he went," says the source.

Halim was blamed for bringing the stock market down when UEM announced that it had bought a 32.6 per cent stake in Renong on Nov 5, 1997 at RM3.24 a share.

"We want to make sure in the future that there is transparency, corporate governance. These are issues that keep coming up and we can see that the clean-up was necessary," says the source.

For the sceptics, the source adds firmly: "This is not a bail-out. This is a clean-up. Halim will have to meet his obligations. Or we may even consider taking action, whatever is necessary." Strong message.

But market players seem to be buying it, chasing the shares of other companies in the same debt-laden boat as Renong/UEM deemed to be next in line for the big clean-up.

Azman in another hot seat

When Datuk Azman Yahya was appointed managing director of the country's asset management company Pengurusan Danaharta Nasional Bhd on May 21, 1998, sceptics wondered if he could handle such a "hot seat".

His reply then was, "I believe so, otherwise I won't accept the job." Three years have since passed. In 1999, Institutional Investor named him among Asia's most influential bankers and last year, he was voted Restructuring Agency Chief of the Year by Asiamoney. Accolades indeed. Last week, Azman found himself once again in the public eye when news leaked out that he would be the key person handling the restructuring at the Renong group of companies.

Which again is seen as another hot seat. The task ahead - primarily a clean-up job - won't be easy. There are more than a dozen companies in the Renong stable, complicated by an incestuous web of cross-holdings. And huge debts.

Most market observers think Azman can handle the task.

"He has done a great job at Danaharta," comments an analyst who tracks the banking sector.

"Azman has a good track record of doing all things right at Danaharta, despite the political pressure," says another.

Another plus point is that Azman was with Bumiputra Merchant Bankers Bhd between 1990 and 1994 when BMBB was THE merchant bank handling Renong group corporate exercises. So he is quite familiar with their businesses.

Born in Kelantan, Azman, 37, started his career as a chartered accountant with KPMG in London. Upon his return to Malaysia in 1989, he joined the Island & Peninsular Berhad Group.

He moved on to BMBB heading the Corporate Finance Department, and was appointed chief executive of Amanah Merchant Bank Bhd in 1994. He currently serves as a member of the Malaysian Steering Committee on Bank Restructuring, the advisory panel for the Malaysian Banking Masterplan and the Securities Commission Capital Market Advisory Council. He is also a director and audit committee chairman of Sime Darby Bhd.

Come Monday, the people will know exactly what will pan out. The work ahead seems daunting as some of the issues can be very sensitive. Azman may be faced with his most difficult task yet - perception management.

Halim - the man and the myth

Tan Sri Halim Saad (pic) will be 48 years old this October.

For half his life, he has been the object of awe and vilification in corporate Malaysia. For good or bad, he has come to be the symbol of bumiputera entrepreneurs in the country.

A product of the Malay College Kuala Kangsar (MCKK), the New Zealand-trained accountant came to the attention of former finance minister and corporate mastermind Tun Daim Zainuddin when he was with Peremba Holdings, a privately-owned bumiputera group of companies with interests in property development, construction and engineering, hospitality, logistics, IT and healthcare.

Two other products of the so-called "Peremba School of Management" are Tan Sri Wan Azmi Wan Hamzah, who heads Land and General Bhd, and Tan Sri Razali Abdul Rahman, who's risen to the helm of Peremba itself. Still, it is Halim who will etch himself inedibly in Malaysian corporate history. In the mid-1980s, the shy but undeniably bright young man and some other bright young sparks conceived the concept of the North-South Expressway, a highway that would stretch the length of Peninsular Malaysia. The construction of this highway would, among other things, expand development beyond the confines of Kuala Lumpur and the Klang Valley as well as test the mettle of the rising class of bumiputera entrepreneurs.

Sources close to Halim tell stories of him going from bank to bank overseas looking for cash for the project in the early days. By all accounts, he was very serious about the work, so much so that when the others were enjoying themselves at Studio 21, a New York City nightspot, an exhausted Halim fell asleep at the table.

By 1987, he had identified a moribund Chinese-controlled construction company, United Engineers (Malaysia) Bhd, injected the PLUS (Projek Lebuhraya Utara Selatan) concession into the company, and set out on a corporate career of high finance and wheeling and dealing. His profile took on almost mythical proportions as the media-shy, cigar-smoking boyish tycoon who played chess with other tycoons like Tan Sri Quek Leng Chan of Hong Leong Group.

At the same time, underlings grumbled loudly about Halim's lack of concern for their private lives - he would phone at 3am to discuss an idea that may have just popped into his head. Yet others decried his arrogant manner and inarticulate speech. Like all bright people, Halim also has a tendency to jump from topic to seemingly unrelated topic, all the while throwing up figures and references that his phenomenal memory held.

There were also those who sniffed at his "inner circle", a small number of men that he confided in.

But not many people know the generous side of Halim, who flew all the boys (now men) who were in his class at MCKK and their families to a resort on the east coast of Peninsular Malaysia, and picked up the whole tab.

In the early 1990s, Halim and his career took on an even higher profile when Umno reorganised its assets under Fleet Group. Halim identified a struggling Chinese-controlled property company, Renong Bhd, which eventually bought over all of Fleet's assets, at that time including New Straits Times Press Bhd and Commerce Asset-Holding Bhd. Building on that, he assembled a formidable array of companies under the Renong umbrella. Today, the group has interests in construction and engineering, property development, building materials, telecommunications, transportation and expressways, petroleum, power and healthcare.

But the fundamental flaw in his corporate strategy was exposed in 1997 when the financial crisis dealt the group a full-frontal hit. Based around long gestation projects, the group's debt had ballooned to more than RM20 billion while cash flow was woefully inadequate, even given the estimated RM1 billion a year cash flow from PLUS.

Renong's problem stemmed from the fact that it was built from scratch with very little capital formation. That led to an equity versus debt imbalance to which the financial crisis and stock market crash dealt a double whammy. But the group's assets are sound and according to some analysts, worth at least RM25 billion.

Heartened by that fact, Halim had slogged away at rescuing Renong the past three years. But the stock market rally last year proved short-lived and without an ample injection of fresh funds, the group was dead in the water. Realising that, the government took matters in hand in mid-July.

Still, that could allow Halim to devote more time to his wife, Shaista, a lawyer whom he married in 1999 following a highly-publicised divorce in 1997 from his then-wife Noriani Zolkifli. But can corporate Malaysia discount this corporate chief who loomed over it the past 10 years?

"Don't bet on it," says a market observer.

Positive signs for PLUS bonds

"There is so much buying interest! But sellers are holding out for higher levels," cries a bonds dealer. Only a week ago, such an event would have been unlikely for Projek Lebuhraya Utara Selatan (PLUS)'s 99/06 zero coupon RM8.4 billion debt papers.

Traders say yields for the triple A-rated bonds had come off slightly to 18-20 per cent late last week from its out-of-whack levels of 21.5 to 22 per cent earlier.

Since the debt papers were issued in 1999, the PLUS bonds have stirred much interest in the market. This time, however, it comes with a positive slant.

The positive slant is that there may finally be a clearer solution to the Renong group's protracted debt problems and corporate governance-related issues which have bred ill feelings among investors, both foreign and local.

Even so, as far as PLUS bonds are concerned, traders say significant deals have yet to be carried out because the bid and offer spreads are too wide.

According to them, there seems to be strong buying interest for the bonds at yields of some 21 per cent or 34 sen to a dollar (face value) which is more or less the last done price for the papers before UEM and Renong stocks were suspended pending an announcement. "But on the sell side, the offers are running away. They are looking at about 45 sen or 16 per cent yield," says CIMB's Treasury head Kwan Lee.

As such, Lee says, it would be good to wait for equilibrium to be restored, which is likely to happen on Monday (July 23) once the market gets a much clearer picture of what's to take place. "It's a shock to the system now. It would take a while to achieve a balance," he adds.

Currently, similarly rated five-year papers are trading at about 8.0 per cent yield. Although PLUS bonds are for a seven-year tenure, the pricing in the market usually takes into account the residual maturity of the debt paper and in this case, the bonds have five years and two months to go.

A market observer says it is about time.

"It would be good for PLUS as it has been weighed down by so many factors, not the least being that it is part of the Renong group. As such, financial institutions have been wary of being over-exposed to a single customer," says a dealer.

Now however, with expectations that the group is likely to be broken up into separate entities based on various activities, this will help "delink" PLUS from the group, and the appetite among financial institutions for the bonds may start to improve. An analyst agrees.

"Once PLUS is delinked from Renong or Halim Saad following the reorganisation, it means PLUS is a different group altogether. Banks, too, can have exposure to PLUS on an independent basis outside Renong group," he says.

Also, with the government in the picture, market observers say there is the likelihood that the bonds may be repaid before they fall due in 2006. It would make sense as early repayment of the bonds would mean considerable savings for the "issuer" as the papers were issued at a high interest rate of 9.4 per cent (RM16 billion nominal value). On the other hand, there is also the likelihood of the papers being refinanced.

"If the stigma of the group is no longer there, then they (PLUS bonds) may be restructured into longer-term papers or repaid at much lower rates. We could see an interest savings of about 1.5 per cent if they get to refinance the papers at 7.5 per cent to 8.0 per cent," he adds. Another bonds research analyst says the imminent entry of the government at group level may not have immediate bearing on PLUS bonds as the source of the paper's repayment is tied to the toll road operator's cash flow from toll collection.

Also, up to now, both Renong and UEM have been slow to dispose of their assets to help repay PLUS for the bonds, given the depressed market conditions. "Even if it's the government agencies that plan to dispose the assets or list them, the market has some way to go for value to be realised," he says.

True, but for now, improved sentiments may be just what PLUS bonds, and the market in general, need. After all, it was the weak sentiments that drove its debt papers' prices out of whack. Already, the positive signs are showing.

What Halim tried, but failed to do, to keep UEM

The Edge learned from presentations that Tan Sri Halim Saad made to analysts and financiers in recent months what he would most likely have tried to do to save and keep UEM/Renong.

The most important thing was to resolve Renong group debt, not forgetting his RM3.2 billion personal put option to United Engineers (Malaysia) Bhd (UEM). And by the middle of last year, Halim had mapped out a route to de-gear, rationalise, reorganise, revalue and finally realise the value of the group over 24 months - beginning with a concerted marketing effort aimed at listing telecommunications arm Time dotCom Bhd and ending with payment of his put in May 2002.

There is no doubt that he had acknowledged the huge task he was faced with and ultimately could not accomplish.

In early 1997, Halim had foreseen the bad times, warning his staff, "When the tide is low, you can see a lot of rubbish." That "rubbish" eventually ballooned into a RM20 billion debt mountain, from which Halim managed to chip away RM5 billion with the flotation of Time dotCom Bhd in March this year.

But the market was against him. In no small measure, Renong group, and Halim, were punished by the market late last year on announcements that UEM would buy Renong group assets for RM6.7 billion and had accepted Halim's offer to settle the put by a staggered payment scheme.

The latter, which came in December, caused the market to punish UEM's share price, pushing it from RM3.60 down to RM2.90, the price it had sunk to in November 1997, when UEM first announced that it had bought 722.88 million shares, or 32.6 per cent of Renong, at RM3.24 per share from the open market. To appease the market, Halim had given a personal put to UEM.

But the market is not a creature that can be understood or controlled, something that the corporate meister chose to overlook. So despite clear signs of market displeasure, Halim pressed on doggedly with his plans to degear and rejuvenate Renong.

The Edge learned that to raise cash, he had earmarked initial public offers (IPOs) for Time dotCom and property arm Prolink Development Bhd, in January 2001, to be followed by toll concessionaire Projek Lebuhraya Utara Selatan Bhd (PLUS) and the disposal of Renong's 12.1 per cent in financial group Commerce Asset-Holding Bhd in September. The culmination would have been repayment of his put in May next year. The shareholding structure would have been streamlined with Halim retaining his firm grip on Malaysia's largest bumiputera conglomerate. The rejuvenation would have been brought about by rationalising and reorganising the group into four core business areas, namely highway operations, telecommunications, construction and engineering and property investment and development (see chart).

The benefits of the restructuring would hopefully be an unlocking of group value. An analyst with a foreign research outfit estimated that the revised net asset value of UEM group (after the acquisition of Renong group assets) would be over RM20 billion.

At the time, the combined market capitalisation of both Renong and UEM was around RM3 billion.

Straw that broke the camel's back

The straw that broke the camel's back was the cold reception towards Time dotCom's IPO. The public flotation was undersubscribed by 77 per cent in February. Also by then, the need to raise the RM3.2 billion to repay the put by next May had gone from important to urgent.

"I think Halim chose to ignore the signs for a long while," says a market observer.

And he kept on trying. By February, consultants from US-based management consultancy Arthur D Little were deployed throughout the group, gathering information and formulating another game plan.

In April, UEM announced that the company would delay the proposed acquisition of Renong group assets for four months, to August. In May, Arthur D Little presented a revised plan to the Renong board. The Edge learned that there were five key initiatives but what remained imperative were to capture value and create focus on core businesses.

The main difference from the earlier plan were divestment of previously key businesses and sticking to three sectors - tolled highways (which would provide steady cashflow) and the high growth areas of environmental management and healthcare.

What Arthur D Little recommended

Among the planned disposals were Cement Industries of Malaysia Bhd, Crest Petroleum Bhd and companies in the construction and engineering division.

The US consultants recommended a "wait and see" stance on the public transportation companies, noting that they were generally unattractive and there was a lack of public policy to support the development of the businesses. In the event, the ball had been passed to the government.

The US consultants also recommended that Prolink be kept and developed into an approximately US$3 billion tourism and entertainment complex, capitalising on its location as the southern gateway into Malaysia. They further recommended that the streamlined group should suspend all other property development projects in order to concentrate on Prolink. The plan indicated that Faber Group would have been the vehicle to carry out the development of Prolink and the healthcare sector. The hotels, now under Faber, would be sold.

It is interesting to note that a big chunk of Prolink, whose main asset is 22,000 acres of land located approximately between the Malaysia-Singapore Causeway and the Second Crossing, is now with Danaharta.

Executives close to Halim said he tried very hard to send the message to the market that the Renong group was willing and going to change. But they added that the market would only pay heed to what was happening on the sidelines - namely Halim's put.

By late May, all signs indicated that he would attempt to remove the put from public view via a leveraged buyout (LBO) that would take UEM private. Financiers and analysts reckon that for the same amount of cash - RM3.5 billion - he could own 100 per cent of both Renong and UEM if he carried out an LBO than if he honoured his put to UEM. That would have infuriated the market even further. And there were doubts whether Halim had the money to do it.

Time was running out for Halim. A chess player noted that Halim, a keen chess player himself, had no more queens left to use.

The checkmate came when top Renong/UEM executives, excluding Halim, were summoned to the government administrative centre in Putrajaya a week ago to be told that matters had been taken out of their hands.

Halim's big plans for Metacorp

At the height of the bull run in the mid-1990s, Metacorp Bhd was the largest "little" company on the Kuala Lumpur Stock Exchange (KLSE) Second Board.

Its market capitalisation was RM2 billion and it was sitting pretty on a mix of businesses, including tolls on four urban arterial roads, construction and engineering, and property development. It also has a major development project in London, UK.

Renong chief Tan Sri Halim Saad owns 13.6 per cent of Metacorp. The Edge has learnt that the company would have figured large in his restructuring of Renong Group. Market observers say he may have planned to build a second corporate giant around the company. There were signs of this - over the past year, Metacorp had bought stakes in second liners like petroleum player Trenergy (Malaysia) Bhd, building materials supplier ACP Industries Bhd and private property company, Infra Expert Development Sdn Bhd. It is believed that Infra Expert's main asset is a large chunk of Prolink land in Gelang Patah, Johor. Metacorp may be a little company compared to a giant like Renong but it was a good earner. Though turnover dropped almost half from 1999 to 2000, net income was maintained, falling only slightly from RM46.88 million to RM42.53 million.

Better yet, it had financial credibility. Unlike the defaulting companies in Renong Group, Metacorp signed a revolving credit facility of RM12 million with Bumiputra-Commerce Bank as recently as June. And it had won KLSE approval for a transfer to the Main Board.

It is believed that Halim had been contemplating using Metacorp for leveraged buyouts of some Renong Group companies. But as it turned out, market observers reckon that the government had moved very quickly to remove the urban toll operations from Metacorp.

On Friday, the day that the company would have transferred to the Main Board, official news reports noted Metacorp's managing director saying that the company would "concentrate on construction and development as toll operations only contributed 60 per cent to group profit". Last year, toll operations contributed RM65.7 million to group revenue of RM93.8 million.

It would be interesting to see how Metacorp will be broken up in the near future.

The concessions for the Jalan Cheras and Jalan Pahang toll roads will expire in 2004 and 2003, respectively, while those for the KL-Seremban Expressway and the East-West Link will expire in 2018.

How events at UEM unfolded

On Thursday, July 12, the Renong group's top management was called to the administrative capital Putrajaya and told by senior officials that the government was stepping in to take charge of the debt-laden group. The same day, the United Engineers (Malaysia) Bhd (UEM) board sat to decide on whether to grant Renong chief Tan Sri Halim Saad an extension on his second partial payment of the put to Oct 1.

On Friday, July 13, after market closed, UEM issued a terse statement to the Kuala Lumpur Stock Exchange that the board had decided to extend the period for partial payment by 60 days to Sept 12. The statement also contained two strongly worded paragraphs that the company would do whatever was necessary to recover the debt and protect shareholder interest and that the UEM group was prevented from realising its full market value because of the unresolved debt owed by Halim. UEM also stated that the group would take immediate steps to release some of the value of those assets.

That day, Halim was in a very bad mood, sources say. He knew by then that the government was moving in on UEM/Renong.

By Monday, July 16, Datuk Azman Yahya, who was handpicked by the government to carry out the task, had requested that a mutual friend speak to Halim.

On Tuesday, July 17, the KLCI shot up on rumours of the impending change at Renong to 28.46 points, or 4.58 per cent. The share price of UEM gained 50 sen that day, from RM3 to RM3.56. Volume was 8.5 million shares, an amount not seen in a while. The share price of related companies also went up. Renong's share price gained 9 sen to 80.5 sen, on a volume of 10.5 million. Both counters were suspended after market close for four trading days. That same day, a delegation of Renong's top management sought to see Prime Minister Datuk Seri Dr Mahathir Mohamad on the issue, but was told it was too late.

On Wednesday, July 18, the Asian Wall Street Journal reported the proposed government takeover. By then, Halim, faced with the irrefutable fact of market glee at his imminent departure, seemed to have accepted his fate. As a creature of the market as well as a consummate chess player, he knew that he had been checkmated.

Symbolic step forward

Even as news leaked out last week that the government would be taking over the Renong group, investors and analysts were excited that one of the biggest obstacles in the local stock market will finally be removed.

Indeed, analysts say that once further details on the takeover and clean-up of the group are announced this week, they expect most research houses to upgrade their call on the Malaysian market. A market analyst at a foreign research house says that the Renong takeover would be the trigger that he needs to re-rate Malaysia from a "neutral" to a "buy".

Others share his views. Lai Tak Heong, research director at SG Research, says that the market will certainly be re-rated higher if the takeover exercise goes through in the expected form as it would mean a major step forward for corporate governance in Malaysia. "It was symbolic of all that has gone wrong in Malaysia and it will have huge significance if the government gets rid of it," he says.

Lim Beng Leong, who heads the research team at UOB-Kay Hian, says that if the clean-up materialises, it is a strong signal that the authorities are finally taking the right steps to improve corporate governance and tackle difficult debt restructuring head on. "It is a giant step to put Malaysia back on the global investment radar screen," Lim enthuses.

"These are corporate events that the market is waiting for... some foreign funds which were waiting at the sidelines for the signal to come into Malaysia are already showing more interest. We received some calls last week. What is needed now are the details," comments the head of research at a foreign research house.

He adds that the whole takeover should not be seen as a bail-out for the major shareholder, otherwise market sentiment would again take a beating.

The consensus is that the corporate governance issue, which has been one of the major factors weighing down the local stock market, will finally be addressed.

"It is akin to removing a major risk factor, which then puts the Malaysian market on par with the rest. Therefore, when funds do come back in a big way to the region, we do not think Malaysia will be a second-tier beneficiary; it will join the other markets like China and Hong Kong in terms of allocation," says a fund manager.

Still, some analysts warn that sentiment could still be dampened by other developments, both domestic and external. Some of the factors to look out for include the US economy, the region's currency trends and second quarter gross domestic product figures for the Malaysian economy.