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FEER: Debts, Daim And Downturn
By S. Jayasankaran
3/8/2001 4:24 am Fri
Since a government bid to take over Renong, investors
have been wondering which company will be next. Here's
why MRCB could be a target
By S. Jayasankaran/KUALA LUMPUR
Issue cover-dated August 09, 2001
MALAYSIAN RESOURCES, or MRCB, waxed fat on political
connections during the booming 1990s. Now its future is
uncertain in the wake of a proposed government takeover
of the Renong conglomerate last month. MRCB isn't as
indebted as Renong but it's still a target for two
reasons: its controlling shareholder's links to former
Finance Minister Daim Zainuddin and its debt to a
state pension fund.
The man to watch in MRCB is Abdul Rahman Maidin, who
owns 25% of MRCB through a private company, Realmild.
Former MRCB executives say that Realmild owes 600
million-700 million ringgit ($158 million-184 million), mostly
to the Employees Provident Fund, a state-owned pension
plan. These debts and Rahman's connections to Daim make
MRCB a potential takeover target, as the government
moves to reassure financial markets that order will prevail.
Renong was also hugely indebted to the state, and its
takeover was mooted on July 23 after months of growing
impatience with the company's failure to restructure, a
factor that dampened market sentiment. The 3.8 billion
ringgit bid is a belated signal to financial markets that this
sort of shilly-shallying will no longer be tolerated. Indeed,
the state's proposed takeover of Renong and its implicit
ouster of Renong chieftain Halim Saad, another Daim
protégé, was broadly welcomed by the markets and has
triggered a spate of mergers and acquisitions in Malaysia.
MRCB is in a much better financial position than Renong
but its political backers have always tended to fall foul of
Prime Minister Mahathir Mohamad. And the involvement of
the EPF is always a politically touchy issue. Indeed, even
Mahathir felt the need to reassure the unions early this year
that EPF funds would not be misused. And the EPF has
invested much in MRCB. Quite apart from the loan to
Realmild, it owns 12% of MRCB.
The MRCB saga vividly illustrates the nexus between
business and politics in Malaysia, a tale of how huge
fortunes were created by a stroke of a ministerial pen. It
also demonstrates the pitfalls facing businesses caught on
the wrong side of the political divide.
The group was always considered politically valuable
because it controlled two key media companies considered
essential to influence voters: the newspaper publisher New
Straits Times Press, or NSTP, and television broadcaster
Sistem Televisyen Malaysia, or TV3.
MRCB's prominence dates back to 1993 when then
Finance Minister Anwar Ibrahim engineered a buyout of
both companies from Renong. Like Daim before him, Anwar
wanted his own group of business allies. His "boys" were
four NSTP executives led by Nazri Abdullah, then editor of
a major Malay-language newspaper. The four set up
Realmild, which proposed to buy both NSTP and TV3 for
600 million ringgit. Renong wasn't particularly enthusiastic
but Anwar, then considered Mahathir's anointed successor,
Financial executives say the four didn't have to do much.
Another Anwar business ally, Quek Leng Chan, head of
the Hong Leong conglomerate, provided advice, financing
and a vehicle: he owned MRCB. Through Quek, Realmild
was lent 267 million ringgit to buy MRCB on the basis of
political faith alone. The latter then used new shares and
borrowings to purchase the media companies.
Within months MRCB became an investor favourite, with its
stock price rising from 1.8 ringgit to 12 ringgit. And Anwar
did MRCB proud, with large public-works projects, a
telecommunications licence, two of Malaysia's largest
power generators, lucrative transmission contracts and a 5
billion ringgit concession to build a railway hub in
downtown Kuala Lumpur.
In those heady days of overweening optimism, even the
failures hardly seemed to matter. In June 1996, for example,
national phone utility Telekom Malaysia paid 640 million
ringgit to take over Emartel, MRCB's loss-making
mobile-phone company. And while MRCB piled on debt to
take on bigger and bigger projects, the ex-MRCB officials
say that by selling down its holding, Realmild completely
cleared its 267 million ringgit debt load by late 1996.
But an error by Realmild in early 1997 is now coming back
to haunt it. Back then, MRCB paid almost 1.5 billion ringgit
for a 27% stake in diversified financial-services company
Rashid Hussain. The central bank then decreed that as a
shareholder in a bank, Realmild would have to take a larger
stake in MRCB. To take up those new shares, Realmild
borrowed 500 million ringgit from the EPF.
Then the Asian Crisis struck. Share prices plummeted,
Anwar fell from grace and MRCB was caught with more
than 2 billion ringgit in debt. Nazri's team was forced to exit
in 1999. According to a senior official of the ruling United
Malays National Organization, or Umno, Daim, then the
new finance minister, searched for a new shareholder. He
offered the stake to Kadir Jasin, one of the Realmild four
who remained close to him, and to Razali Ismail, a former
But he settled on Rahman, then little known outside Penang.
On paper, Rahman owns all but one share of Realmild's 7.1
million ringgit in equity. But it isn't clear if he really owns
MRCB. Anwar said from jail in 1998 that a large chunk of
MRCB's equity was held in trust for Umno. Rahman declined
to respond to an interview request from the REVIEW.
According to Umno officials, Mahathir himself brought up
the question of MRCB's ownership in a meeting with chief
ministers in late June. "No one knows who owns what,"
says a senior Umno official. "I think there is going to be an
In spite of the uncertainty about the future, financial
analysts say that Rahman has been serious about tackling
debt, and has taken huge hits in the process. So far, he has
sold off the power projects and MRCB's stake in Rashid
Hussain, raising more than 1.2 billion ringgit. Now MRCB
has pruned debt to 800 million ringgit. Most of those funds
are owed by its rail-development project, Sentral.
Meanwhile, MRCB still owns NSTP--which is financially
stretched and running at a loss--and a stake in TV3,
which is insolvent and in the throes of a capital reduction.
NSTP is expected to be sold next, with Munir Majid, a
former banker and regulator, strongly tipped to take it over.
Most analysts doubt if Realmild's debt to the EPF has been
serviced, given that dividend payouts from MRCB's
companies are likely to have been negligible. Even though
MRCB has been pared down radically, it will continue to be
vulnerable until Realmild's problems are addressed.