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FEER: Mahathir to the Rescue [Renong]
By S. Jayasankaran
17/8/2001 12:44 am Fri
[Perhatikan Halim tidak disabitkan apa-apa - mungkin kerana dia
menyerah dan tidak melawan seperti Daim. Tetapi sesiapa di masa hadapan
yang enggan bekerjasama nanti dikatakan akan dikenakan tindakkan. Mahathir
sebenarnya sudah tiada pilihan lain. Dia terpaksa kerana keadaan sudah
semakin teruk. Rezab negara sudah ditahap kerak nasi sahaja dan bank-bank
sedang gusar dengan NPL yang berkurang tiada. Dia memerlukan sesuatu yang
dapat memperdaya kerana di dalam Renong itu ada sesuatu yang amat berharga.
Inilah dia untuk mendapatkannya.
Prime Minister Mahathir Mohamad is leading a charge to
restructure debt-burdened conglomerates. It's long
overdue, but if sustained it should attract foreign investors
By S. Jayasankaran/KUALA LUMPUR
Issue cover-dated August 23, 2001
SIGNS ARE MOUNTING that the tide has finally turned
against politically connected conglomerates that have
remained mired in debt since the Asian Crisis hit in 1997.
And it is Prime Minister Mahathir Mohamad who is showing
the muscle to tackle corporate debt-restructuring.
Take events at Malaysian Resources, or MRCB, struggling
under 1.8 billion ringgit ($474 million) of debt. On August 9,
the government announced that two former consultants with
the state asset-management agency were taking over its
management. MRCB chieftain Abdul Rahman Maidin, the
controlling shareholder who also had links to former
Finance Minister Daim Zainuddin, resigned as chief
executive but retained the figurehead position of
The state-led initiative to hasten restructuring is winning
cautious applause from investors and has demonstrated the
power of the government over private companies when debt
is the issue. Terence Gomez, a political economist at
University Malaya in Kuala Lumpur, says the
government--if it has to--decides the fate of major
shareholders. "Ultimately," he says, "it's always been about
control" by the political elite.
MRCB was tipped to be a target after the government in
July launched a 3.7 billion ringgit takeover of United
Engineers Malaysia, an affiliate of the Renong
conglomerate, the country's most indebted group. If the
government succeeds, it would take control of Renong from
Executive Chairman Halim Saad, a protégé of Daim,
because of cross-holdings between both companies.
Mahathir has denied Halim is under investigation, but was
frank about his fall. "He is not under investigation. He's not
in charge, that's all," he told reporters.
The relative ease with which tycoons like Halim and
Rahman are being sidelined underscores Mahathir's
involvement. More broadly, however, their fate illustrates
Mahathir's belated recognition that getting tough on
debt-restructuring is the only way for Malaysia to attract
foreign investors. If the number of international conference
calls that Lai Tak Heong, the head of SG Securities in
Kuala Lumpur, has taken in recent weeks is an indication,
foreign interest is reviving. "We're back on the radar
screen," says Lai, "Now we have to convince them that
Signs that the government is serious were bolstered--again
on August 9--when the Corporate Debt Restructuring
Committee, the state debt-workout agency, announced
tough guidelines to accelerate restructuring of 29 billion
ringgit in debt owed by 32 firms. New CDRC head Azman
Yahya said both shareholders and banks would have to
take losses and had to come up with workable plans in
three months. Azman said lax management would be
punished, companies could go bust if they didn't cooperate
and reluctant bankers would be referred to the central bank.
"We've got to hit them where it hurts--their pockets," said
Azman, giving himself a year to resolve the problem. "There
has to be discipline."
It may be too early to talk of the end of Malaysia Inc.--the
cosy symbiosis between the state and private sector to
develop Malaysia as part of the preferential treatment for
ethnic Malays, who make up more than 60% of the
population. But some things are changing, say financial
executives close to the government. Protecting troubled
corporate favourites is barred, and also out is Daim's
strategy of allowing a handpicked group of businessmen to
feed on state patronage.
Malay entrepreneurs may continue to emerge but they are
unlikely to get the same sort of generous treatment. Officials
say Malay business participation will be ensured by
state-owned institutions set up for that purpose--such as
the National Equity Corporation and state development
Despite Mahathir's past diatribes against neo-colonialists,
the officials say that foreigners may be allowed to play a
bigger role in the restructuring by being invited, for
example, to take meaningful stakes in strategic industries or
even manage them. Meanwhile, ethnic business lines may
be further blurred. Malaysian-Chinese businessmen are
likely to participate in the break-up of "Malay"
conglomerates like Renong. Malay institutional interests are
equally likely to be involved in the asset sales of, for
example, the Lion Group--the Chinese-owned
conglomerate which, with more than 10 billion ringgit in
debt, is the country's second-largest debtor.
Mahathir's conversion seems to have occurred shortly
before Daim resigned in June, following a series of bailouts
seen by critics as benefiting government cronies. Mahathir
became acting finance minister and will apparently remain
there to see through the campaign. Speedier restructuring
will lead to a rise in the federal government's liabilities,
especially when it has to nationalize troubled firms such as
Renong. It will increase nonperforming loans, leading to a
drop in bank profits. But "it's just short-term pain really,"
says Gan Kim Khoon, the research head of
Arab-Malaysian Securities. "I don't think any bank will
need to be recapitalized."
It says much about Mahathir's pragmatism that he gave in
after resisting since the Asian Crisis and defending troubled
tycoons. For him to accept that the state has to spearhead
corporate restructuring and nationalize some enterprises is
to signal that there were flaws in his privatization policy.
Similarly, building up Malay businessmen may have been
Daim's idea but it was one that Mahathir embraced. "Let's
give credit where it's due, "says Tan Teng Boo, managing
director of investment adviser Capital Dynamics.
"Whichever way you look at it, these are the right things to
Government insiders say a major player behind the change
is Nor Mohamad Yakcop, a former central bank assistant
governor. Nor was briefly in the limelight in the early 1990s
after he took responsibility for over 13 billion ringgit in
foreign-exchange losses and resigned. A close associate
says he's been "working ever since to redeem himself." He
caught Mahathir's attention in 1998 when he advised on
how to implement capital controls. He was re-appointed to
the central bank before becoming economic adviser to
Mahathir in May last year.
Insiders say Nor came into his own with the government
takeover of loss-making Malaysia Airlines in December. He
advised Mahathir that the best way to deal with Tajudin
Ramli, the airline's controlling shareholder, was to buy him
out at market prices. But Daim pushed through a deal for the
state to pay Tajudin almost three times the market share
price. The ensuing furore strained ties between Mahathir
and Daim and gave Nor credibility. Since then, the insiders
say, Nor has been dubbed "Doctor No" because he refuses
many of the deals brought to him for the approval of the
The Renong revamp, the bell-wether of Malaysian
restructurings, will make or break Nor. According to the
insiders, he persuaded Mahathir that to replace Halim with
another tycoon would be a mistake, as it would only lead to
fresh borrowings by an individual. Only the state had the
resources and power to see it though, argued Nor. Mahathir
agreed. So far, there is no evidence of a bailout and
analysts generally praise the move. The stockmarket even
began to rally in July. The acid test will be what happens
after Renong is taken over.