From The Asian Wall Street Journal 13th December 2000

Renong Doesn't Reassure Investors

By DOUGLAS APPELL Staff Reporter

KUALA LUMPUR -- Malaysia's stock market suffered only minor damage Tuesday in the wake of the Renong group's latest failure to address its crushing debt, but analysts are lamenting a lost opportunity to resuscitate investor interest in the country.

The Kuala Lumpur composite index dropped 1.5% on the day, but Renong tumbled 13% and its United Engineers Malaysia affiliate fell 11%. The group's drubbing followed UEM's announcement late Monday granting Renong Chairman Halim Saad 15 more months to honor his pledge to buy back a huge block of Renong shares from its affiliate. The group's perceived ties to the country's dominant political party have made Renong a focus of fund managers' concerns about corporate governance.

Analysts say that foreign investors -- already wary about the slow pace of corporate restructuring in Malaysia -- will now have further reason to avoid the country. Bank Negara Malaysia, the country's central bank, reported recently that foreign portfolio investors have taken $2.6 billion out of the country since May.

While the market didn't plunge Tuesday, ING Barings analyst Uday Jayaram said the more important point is that it lost a major chance to bolster its credentials and pave the way for it to benefit when overseas money eventually flows back into Asian stocks.

The curtain rose on the Renong drama three years ago, with UEM's announcement that it had taken on debt to buy a 33% stake in its parent. That prompted the broader market to plunge by 6.8% in a single day, as investors feared their interests could be compromised if other companies made similar moves.

The next act came the following February, when Tan Sri Halim, in an attempt to mollify investors, made a Valentine's Day offer to UEM of a put option, obligating him to buy back the Renong block at cost plus financing. Analysts pegged the per-share cost of the options -- which expire on Feb. 14, 2001 -- at roughly 4.40 ringgit ($1.16).

With Renong's shares trading at well below two ringgit in recent months, investors have been focused on how Tan Sri Halim was going to raise the more than 3.2 billion ringgit needed to honor his option. The executive had repeatedly assured analysts and investors that he would meet his obligations.

Monday's announcement by UEM that it would accept three payments of 100 million ringgit each in the coming year, while allowing Tan Sri Halim to foot the remainder of the bill by May 2002, proved a major disappointment.

Despite considerable doubts, "at the back of people's minds they were hoping that he would pull a rabbit out of a hat" and provide a catalyst to drive the market higher, said Terence Wong, the head of research with GK Goh Securities in Kuala Lumpur.

Instead, investors now have to accept that progress in corporate restructurings could be glacial, a prospect that could result in a lowering of Malaysia's crucial sovereign-debt ratings by agencies such as Moody's and Standard & Poor's.

Chew Ping, S&P's associate director of sovereign ratings in Singapore, says that corporate and financial-sector restructuring will be key to changes in Malaysia's ratings. But while the Renong affair isn't positive, the rating agency is looking at a broad range of potential developments in the corporate sector, he said. He cited Malaysian Airline Systems and Telekom Malaysia as two potential restructuring candidates.

Although analysts say they are pessimistic about the Renong group and the broader market, many expressed surprise at how many foreign investors still hold UEM's stock. One institutional salesman who traveled recently to Europe said roughly two-thirds of the fund managers he met there had the company's shares in their portfolios.

UEM said Monday that foreign investors hold roughly 23% of its shares. But amid a flurry of "sell" recommendations by analysts Tuesday, that is almost certainly set to decline. On Tuesday, 10.6 million UEM shares changed hands en route to a 38-sen drop to 3.24 ringgit a share. Renong's shares dropped 18 sen to 1.20 ringgit a share.

Renong group officials weren't available for comment.

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From The Business Times, Singapore
12th December 2000

Halim Saad buys more time to fulfil Renong put option

He will pay UEM RM100m each on Feb 14, July 14, Dec 14 with the balance plus interest on May 14, 2002

MALAYSIAN tycoon Halim Saad is set to spook the Malaysian stock market again, after he managed yesterday to convince United Engineers Malaysia to grant him one more year to fulfil his pledge to buy from it a 32.3 per cent stake in Renong Bhd for over RM3.17 billion (S$1.4 billion).

Instead of buying the entire batch of Renong shares as promised by next Feb 14, Mr Halim, who controls both Renong and associate UEM, will pay in four instalments.

The first three instalments of RM100 million each will be paid on Feb 14, July 14 and Dec 14 next year.

The remaining bulk of the payment, including interest, will be settled on May 14, 2002.

The shares will only be transferred to Mr Halim upon full settlement of the obligation.

The new arrangement to side-step the original agreement in 1998 is not expected to please many disgruntled investors.

"If he can't pay up next year, can he come up with more money in 2002?" asked an analyst, citing the repeated assurances by UEM and Mr Halim that the original agreement would be honoured.

Assuming the same interest charge of about 9.4 per cent, Mr Halim will have to cough up almost RM3.5 billion by 2002.

UEM first spooked the market when it acquired the 721 million Renong shares from unnamed shareholders at RM3.24 apiece in November 1997.

The controversial purchase triggered a meltdown of the stock market as investors feared that UEM's purchase of the shares from influential owners at its own expense could be a precursor to more bail-outs in the corporate sector.

Following the uproar and the crack in the share price of both Renong and UEM, Mr Halim granted a put option to buy the Renong shares from UEM if Renong's share price remained below RM3.24 by Feb 2001. The counter closed at RM1.38 yesterday.

Analysts said Mr Halim is banking again on the share price of the Renong shares to breach RM3.24 by 2002 instead of coming up with RM3.5 billion in cash.

This could be done through UEM's latest plan to take over all the pledged assets of Renong except its 38 per cent stake in UEM.

UEM yesterday slashed the purchase price of the proposed acquisitions of the assets from RM6.7 billion to RM5.4 billion -- a hefty discount but still substantially higher than Renong's market capitalisation of less than RM3 billion.

If successful, UEM could then proceed to dispose of the Renong assets to repay Plus, a subsidiary of UEM and the operator of the North-South Expressway.

Plus had issued RM8.4 billion in bonds to help shave the debts of Renong and UEM last year. Renong and UEM, in turn, have to raise funds to repay Plus to pave the way for the listing of the highway concessionaire.

"Halim is trying to unlock the value of Renong so that he doesn't have to fulfil the put option," said a source close to Renong.