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Bloomberg: Malaysia Mulls $1.3 Bln Bond Swap to Save Light Rail
By Kapal Berita
28/10/2000 4:56 am Sat
Malaysia Mulls $1.3 Bln Bond Swap to Save Light Rail
By T.H. Chan and David Yong
Kuala Lumpur, Oct. 27 (Bloomberg) -- Malaysia plans to spend about 5 billion ringgit
($1.3 billion) to bail out Kuala Lumpur's light rail, run by Renong Bhd. and other
firms, in the nation's biggest such rescue, bankers involved in the transaction said.
The government will take over the rail system, swapping debt at the project for
bonds. Terms of the swap are being negotiated with a creditors' committee
headed by Bayerische Landesbank, Commerce International Merchant Bankers Bhd.,
Employees Provident Fund, PhileoAllied Bank Bhd., state asset management
company Pengurusan Danaharta Nasional Bhd. and RHB Bank Bhd. The five-to- 15
year bonds will have yields of between 5.5 percent and 7 percent, the bankers
The bailout is ''inevitable -- it was a question of time,'' said Loke See Ooi,
research manager at Worldsec Securities Advisor Sdn. ``It'll hurt taxpayers in
The rescue comes after one of the two groups managing the longest driverless
rapid transit rail in the world defaulted on a debt payment last year. The
light rail service, which runs between Kuala Lumpur and its suburbs, is
managed by Putra -- led by Renong -- and STAR -- headed by the U.K.'s
Taylor Woodrow Plc.
The move is another setback for Malaysian Prime Minister Mahathir Mohamad's
efforts to let private companies manage key projects, a policy he crafted
to help promote ethnic Malay businesses. It also shows the government's
tendency to help out politically well-connected groups, a practice that
will make some investors wary of putting their money in Malaysia.
Renong, the largest industrial group in Malaysia, with interests in
construction, banking, oil and gas, hotels and property, is controlled by
Halim Saad, a protege of Daim Zainuddin, Malaysia's finance minister.
Renong's businesses were formerly owned by dominant political party
United Malays National Organization, or UMNO. Renong shares rose as
much as 6 sen, or 3.4 percent, to 1.84 ringgit.
In a similar rescue in March, the government took over an unprofitable
national sewerage treatment project from Prime Utilities Bhd., paying
the company 192.5 million ringgit after the company failed to collect
enough revenue to pay its bills.
Under a plan being worked out for the light rail companies, the
government will set up a special purpose vehicle to issue a series
of bonds to creditors such as Bayerische Landesbank, Danaharta, EPF,
Standard Chartered Bank, ABN Amro Bank, RHB, PhileoAllied Bank and
C. Rajandram, chairman of the government's Corporate Debt Restructuring
Committee, declined to confirm the details, saying ``Talks are still
preliminary. We want to resolve this as soon as possible.''
As part of the plan, the government will own the light rail project,
which will be leased back to an operating company, bankers said. The
shareholders of Putra and STAR are currently battling over who will
operate the rail system.
Troubles at the rail projects emerged afterPutra, or Projek Usahasama
Transit Automatik Sdn. defaulted in 1999 on interest payments totaling
44.6 million ringgit on a 2 billion ringgit loan, after revenue couldn't
cover its expenses.
STAR, or Sistem Transit Aliran Ringan Sdn. Bhd., counts the Employees
Provident Fund and other state-run pension funds as shareholders.
Malaysia is struggling to reorganize the city's transport industry to
help ease over-capacity. Other companies in the industry that need
help include KTM Bhd., the national railway being run by a group of
investors led by Renong, bus companies Park May Bhd. and Intrakota
Consolidated Bhd., and a 1.17 billion ringgit KL monorail system.
``They've had to eat humble pie,'' said Muzni Mohamed, a strategist
and research manager at Pelaburan Johor Bhd., adding that public
transport systems are very difficult to privatize.
History of Rescues
Government rescue of poorly managed companies that are considered a
national asset is not new in Malaysia.
It has bailed out Bank Bumiputra Bhd. three times in the past 12
years. The bank, now merged with Bank of Commerce, a unit of Commerce
Asset-Holding Bhd., failed after its loan to Carrian group in Hong
Kong soured after the property market went bust in the early 1980s.
State oil company Petroliam Nasional Bhd. was called in to inject
capital into the bank to keep it going. Khazanah Nasional Bhd.,
a state investment arm, added another 1.1 billion ringgit to its
investments in the bank in 1998 to boost the bank's capital.
Malaysia has also bailed out failed steelmaker Perwaja Terengganu Sdn.
The latest rescue will help remove a large chunk of debt from Renong, which has 20 billion ringgit of loans. Last year, its cash- rich toll-road unit PLUS sold 8.4 billion ringgit in bonds to help repay some of its loans. Malaysia's recession in 1998 made it difficult for the group to pay its bills.
Link Reference : Bloomberg $1.3Billion Bond Swap Article