SPurce:
27/10/2000

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 said.

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 some form.''

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.

Rail Woes

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 Commerce International.

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.