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ASIAWeek : The $1.3-Billion Man
By Kapal Berita
31/10/2000 2:11 am Tue
The $1.3-Billion Man
Halim looks for cash to buy most of Renong
By ARJUNA RANAWANA Kuala Lumpur
Kuala Lumpur's financial community is shaking its collective head in
disbelief at the man's chutzpa. Over the past several years, Halim
Saad, chairman of the Renong Group, had presided over a borrowing
spree at Malaysia's largest listed conglomerate. The infrastructure
giant has debts of $5.9 billion equivalent to 5% of the entire
banking system's lending. Now, it seems Halim wants to draw more water
from the banking well. He is offering to buy 21.6% of Renong to add to
the 16.7% he already owns. He has promised to purchase another 32.6%
of the group by Feb. 15 next year. Last week, K.L. was abuzz with
rumors that Halim would troll the open market for some 20% more of the
company. He could end up with more than 90% of Renong, which means the
company will automatically be delisted from the stock exchange.
The outcome will resonate throughout Malaysia's economy. Halim does
not have the estimated $1.3 billion for the purchase. Three bank
consortiums are reportedly finalizing offers to arrange new loans
despite the fact that this will raise the banking system's exposure to
Renong and Halim to 7%. Because Renong's interests reach the spectrum
of Malaysia's industries, it is considered a proxy for the economy.
But it is also a poster company for the murky corporate-governance
practices that foreign investors complain about. Prime Minister
Mahathir Mohamad has asked one of his special advisers, Nor Mohamad
Yacob, to brief analysts and foreigners on what the country is doing
to improve corporate transparency and accountability. All that effort
may well go to naught if Halim is seen as enjoying special treatment
at the expense of minority shareholders. "This is an important test
for Malaysia," says Yeoh Keat Seng of the online stock advisory
Why would the banks be willing to make the loan? Halim, 47, is a
protEgE of Mahathir confidant Daim Zainuddin, who has worked closely
with the country's top leaders for years. Since his company was formed
in part from the assets of the United Malays National Organization,
Malaysia's dominant party, Halim once described himself as the
business proxy for the organization. And it may be in the banks'
interest to save Renong: Its debts are so big that if the company
failed, the whole financial system would suffer.
Before the Asian Crisis in 1997, Renong was actually the bluest of
Malaysia's blue chips, boasting at one point a market capitalization
of $16.8 billion. One of its subsidiaries, cash-rich UEM, operates the
lucrative 800-km North-South Expressway toll road that runs the length
of peninsular Malaysia. But political influence can cut both ways.
Renong was also expected to help with national projects. In 1998, even
as Malaysia was reeling from the regional crisis, the company
completed the National Sports Complex, a futuristic edifice meant to
burnish the country's image as it hosted the Commonwealth Games.
As Renong's finances deteriorated, Halim persuaded subsidiary UEM to
buy 32.6% of Renong for 3.24 ringgit a share 35% higher than
Renong's then stock market price of 2.40 ringgit. Naturally, UEM's
minority shareholders felt their company was being used to bail out
Renong at an inflated price too. To appease them, Halim promised to
personally buy back the Renong shares at the original price by Feb.
15, 2001 if the stock was trading below 3.24 ringgit then. That pledge
is coming back to haunt him. Renong closed at 1.73 ringgit a share on
Oct. 25 and is unlikely to improve given its debt and negative
investor sentiment toward Halim.
The chairman was counting on paring Renong's obligations and thus
improving the stock price by selling its 12.5% stake in Commerce
Asset Holdings, which owns Commerce Bank, the nation's second-largest
lender. But a serious buyer has yet to come forward. Halim also wants
to list a dotcom subsidiary of its bankrupt unit, Time Engineering, by
Nov. 17. TIMEdotCom boasts a fiber-optic cable network that covers
much of the country. The dotcom announced Oct. 25 that Global One
Communications, a subsidiary of France Telecom, has signed on as its
technical partner. The judge who declared Time Engineering bankrupt
had ruled that TIMEdotCom needed such a partner before it can list.
To make the listing more attractive, Halim is removing cross-holdings
between Renong and Time Engineering. Renong owns 46.8% of Time, while
Time has 21.6% of Renong, an incestuous relationship that has always
rankled with investors. On Oct. 19, Halim said he will himself buy
Time's stake in Renong for 1.746 ringgit a share. That will raise
his holdings in Renong to 38.1%. Under the law, a shareholder who
acquires more than 33% of a company must make a general offer for the
rest of the shares. Halim has asked the government for a waiver. He
will need another waiver next year when he buys back UEM's 32.6% stake
at the pre-set price of 3.24 ringgit.
If he gets the special dispensation, as is widely expected, Halim
might go all the way and delist Renong. As a private company, Renong
will have more latitude to make deals without worrying about
shareholder complaints. And once it is no longer listed, the
hullabaloo over bad corporate governance may fade away. Or maybe not.
If granted, the government waivers Halim wants could solidify investor
suspicion that Malaysia is not committed to leveling the playing
field. The doubts could grow if the state bails him out or pressures
the banks to help him finance his purchases. Halim may save his
empire, but it may be at the expense of Malaysia's financial markets.