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FEER: Halim Saad's Fall: Down But Not Out
By S. Jayasankaran
17/12/2000 4:49 pm Sun
From The Far Eastern Economic Review
Issue cover-dated 21st December 2000
A Question of Honour
Renong Group Chairman Halim Saad wins a postponement of a purchase of
shares he is committed to buy. The markets are appalled
By S. Jayasankaran/KUALA LUMPUR
FOR MUCH OF HIS tenure as chairman of Renong, a politically
well-connected conglomerate, Halim Saad has been the poster boy of
Malaysian business. Courted by bankers, he borrowed large sums to
finance rapid growth. In turn, Renong helped build modern Malaysia:
roads, bridges, stadiums and fibre-optic networks. Renong and other
companies in the real-estate, construction and finance group were key
stocks in investors' Malaysian portfolios.
Lately, however, Halim the poster boy has become Halim the problem
That was starkly illustrated on December 12, when the share prices of
Renong and a key affiliate tumbled as Halim bought extra time to keep
a three-year-old financial commitment. The stock slide will make it
even more difficult for Halim to restructure Renong's huge debts and
pursue his plan to transform the parent company into a telecoms and
Halim's fall from grace began with the Asian Crisis, which left Renong
vulnerable to its high debt, and a share sale in November 1997 that
caused outrage among investors. In the transaction, a group affiliate
company borrowed money to buy a 32% stake in Renong. Halim denies he
was the seller. But, responding to complaints that shareholders'
rights had been trampled, he later promised to buy the shares
personally in three years' time.
Ever since, investors have been watching to see whether he would make
good on his pledge.
They got part of the answer on December 11, when it was announced that
Halim would not, after all, make a payment in February of 3.1 billion
ringgit ($815 million) to the affiliate, United Engineers Malaysia.
Instead, he will pay just 300 million ringgit next year and the
balance by May 2002. Stock investors weren't impressed. Renong's
shares fell 13% and UEM's 11% on December 12.
The case has become a cause c?l?bre in Malaysia because it's seen as a
test of corporate governance in a country where the rights of minority
shareholders are often ignored. It also raises broader issues about
Malaysia's desirability as an investment destination, and the
government's support of certain businessmen. Halim is a favourite of
Prime Minister Mahathir Mohamad, and Renong has been closely linked
with Mahathir's party, the United Malays National Organization, or
Umno. Government assistance is widely seen as having helped both Halim
and Renong survive their financial problems.
"To Mahathir, Halim is like Proton," says a Malay businessman,
referring to the national car, another favourite of the premier.
"That's why he cannot be allowed to fail."
Just as important, the Renong group's total debt is over 25 billion
ringgit, or 5% of all corporate lending by Malaysia's banks. Halim has
also been one of the biggest beneficiaries of Malaysia's
affirmative-action policies in business, designed to create a class of
Malay entrepreneurs equal to the ethnic-Chinese businessmen who
dominate the economy.
To outsiders, the whole affair smacks of cronyism. "There is a lot of
concern," says Manu Bhaskaran, managing director of SG Securities in
Singapore. If Halim doesn't make good on his promise to UEM, he says,
"it will become even more difficult to sell Malaysia" to international
In the controversial 1997 deal, United Engineers Malaysia borrowed
over 2 billion ringgit ($526 million) to fund its stock purchase. UEM
was a profitable infrastructure company and favourite of institutions
investing retirement funds. Investors saw the deal as a bailout of the
sellers--whoever they were. Renong's and UEM's share prices collapsed,
and the Kuala Lumpur Stock Exchange's composite index fell 20% in a
In February 1998, Halim responded to the outcry by offering UEM a put
option on the shares, pledging to buy them in three years' time at
cost plus interest. That now comes to 3.1 billion ringgit, or almost
4.40 ringgit a share--more than three times the current price of
All along, however, he has maintained he wasn't responsible for the
original sale. In a recent interview with the REVIEW he said: "The
shares weren't mine, they weren't my friends', and they weren't
Umno's. I have agreed to take the burden off UEM because it's the
honourable thing to do."
He agrees that the government continues to aid Renong, but is
unapologetic. "Yes, the government's helped. But our creditors will
get paid 100% with interest and with no haircuts. What's wrong with
On December 11, UEM announced it had accepted Halim's new offer. UEM
Managing Director Ramli Mohamad conceded that Halim may have failed to
keep his original promise "in spirit," but added: "If he hadn't made
the offer, UEM would have nowhere to go. So let's give him a chance."
Halim says he's serious about buying back the shares but admits it's
difficult to raise funds, given Renong's weak share price. In separate
remarks on December 12, he told the REVIEW: "Why should I pay 300
million in interest if I wasn't serious?" he asks. "I might as well
put it in my pocket and go away to Paris."
All the same, the latest twist won't help Halim as he tries to
restructure Renong's huge debts. Already, this has involved a complex
series of asset shuffles.
In 1998, Halim retired 8.4 billion ringgit of joint Renong-UEM debt by
getting Plus, a UEM subsidiary that owns and operates Malaysia's
north-south toll road, to issue 17 billion ringgit-worth of seven-year
bonds. Although the debt was on Plus's books, Renong and UEM undertook
to service large chunks of it. All Renong's assets were pledged to
Plus and the government extended Plus's concession on the toll road by
12 years. It also leaned on banks and government agencies to buy the
Then, in April this year, Halim proposed asset sales and corporate
listings, including a flotation of Plus, designed to retire over 12
billion ringgit of group debt by 2001 and yield a cash surplus. He
also proposed retiring some of Plus's bonds to give it a better
But then Halim changed tack, shuffling assets yet again. In late
November, UEM proposed buying all Renong's assets--except its 37%
stake in UEM--for 6.7 billion ringgit using new UEM shares and
commercial paper. UEM would then sell most of these assets and take
over Plus bonds that Renong had intended to service. The markets
reacted badly, fearing the UEM was undertaking more risk and and that
its earnings per share would be diluted. "All we see are assets being
shuffled around," says SG's Bhaskaran. "But where is the cash being
Halim says the deal aims to enhance Plus's listing valuation. Without
it, he says, the valuation would have to be discounted to reflect the
fact that Plus's bonds are backed by assets that aren't owned by its
parent, UEM, but by group parent Renong. "Once the assets are owned by
UEM, it can guarantee the risk and Plus will get a higher valuation on
listing," Halim says.
UEM says most of the assets it acquires will come debt-free and that a
condition of the deal is that UEM cannot suffer dilutions in either
earnings or asset values.
Is that really the case? On the one hand, Halim has now deferred the
put option that would have helped to restore UEM's balance sheet. On
the other hand, and more positively, UEM on December 11 baulked at
buying two of Renong's assets, most notably a loss-making light-rail
transit system with over 4 billion ringgit in debt. This refusal
reduced the value of the overall transaction from the 6.7 billion
ringgit price proposed in November to 5.4 billion ringgit.
But much will depend on actual asset sales. Given Halim's political
cachet, some observers think he will eventually succeed in turning
Renong around. One reason is his sheer stubbornness in maintaining
that he can raise gargantuan sums. (Apart from the buy-back of Renong
shares from UEM, he has also agreed to buy a 22% block of Renong
shares from another group unit for almost 900 million ringgit.)
There's also a belief that the government won't let Halim down. When
Mahathir blocked Singapore Telecommunications' 2.2-billion-ringgit bid
to buy 30% of Renong's telecom unit earlier this year, he replaced
SingTel with Khazanah, a federal government agency. Khazanah's
purchase of the stake ensured a successful underwriting of the telecom
company's shares, guaranteeing a value of more than 8 billion ringgit
when the shares are listed early next year.
Halim-watchers say the government cares about him because he has built
visible structures such as highways and bridges and has done it with
quality and speed. Although Plus bust its budget on the north-south
highway project, it finished nine months ahead of schedule and the
road has slashed travelling times.
If the latest transactions go ahead as planned, Halim will own 70% of
Renong which, in turn, owns 54% of UEM. And then? Some analysts
speculate that after UEM has sold some assets and listed others, its
shares could fetch a premium. Then Halim might move to take Renong
private, liquidate it and distribute its assets--which by then will
consist solely of UEM shares--back to himself. So he may yet emerge
"It's tempting but too expensive," counters Halim. "It would cost me
two arms and two legs."
HALIM'S FALL: DOWN BUT NOT OUT
By S. Jayasankaran
In 1986, the Malaysian government awarded a company linked to the
ruling United Malays National Organization the right to build and
operate the North-South Highway--billed as the country's largest
private-sector project at the time.
The opposition tried to block the move, citing a conflict of interest.
But Halim Saad, who emerged as Umno's nominee in the highway company,
won in court. The New Zealand-trained accountant and protégé of Daim
Zainuddin, the finance minister then and now, later bought the company
and built the highway. He leveraged that asset to buy Umno's other
businesses to create what is now the Renong group.
The cigar-puffing, designer-suited tycoon looms large in Malaysia. If
the country's new heroes in the 1990's were corporate barons, Halim
was Superman. His was the lifestyle of the rich and famous, complete
with a private jet. And the boyish-looking tycoon seemed like the
businessman to emulate: He always delivered projects on schedule and
financed them with private funds. At its height in 1997, his empire
was valued at 40 billion ringgit ($10.5 billion).
But the Asian Crisis laid bare the folly of his overly ambitious
empire-building. "His problem was that he didn't know when to slow
down," says a close associate. Critics accused him of imprudence,
especially for using short-term loans to fund long-term projects.
The severity of the crisis didn't help. In 1997, Renong alone had
debts of 2 billion ringgit against assets of 18 billion ringgit. The
crash altered those figures to 4.5 billion ringgit of debt against 4
billion ringgit of assets. "We'd have been fine if not for the plunge
in securities' value," Halim says. Perhaps, but the whole Renong
empire, with its stakes in everything from banking to telecoms, has a
debt of over 25 billion ringgit.
And unlike smaller businessmen, Halim, 47, hasn't yet had to pay for
his mistakes. Thanks to government help, there have been no
share-capital reductions for him nor haircuts for his bankers. Still,
the embattled tycoon thinks he's much maligned and has revenge on
"I will pay all my debts, Inshallah," he says. "And I will prove all
of you wrong."