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AWSJ: Faith In Market Hinges On Control
By Cris Prystay
22/12/2000 8:31 pm Fri
Source: The Asian Wall Street Journal
21st December 2000
Heard In Malaysia: Faith In Market Hinges On Control
By CRIS PRYSTAY Staff Reporter
KUALA LUMPUR -- Could the sale of stakes in Malaysia's national
airline and car company entice foreign investors to take another look
at Kuala Lumpur's flagging stock market? It all depends on how much
control the buyers end up getting.
If the two potential deals end up going ahead, analysts say, it could
mark a turning point for investors, who have been repelled by bailouts
of well-connected businessmen and the slow pace of meaningful
Analysts are divided, but most believe the government's intention to
sell stakes in these two long-protected, politically strategic assets
could help Malaysia begin to remake its image -- that is, if the sale
is done in a convincing way. The key issue, they say, is how much
management control outside investors would have in either Malaysian
Airline System or the long-protected national car maker, Perusahaan
Otomobil Nasional, known as Proton.
Some investors are optimistic. "There is a strong signaling factor
that can't be discounted with these two events," says Chong Yoon Chou,
fund manager at Aberdeen Asset Management. "It's important now because
there's a beauty parade across Asia's markets, and marks go to
restructuring, corporate governance and transparency."
Prime Minister Mahathir Mohamed has indicated that the government,
which is in the process of buying out businessman Tajudin Ramli's 29%
stake in ailing MAS, might be willing to give up it's "golden share"
in the national carrier, which allows it to veto major policy
decisions. Dr. Mahathir has also conceded that Proton needs a foreign
investor if it is to compete in the global auto market. Both Swissair
and Qantas have since confirmed they are in talks with MAS, and U.S.
car maker Ford Motor is reported to have made overtures to Proton.
What's turned investors off is that most corporate restructurings to
date have involved only rescheduling of debt, with little or no change
in management or corporate focus. The failure of Renong Group to
address its debt problems last week only added to the deepening
cynicism about Kuala Lumpur's stock market. Renong affiliate UEM
granted the group's chairman a 15-month extension to honor his pledge
to buy back a large block of Renong shares from UEM. The decision by
UEM in 1997 to take on debt in order to buy a 33% stake in Renong,
which has historical links to the country's dominant political party,
was widely seen as a bailout of the ailing parent company at the
expense of UEM.
For some wary observers, even sales of a few strategic assets won't be
enough to signal that broader reforms are really under way in
Malaysia. "Maybe Proton and MAS can entice some strategic investors,
but at the end of the day investors still have other, lingering
concerns. It's these questionable domestic deals. It's clear the
government is reverting back to old habits where capital is allocated
to friends," says Ray Jovanovich, a fund manager at Indocam Asset
Meanwhile, the country's stock market has all but fallen off the map.
Malaysia's central bank reports that between May and December, foreign
portfolio investors had taken $2.6 billion out of the country, where
the total market cap now stands at just $112.8 billion.
Investors who are watching the two deals say they will reserve
judgement until it is made clear how much management clout an outside
investor would be able to wield at either Proton or MAS. The
government hasn't indicated how much management control Malaysia would
be willing to cede in either the airline or the car maker.
"Political considerations have superseded commercial priorities, for
both Proton and MAS; I'm not sure how much that will change," says an
analyst at a foreign brokerage house. MAS, which reported a loss of
258 million ringgit ($67.9 million) in the year ending March 2000, and
a loss of 700 million ringgit in 1999, hasn't been able to raise its
domestic airfares for the last eight years. The airline incurs about
360 million ringgit in losses a year on its domestic routes.
It is likely the government will find it even tougher to loosen its
grip on the national car project, held up by Prime Minister Mahathir's
government as both a key prong of its industrialization policy and a
source of national pride. The brainchild of Dr. Mahathir, Proton is
protected from competition by stiff import tariffs that make a typical
foreign family car almost twice as expensive here as in neighboring
Thailand. Sadly for some prospective owners, Dr. Mahathir has said
that not more than 30% of Proton would go to foreigners.
Still, some investors contend that letting go of even a piece of a
prized project like Proton is enough. "Even if they sell 20% or 30%,
that's something; it counts. Even that sends a very strong signal.
It's important as a sign that Malaysia is moving ahead," says Mr. Chou
Subject: BTS : Malaysian govt buys back MAS stake at 120% premium
From The Business Times, Singapore
KL govt buys back MAS stake at 120% premium
Price for national airline works out to RM8 per share compared with
market price of RM3.62
By Eddie Toh in Kuala Lumpur
THE Malaysian government has thrown a lifeline to tycoon Tajudin Ramli
of Malaysia Airlines by agreeing to pay a hefty market premium of 120
per cent for his stake in the money-losing national carrier.
Mr Tajudin's Naluri Bhd yesterday struck a deal to sell its entire
29.09 per cent in MAS back to the government for RM1.79 billion (S$817
million) in cash. The price tag works out to RM8 a share, 120 per cent
higher than MAS's market price of RM3.62 yesterday.
The "re-nationalisation" of the privatised airline did not come as a
surprise as cash-strapped Naluri had earlier announced its plan to
sell the shares back to the government.
However, analysts felt the government should not have given in to Mr
Tajudin, whose asking price of RM8 is also his cost of buying the
stake in 1994.
Analysts have valued MAS at between RM4 and RM7 per share.
Naluri itself said the government would be paying a premium of 91.2
per cent over the consolidated net tangible assets of MAS as at the
close of the financial year ended March 2000. Naluri did not spell out
the basis for the premium, beyond saying that it was a "strategic and
controlling block" of shares.
Nor did it say if the buyer, the Ministry of Finance, headed by Daim
Zainuddin, has sought the advice of an independent valuer for the
deal. The sale of the strategic stake to the finance ministry is
expected to be a stop-gap measure.
The Malaysian government is expected to sell part of the stake to a
foreign carrier to help turn MAS around. SwissAir and Qantas Airways
are the two main contenders for the stake in MAS but negotiations have
Although the national carrier is no longer a government entity, the
Malaysian government still owns a golden share that carries
wide-ranging veto power over the management and direction of MAS.
Analysts said that the two foreign parties were not likely to pay more
than RM8 per share for a strategic stake in the carrier. This means
that the government may incur a loss in buying the stake from Naluri,
which is 47 per cent owned by Mr Tajudin. Naluri will use the proceeds
to settle its entire debt of RM1 billion although it will incur a
small loss of RM26.9 million from the sale of the MAS stake.
"The proposed disposal is timely for Naluri after taking into
consideration Naluri's debt situation and that Naluri is not in the
position to provide financial resources to further invest in the
national carrier," Naluri said yesterday.
While the deal will render Naluri debt-free, MAS is still grappling
with debts of RM9.4 billion. And MAS has yet to turn around after two
straight years of losses amounting to RM1 billion.
Malaysia Airlines boss denies government bailout
Naluri Bhd, a company controlled by Tajudin Ramli, announced Wednesday it
had signed a deal to sell its 29.09 percent stake for 1.792 billion ringgit
(471 million dollars), or eight ringgit a share.
Malaysia Airlines shares were at 3.64 at the close of morning trade
The government is widely expected to sell all or part of the stake to a
foreign airline to raise capital and attract expertise. Swissair and
Australia's Qantas have expressed interest.
Tajudin, the airline's executive chairman, was speaking in an interview
with AFX-Asia, an AFP-owned financial newswire.
Tajudin bought the stake from the central bank in 1994 at eight ringgit,
double the then-market price.
He said the government now is paying a "fair" price, adding that the
airline's revenue has doubled to close to eight billion ringgit since he
"So to me, that is not a bailout at all," he added.
"You cannot look at it from the point of view of the stock market only. You
have to work on the airline's value ... the price paid is fair."
Retracing the events that led to steep losses during the Asian financial
crisis, Tajudin said he had held talks with the government about the
effects of the ringgit peg on its dollar borrowings and fuel needs.
The government fixed the ringgit at 3.80 to the dollar in September 1998, a
rate which is now widely seen as undervalued.
Malaysia Airlines recorded a net profit of 318.892 million in the year to
March 1997 before the crisis struck but has posted hefty losses since then.
In the year to March this year it recorded a net loss of 258.57 million
One of the airline's main concerns is its policy of not hedging its fuel
requirement but Tajudin said there are restrictions that are beyond its
Malaysia Airlines also had to depend on overseas markets to fund its
purchase of aircraft as the amounts are too large for local markets.
"If I borrow from the Malaysian markets -- bonds or banks -- it will dry up
all the money in the country. We had to borrow overseas but the crisis came
in and the ringgit was pegged at 3.80, so we were (caught)," he said.
In addition, as only 20 percent of revenue was in dollars at that time, the
loans could not be adequately financed, he added.
The airline has also had to fly some unprofitable routes as a result of
government-to-government agreements, which Tajudin said has been costly.
Asked if he had a free hand in managing the airline, Tajudin said there are
constant "consultations" with the government concerning developments.
He denied mismanagement and said Malaysia Airlines became a loss-maker as a
direct result of the financial crisis.
"I don't agree with (suggestions) that I don't know about this airline business. In business, everything is about common sense."