UEM/RENONG: NEVER ENDING CRONYISM

By: Kim Quek (14.12.2001)

Some investors may be cheered by the unveiling of the much awaited restructuring of the UEM/Renong Group as a landmark event that turns a new leaf for the ailing Malaysian corporate world, long plagued by cronyism and poor governance.

Before any one is carried away by this euphoria, he is well advised to take a closer look. In the same announcement of this restructuring, is a disclosure that the RM 3.2 billion put option previously exercised on Halim Saad had been cancelled by UEM a month ago. This effectively means that Halim has been freed of this RM 3.2 billion liability to UEM, for which UEM has provided a bad debt of RM 2.4 billion. Hence once again, the Government has given Halim another massive bailout, for which UEM has to suffer a loss so stupendous that its quantum equals two third of UEM's current market value.

As the Government now wholly owns UEM, this loss is now passed on to the people of this Country. And this is translated numerically to mean that every family in this Country has been robbed of RM 500, just because the Government decides to do some one a favour.

This is only the latest in a long string of government bailouts handed out to Halim and his Renong Group, a previous bailout of almost the same amount was when Halim was pardoned a bad debt of RM 3.0 billion a year ago for his disastrous investment in a Philippine venture.

Halim has long been recognized as a proxy for the financial interests of the powers that be. He and his Renong Group have been the symbol of Malaysia's cronyism under the Mahathir administration, being the first choice to undertake numerous large-scale government projects, often awarded without proper tenders. That Halim is exempted from honouring his RM 3.2 billion put option was already seen as a foregone conclusion (and in fact recognized as the Government's main agenda) when the Government announced its plan in July to buy over UEM and delist it from the Stock Exchange.

The point to remember is that the Renong Group is still the biggest and most influential conglomerate in this Country, and Halim and the hidden beneficiaries he represents still constitute the biggest group of beneficial shareholders in this corporate giant, though Halim is no more at the whelm and though the Government is calling the shots through its acquisition of UEM which has the controlling shares in Renong Berhard. So, whatever decision the Government makes on behalf of UEM and the Renong Group, particularly those directly touching Halim and his associates, must be above board and transparent. In this respect, the Government has already failed its first big test. It has let Halim off the hook for RM 3.2 billion without public knowledge for one month (Halim's put option was terminated on 16.11.01). Instead of absolving Halim, shouldn't UEM have taken steps to freeze the assets of Halim and his nominees months ago? Why is the Government still dilly-dallying on this issue with evasive answers? (such as not knowing Halim's shareholdings in Renong).

The Government has been pumping billions after billions of pubic funds into Halim and the Renong Group to keep them comfortable and afloat, the latest being the RM 3.8 billion acquisition of UEM, the RM 3.2 billion pardon of Halim's liability to UEM, and the RM 5.5 billion take over of LRT's (Light Rail Transit) non-performing loans. It is almost a certainty that billions more of public funds will continue to be siphoned to keep this Group humming, now that the Government has taken over the management control and has to face the awesome task of unwinding the staggering total debt load of RM 30 billions.

Overshadowing these deals that involve tens of billions of ringgit is the fact that Halim as proxy for the powers that be is still the main beneficiary of this endless and massive hemorrhage of the public coffers.

There is no way the Government can convince the public that the current Renong restructuring represents a clean break from the past which was characterized by favouritism, corruption and mismanagement, unless it comes clean with the murky interests held by Halim as proxy for the political power behind him.

As it is, the conflict of interests of those in political power is so pervasive that it is hardly possible to free the Government from the taint of corruption, whenever it uses public funds to rescue any member of the conglomerate.

That the Malaysian Government has not as yet embarked on the course of genuine corporate reforms is further evidenced from its recent bailout of the LRT projects. After taking over the failed and debt-ridden companies by injecting RM5.5 billions to assume the latter's non-performing loans, the Government has performed the mind boggling feat of handing the projects back to the original shareholders to operate, who had in the first place brought these projects to financial ruins through massive mismanagement.

Thus, the Malaysian taxpayers have been made suckers 3 times over. First, the proponents and shareholders of the projects reaped a financial bonanza from the construction works using bank loans (acquired through government help, of course) that are eventually repaid by the Government on their behalf. Then they reaped a bonus by selling the projects to the Government (UEM announced it will receive RM 600 million from this sale). And finally, the projects are handed back to them on a silver platter for them to make further profits in the future. No doubt, Malaysians can expect to be further sucked to sustain the profit-making spree of these privileged few in the years ahead, keeping in mind their miserable management record.

It is not sufficient that a government engineered restructuring plan looks good on paper. It must be backed by a political leadership marked by its high integrity and its respect for the principles of sound management. Sadly, our political leadership has failed to convince us that it possesses any of these.

Kim Quek.