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BWeek: Is Mahathir Finally Cracking the Whip?
By Michael Shari
3/1/2002 2:10 am Thu
INTERNATIONAL -- ASIAN BUSINESS
Is Mahathir Finally Cracking the Whip?
His cronies in limping Malaysia Inc. get the word: Restructure
Just like every other Southeast Asian "tiger" nation back in the early
1990s, Malaysia Inc. grew fast and borrowed big. By the time everything
began falling apart in the financial crisis of 1997-98, the pile of bad
corporate debt added up to $34 billion, most of it owed by the big
conglomerates that dominated the Malaysian corporate landscape.
Since then, the government of Prime Minister Mahathir Mohamad has
allowed the companies, which are mostly run by cronies from his ruling
United Malay National Organization (UMNO), to ignore the debt,
avoiding desperately needed bankruptcies and corporate restructuring.
The bad loans have dogged Malaysia's banks and hobbled the
country's ability to finance the next stage of growth.
Now Kuala Lumpur may be ready to bite the bullet. With the regional
economy going from bad to worse, it is clear that Corporate Malaysia
will not be able to grow its way out of debt. So the companies are
starting to make progress toward restructuring. Conglomerates are selling
money-losing subsidiaries, and cronies are being forced off corporate
boards. "Things are happening," says an economist in Kuala Lumpur,
"and that's clearly cause for optimism."
SHAKEUP AT RENONG. The trigger for this burst of activity is the
continuing deterioration of Malaysia's economy. Standard & Poor's says
gross domestic product has been contracting since January. Mahathir
admitted in late November that Malaysia is in recession.
So the government has concluded it needs lean, debt-free corporations
to compete for future global business. Take the case of engineering and
construction conglomerate Renong. Long run by party insider Halim
Saad, it has been a showcase of what's wrong with Malaysia Inc. Saad
abruptly resigned along with several other board members in an October
shakeup. In late November, Renong's new board hired J.P. Morgan
Chase & Co. to advise it on restructuring and approved a plan to sell
two subsidiaries, Commerce Asset-Holding, a financial-services firm
that owns Commerce Asset Bank, and Cement Industries of Malaysia.
The only prospective buyer so far is Kazanah Nasional, a state-owned
Renong may now be forced to deal with the $6.5 billion in debt it hasn't
serviced since 1998. The debt is now being administered by a
government agency called the Corporate Debt Restructuring Committee.
Anything but aggressive until now in forcing debtors to restructure, the
CDRC has recently been taken over by a new CEO with a mandate to
clean up all of its loans by yearend. "There has been a lot of tough talk
lately," says an economist in Kuala Lumpur.
There are also encouraging signs at investment holding company
Technology Resources Industries. In October, the Securities
Commission, Malaysia's stock market regulator, rejected a restructuring
plan by Chairman Tajudin Ramli that would have let him retain
management control by selling stock to Naluri, another firm he controls.
Instead, analysts expect Ramli to lose control to the government. The
message: Officials have stopped doling out favors.
STALLING? The state-run asset management company, Danaharta
Nasional, which holds an additional $12.6 billion in nonperforming
corporate loans, has also stepped up its activities. On Dec. 20,
Danaharta plans to sell $156 million in four-year bonds backed by
resuscitated loans, part of a new plan to sell off the debt overhang as
rapidly as possible.
All very promising, but some caution is in order. So far, few companies
are being closed or heavily restructured; instead they are being sold to
the government, which plans to clean up their debt and resell them to
private investors. Kazanah may soon buy additional subsidiaries of
Renong and other ailing conglomerates.
Skeptics suspect that Mahathir and the corporate chieftains are just
playing for time, hoping for a rebound that will spare them the gruesome
task of shutting down factories and laying off thousands. Maybe so. But
some see a real shift in attitude. "I wouldn't say it's a sea change," says
Ping Chew, an analyst at Standard & Poor's in Singapore, "but things
are looking more on the positive side." That could mean that at long last
Malaysia is climbing out of its rut.
By Michael Shari in Singapore