(Petaling Jaya, Monday): Malaysian investors, investor confidence and the Malaysian economy are the three biggest casualties in the latest corporate ploy whereby United Engineers (M) Bhd. (UEM) borrowed some RM2.4 billion to buy a 32.6 per cent stake in its parent company, Renong, at a hefty premium to the market price.
In two days, UEM had lost RM968.82 million from the Renong deal, as it bought the 723 million Renong shares at an average of RM3.24 per share whereas the closing price for Renong yesterday had nose-dived to RM1.90 per share - which is 58.6 per cent of the UEM average purchase price for Renong.
This is most unfair to UEM minority shareholders. But most unfair of all, the UEM-Renong deal has plunged the country into a new crisis of confidence, dragging down the stock market whereby the KLSE Composite Index crashed by 45.20 points at the close of trading on Tuesday from 677.29 to 622.09, sank below the psychological 600-point level yesterday to 588.13 before ending up with another net loss of 18.60 points to 603.49 points. This morning, it crashed another 41.16 points to another new low of 562.33 points.
As I said in Parliament yesterday, the latest stock market tumble has made the possibility of the KLSE CI crashing below the 500-point market no more an "impossibility".
Renong executive chairman Halim Saad's press conference yesterday had not only failed to restore investor confidence, but had the reverse effect, not only in his failure to demonstrate any adhere to the principles of corporate transparency, but his utter disregard for the interests of the minority shareholders, whether UEM or Renong, especially his statement entertaining the "great possibility" of delisting the Renong conglomerate.
In talking about the "great possibility of turning Renong into a private company if Renong shares fall further", Halim Saad seems to have given up on the equity market after being chiefly instrumental in causing the latest collapse of the stock market.
What is most shocking is the revelation by Halim Saad in his press conference yesterday that UEM received the waiver from the Foreign Investment Committee (FIC) not to extend a general offer on November 5, 12 days before the announcement of the UEM-Renong deal.
What was the justification of the waiver? Is the UEM using the shareholders' funds to bail out Renong? The fact that the authorities granted UEM a waiver from making what should have been a mandatory general offer to buy all of Renong’s shares shook investors’ faith in the principles of Malaysian corporate governance.
This is the second time in two months where the irregular granting of waiver under the Malaysian Code on Take-Overs and Mergers 1987 by the FIC has shaken the market. The previous incident involved the Malaysian Resources Corp (MRCB) which had a poor showing in September after it announced that it had a waiver to make a mandatory general offer of RM15.20 for shares of New Straits Times Press (NSTP) and RM5.20 for shares of TV3, after its market purchases which would otherwise have triggered the mandatory general offer obligation under the Code.
A waiver in the application of Malaysian Code on Take-Overs and Mergers is only permissible if it is in the "national interest". What is the "national interest" factor to justify the waiver in the MRCB case? As I asked in Parliament during the budget debate, was the "national interest" really involved or was it just "UMNO interest"?
Based on the original offer in March 1997 where MRCB had to offer shareholders of NSTP RM15.20 per share and TV3 RM5.20 per share, MRCB would have saved approximately RM2.3 billion for itself or denied the minority shareholders of RM2.3 billion. UEM-Renong deal is a national catastrophe which has slashed the KLSE CI by 105 points and wiped out about RM70 billion of investors' monies in two-and-a-half days
The question becomes even more pertinent in the UEM-Renong scandal. What is the "national interest" justifying a waiver? In fact, in the two-and-a-half days since the announcement at 8 p.m. on Monday about the UEM-Renong deal, it has been proven a national catastrophe, causing a 105-point crash in the KLSE composite index, which would have wiped out some RM70 billion of the hard-earned monies of Malaysian investors.
We cannot blame George Soros for this latest stock market crash and must pin the blame on Halim Saad, UEM, Renong and the regulators, both the Securities Commission and the Foreign Investment Committee, for the latest national catastrophe. DAP calls for a new policy of corporate transparency to restore plummeting investor confidence with the FIC giving full public accounting why it granted waiver to UEM from making a mandatory general offer to buy all Renong's shares, particularly when the UEM acquired 32.6% of Renong, just short of the 33% required to trigger the mandatory general offer.
There is both outrage and panic in the market - outrage that the cash-rich UEM would be used for what amounted to a corporate bail-out of UMNO's chief financial arm and that regulators would allow such a move, and so speedily.
As a result of the UEM-Renong scandal, many fund managers have lost confidence in the stock market as any cash-rich company which is closely linked to the government are now regarded as risks.
The UEM-Renong scandal has changed all definition of blue chip stocks, as investors are wondering whether blue chip stocks like Telekom, Tenaga, Sime Darby and Maybank could go the way of UEM.
The UEM-Renong scandal may have also destroyed Malaysia's dreams of being a financial centre. As one fund manager complained bitterly: "They hurt investors and then they blame them."
Another analyst has said that the deal showed that there was something wrong with corporate Malaysia, saying: "We have seen this before and it is called Japan. Investors are terrified Malaysia is going down the same route, with cash-rich companies bailing out parents’ or affiliates’ debts".
The investing public are entitled to answers to many nagging questions about the UEM-Renong deal.
For instance, Halim Saad claims that the UEM purchase of 723 million Renong shares was made in a series of transactions on the open market.
However, in the past month, the trading volume of Renong shares on the open market amounts to some 112 million shares, which represents only about 15 per cent of UEM's deal even if every share was bought up by UEM. This would mean that some 611 million Renong shares (or 85 per cent ) were bought through off market trading. Why is Halim Saad trying to mislead the public?