(Kuala Lumpur, Sunday): 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 667.29 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 adherence 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.
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, as well as depressing the Malaysian ringgit to the new low of RM3.5135 to a US dollar.
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?
The Deputy Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim, was very unfair yesterday when he accused the Opposition for being so forgetful about the iniquities of the manipulators in causing the twin currency and stock market crisis.
We cannot continue to blame the George Soros and the manipulators when our currency and stock market crisis plummet from one nadir to another nadir when we continue to shoot ourselves in the feet because of our own mistakes, mismanagement, lack of transparency and obstinate refusal to give topmost priority to the restoration of investor confidence as a fundamental prerequisite in a programme of national economic recovery.
For instance, the KLSE crash in the last week of August and the first four working days of September, when the KLSE Composite Index fell from 905 points to 731 points was completely self-inflicted, the result of the ill-advised regulation on the designation of 100 stocks.
During this period, the Prime Minister, Deputy Prime Minister and the Economic Adviser advised Malaysians not to sell their shares and to invest in the stock market if they have money, and many who heeded their advice are not in deep regrets as well as trouble, when with another self-inflicted blow, the KLSE CI fell by 105 points from 667.29 to 562.33 in two-and-a-half days at the close of this morning's closing since the announcement of the UEM-Renong deal.
Is the Prime Minister, Deputy Prime Minister and the Economic Adviser going to assume any responsibility for the tens of billions of ringgit of losses sufferred by Malaysian investors who showed their support and loyalty in acting on their advice?
We are in fact seeing a free fall of the stock exchange today, as at 3 p.m., the KLSE CPI has fallen by 49.05 points today to 554.44, which is the biggest fall in a single day in the KLSE CI since the beginning of the three-month economic crisis.
This is most ironic as well as tragic, as it is happening one day after Parliament has passed a vote of confidence in the Prime Minister.
Malaysians and the whole world must be wondering how the Malaysian Parliament could pass a motion of confidence in the Prime Minister in the midst of a renewed economic crisis, precipitated by a Government which could be so callous, reckless and irresponsible as to permit a deal like the UEM-Renong deal, which is a national catastrophe which has slashed the KLSE CI by 105 points, wiped out about RM70 billion of investors' monies in two-and-a-half days and seriously undermined efforts at economic recovery after a three-month economic crisis by seriously destroying the residue of investor confidence
The UEM-Renong deal has completely undermined the 1998 budget to restore confidence in the economy, as the KLSE CI has fallen from 802.02 before budget to 554.44 while the ringgit has plummetted from 3.17 against to dollar before budget to 3.175.
It is fortunate that at the height of the previous KLSE crisis two to three months ago, the Government had not implemented the RM60 billion fund to jack up share prices, which received very adverse reactions from the investing public when it was announced by the Prime Minister, Datuk Seri Dr.Mahathir Mohamed, or the country and people would have suffered enormous losses.
At the time, the KLSE CI was in the region of 800 points and has now fallen to 550 points - or over 20 per cent. This would mean that the RM60 billion fund, if they had been invested in the KLSE to prop up the share prices, would be worth only RM48 billion today. When taking into account the depreciation of the ringgit, which has fallen by over 40 per cent, the RM60 billion put into the KLSE then would have been worth less than RM30 billion!
The UEM-Renong deal has brought about a national catastrophe and Malaysia cannot afford one catastrophe after another catastrophe in the management of our economic future. The authorities must be prepared to take radical steps to save the Malaysian economy, including taking firm action against those who have allowed the UEM-Renong catastrophe to take place, even replacing the Chairman of the Securities Commission, the Chairman of the FIC or any other person, regardless of rank, responsible for the latest financial catastrophe in the country.