(Petaling Jaya, Tuesday): Deputy Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim, should be commended for honouring the pledge given by the Deputy Finance Minister, Datuk Affifuddin Omar in Parliament last Thursday when responding to my proposal that the government make a Ministerial statement on the UEM-Renong deal after investigations had been completed.
His explanations on the RM2.4 billion bail-out of Renong to the detriment of UEM minority shareholders which had created a crisis in the KLSE last week however were not entirely satisfactory and left many questions unanswered.
Anwar said United Engineers (Malaysia) Bhd. would be fined and reprimanded for not making timely public disclosures about the circumstances leading up to its purchase of shares in parent company, Renong Bhd.
Under the Companies Act 1965, failure to comply with Section 69(E) on notification of change of substantial shareholder interests attracts a maximum fine of RM5,000, while a breach of Rule 118 of the KLSE Listing Rules relating to timely disclosure of information that may have an effect on share prices attracts a reprimand from the KLSE.
As I pointed out in Parliament during Anwar's Ministerial statement yesterday, it is downright ridiculous to talk about a fine whose maximum is RM5,000 and a reprimand in an outrageous deal involving RM2.34 billion, and which had precipitated a crash in the stock market which wiped out RM70 billion of the savings of the investors.
How could a fine whose maximum is RM5,000 and a reprimand be commensurate with the national catastrophe wrought by the UEM-Renong deal which had plunged the KLSE to a new low, crashing through not only the psychological 600 point level and going all the way down to 512 points - making the crash through the 500 point very real and imminent, something which was completely unthinkable before the UEM-Renong deal.
In justifying the waiver given to UEM by the Foreign Investments Committee (FIC) from having to make a mandatory general offer, Anwar said that the award of waivers by FIC in the exercise of takeovers and mergers of companies is not something new or unique and that waivers had been given to companies under Permodalan Nasional Berhad and more than 19 companies, including UEM.
He said that share buy-backs when share prices have fallen sharply is not a bad practice as countries like Australia, Britain, India, South Korea and the United States have also implemented it, referring specifically to the recent IBM buy-back operation in the United States.
In the case of the IBM buy-back example, it was announced a day after the New York Stock Exchange crashed after the collapse of the Hong Kong stock market on the Black Monday of October 27, dropping a record 554 points in a single day. News of the announcement by IBM the next day that it would buy back US$3.5 billion of its shares led to a record 337-point rebound on the Dow Jones the next day. At mid-day of October 28, IBM shares were up $5.938 or 6.6 per cent to $95.938 and the volume of shares bought and sold during morning trading was double the average of shares traded daily in the past 30 days.
This was not what happened to UEM and Renong after the announcement of the UEM-Renong deal on the night of another Monday, 18th November 1997. In the subsequent three days, UEM fell from RM6.25 to RM2.90, while Renong fell from RM2.90 to RM1.69, while the KLSE Composite Index for those three days fell from 667.29 to 536.62, a fall of 130.66 points - a fall of 19.58 per cent!
IBM's buy-back operation led to the restoration of investor confidence in the New York Stock Exchange, while the UEM-Renong deal destroyed investor confidence and led to a bloodbath in the Kuala Lumpur Stock Exchange! It is most unfortunate Anwar did not address the reason for the great difference between the IBM and UEM buy-back operations.
In response to my query, Anwar said the granting of the waiver under the Takeover and Merger Code with regard to the mandatory general offer is normal for cases of share buy-backs, but this FIC policy had never been made public.
Anwar said the FIC gave the waiver to UEM subject to three conditions:
Anwar said that since UEM had now obtained a 76.9 per cent stake in Renong, it had breached the third condition set by the FIC and the waiver for the mandatory general offer was now withdrawn. UEM therefore have to go through the usual procedures related to a mandatory general offer exercise to buy the 23.1 per cent of the Renong shares it does not already own, including calling for an extraordinary general meeting for both its own and Renong shareholders, monitored by the Security Commission.
UEM has not only breached the third condition for the FIC waiver, it has also breached the first condition on making the purchase of the 723 million shares representing 32.6 per cent of Renong shares in the open market.
Renong executive chairman Halim Saad had said 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 didn't Anwar address this issue in his Ministerial statement, although I had pointed this out in Parliament last Thursday?
Furthermore, if UEM purchases had been in the open market in the past month to acquire the 723 million shares, the question automatically arises as to why the regulators, whether the Registrar of Companies, the KLSE or the Securities Commission, had failed to act for one whole month to ensure transparency, accountability and compliance with the laws and regulations regarding the securities industry? Such failure to act to uphold the securities laws and regulations for one month by the regulators, until Parliament demanded a Ministerial statement on the UEM-Renong deal, reflects badly on all the regulators concerned and Malaysians are entitled to know what actions have been taken against the regulators who have failed in their duties!
Although the government decision to withdraw the waiver and to require UEM to make the mandatory general offer for shares in Renong it does not already owns is welcome, and has redeemed a bit of the investor confidence shattered by the UEM-Renong deal, the colossal damage caused by the UEM-Renong deal could never be undone.
The UEM deal is an unmitigated catastrophe, to the UEM minority shareholders, UEM itself as well as to all investors in the KLSE.
Yesterday, Renong's price was last traded for RM1.80. As UEM paid a premium price of RM3.24 a share for the 723 million shares, this would mean a loss of RM1.04 billion, on top of the RM2.34 billion UEM is paying for the deal.
Now that UEM has to make a mandatory general offer for the 23.1 per cent of Renong shares it does not own, UEM would have to come up with an additional RM1.6 billion or more. On top of these, UEM shares have plummetted by 53.6 per cent at the end of trading yesterday since the announcement of the deal.
One way to restore some investor confidence in the Kuala Lumpur stock exchange badly damaged by self-inflicted wounds is to abort the UEM-Renong deal.
In fact, if the UEM-Renong deal is not a bail-out operation for Renong but is a transparent, arm's-length commercial proposition, all the reasons are for aborting the UEM-Renong deal as far as UEM and UEM shareholders are concerned. This is because UEM would not have to go through a deal which is already RM1.04 billion more expensive, or come up with RM1.6 billion for the mandatory general offer exercise to UEM minority shareholders.
However, the very idea of aborting the UEM-Renong deal is anathema if the whole object of the UEM-Renong exercise is to milk the UEM cash cow to bail out Renong from its pile of debts.
Anwar said that UEM minority shareholders not satisfied with the UEM-Renong exercise could seek legal redress under Section 181 of the Companies Act which seeks to protect the interests of minority shareholders.
This is cold comfort, when the various government regulators have failed in their duties to protect the interests of the investing public. Both UEM and Renong are well-known for their connections to UMNO and UMNO personalities, and the reason why the UEM-Renong deal is a national catastrophe is that it has sent out signals that blue chips are no more blue chips when they are connected to UMNO or UMNO personalities - as they could be raided and milked to bail out troubled companies like UEM.
Restoring confidence in the investor public and to avoid inflicting avoidable self-injuries in economic and financial management should be the top agenda of the government. Unfortunately, this message does not seem to have been received or understood by the top economic managers in the government of Malaysia.