(Petaling Jaya, Tuesday): Public confidence in repeated government assurances that there would be no bail-out of troubled companies and individuals at public expense has been greatly shaken by the events of the past week, indicative that at least five bail-outs are underway, namely EPF bail-out of UEM, Sime Bank and KUB, public funds bail-out of Bank Bumipura and Petronas bail-out of Konsortium Perkapalan Bhd (KPB).
The Prime Minister, Datuk Seri Dr. Mahathir Mohamad, the Deputy Prime Minister and Finance Minister, Datuk Seri Anwar Ibrahim and the Economic Adviser to Government as well as Executive Director to the National Economic Action Council (NEAC), Tun Daim Zainuddin, have repeatedly given assurances to the Malaysian people and investors that there would be no bail-out of troubled companies and individuals at public expense, but the five bail-outs underway are clear breaches of such solemn public assurances and undertakings.
Furthermore, they are also in clear breach of the second 1998 Budget, first made in a hurriedly-called press conference on 5th December 1997 and later by way of a Ministerial statement in the Dewan Rakyat on 8th December 1997 by Anwar Ibrahim where he announced a freeze on all corporate restructuring, new company listings and rights issue.
Announcing what was described as "Strategic Measures To Strengthen Economic and Financial Stability", Anwar said: "Submissions for new listings, rights issues and corporate restructuring will be frozen and no new approvals be given. This is to ensure that liquidity is not unnecessarily diverted from the market."
This subject was referred to by Anwar in the Question-and-Answer session with the press on Dec. 5 last year, as follows:
Q. Was the directive on the freeze of corporate restructuring exercise brought about by the recent UEM-Renong deal?
A. Yes. That (deal) caused a lot of confusion in the (financial) market. We do not want that sort of occurrence to recur.
However, the decision about a freeze on corporate restructuring as well as the promise that there would be no bail-outs seem to have been abandoned in the case of the five on-going rescues for UEM, Sime Bank, KUB, Bank Bumiputra and KPB.
What is even more disturbing is the proposed use of the Employees Provident Fund (EPF) monies in these rescue operations.
For instance, it appears set that EPF would be the saviour of the debt-laden UEM in buying a 20 per cent stake in Projek Lebuhraya Utara-Selatan (PLUS), the toll operator of the North-South Expressway, for not less than 1.5 billion Malaysian ringgit cash from UEM.
UEM’s heavy debt arose following the controversial RM2.34 billion purchase of a 32.6 per cent stake in its parent company Renong Bhd last November, where it borrowed heavily to finance the Renong purchase. At prevailing interest rates of between 12 and 15 per cent, its interest servicing would amount to at least RM324 million annually.
It was reported today Rashid Hussain Bhd (RHB) has offered to buy KUB Malaysia Bhd’s entire 30.01% equity stake in Sime Bank Bhd, after offering to buy Sime Darby’s entire equity stake of 60.35% interest in Sime Bank.
Last week, Bank Negara announced that Sime Bank Bhd, the 60%-owned financial services division of Malaysia’s first multinational coporation, Sime Darby Bhd., had posted a loss of RM1.57 billion for the six months ended December 31, plunging Malaysia’s bluest blue-chip stock in the red.
On Saturday, Sime Darby posted a loss of RM676.2 million in the six months ended Dec. 31, 1997 as a result of deep troubles at its banking and securities arms.
Although Sime Darby has announced that it wants to sell its 60.35% stake in Sime Bank, the public interest questions crying out for answer are:
KUB Bhd is a listed investment-holding company, whose shareholders are largely UMNO members. How is RHB to find the funds to acquire the Sime Bank stakes from both Sime Darby Bhd. and KUB?
It has been reported that such funds will come from EPF and that RHB will issue new shares to the Employees Provident Fund in exchange for cash to finance the acquisition of Sime Bank and this is why I said that among the bail-out operations are the bail-outs of Sime Bank and KUB.
Last week, Bank Negara also revealed that Malaysia’s second largest banking group, Bank Bumiputra is again in trouble for the third time in 12 years, and could need as much as RM750 million in fresh capital in a worst-case scenario - despite the RM2.5 billion bailout by Petronas in 1986 and a RM1 billion bail-out at taxpayers’ expense in 1989. Is there to be no end, as well as no accountability, in the colossal losses of public funds in the three bail-outs of Bank Bumiputra in 12 years?
The latest controversial bail-out is that of the debt-ridden companies of Mirzan Mahathir and the listed company Konsortium Perkapalan Bhd. by Petronas which would buy all of Mirzan’s shipping operations and liquefied-natural gas transportation interests.
When Anwar announced the "Strategic Measures To Strengthen Economic and Financial Stability" including a freeze of corporate restructuring and no bail-outs of troubled companies last December, both the Prime Minister and Deputy Prime Minister had said publicly that it was the Cabinet which made the decision on the Second 1998 Budget to restore investor confidence.
Did the Cabinet approve the five ongoing bail-outs, the violation of the freeze on no corporate restructuring and the use of EPF monies to rescue UEM, Sime Bank and KUB, or were these the decisions of the NEAC without any reference to the Cabinet?
DAP calls on the Cabinet and the NEAC to give a full accounting on the five bail-out operations to explain why the government has flouted its decision and undertakings that there would be no corporate restructuring and no bail-outs.