Members of the KWAP Investment Panel should be prosecuted for criminal negligence in investing RM903 million in Time dotCom IPO resulting in RM367 million losses

- DAP forum on “Bailouts and Buyouts - Are EPF, Pensions Trust Fund & public monies safe?”
Lim Kit Siang

(Kuala Lumpur, Monday): I will start with Time dotCom, which closed at  RM1.96 per share when trading closed today, which is RM1.34 or 40.6  per cent below its IPO price of RM3.30.

The colossal losses suffered by three known government-linked funds and agencies, namely the Employees Provident Fund (EPF), the Pensions Trust Fund (KWAP) and Danaharta which have publicly admitted to investing in Time dotCom at RM3.30 per share, whether subscribed or unsubscribed portion of IPO, are as follows:

        No. of Shares     Cost        Present value    Loss incurred
 EPF      81.6m (3.22%)   RM269.28m   RM159.93m          RM109.35m
 KWAP    273.86m (10.82%) RM903.74m   RM536.76m          RM366.98m
 Danaharta 80.05m (3.16%) RM264.16m   RM156.89m          RM107.27m
         435.51 m         RM1437.18m  RM853.58m          RM583.6 m

The three government-linked funds and agencies of EPF, KWAP and Danaharta have collectively lost the mind-boggling sums of RM583.6 million in less than a month  of Time dotCom's public debut - a most unforgivable and unpardonable
mismanagement of public funds in taking part in the bailout of Time dotCom IPO for the benefit of  Time Engineering, Renong and Tan Sri Halim Saad.

Although the EPF, KWAP and Danaharta took up a walloping 76.14% of the entire Time dotCom offer of 572 million shares at RM3.30 per share, or RM1.44 billion out of the total IPO offer of RM1.88 billion, I believe that if all the identities of the takers of the balance of the IPO are known, they will mostly be other government-linked funds and agencies which can total as high as 90 to 95 per cent of the entire Time dotCom IPO.

If government-linked funds and agencies constitute the lower estimate of 90 per cent of the entire Time dotCom IPO offer, it would mean an investment of RM1.69 billion, or  a loss of RM686.14 million at the end of trading today - all to ensure the success of the restructuring exercise of the Time Engineering and Renong.

At the end of the Time dotCom IPO, despite its making double history as the country's biggest offering as well as the biggest flop when it was undersubscribed by 75 per cent, Halim Saad was laughing all the way to the bank as he had ended up RM900 million cash-rich at the expense of  government-linked funds and agencies like EPF, KWAP and Danaharta.

I do not think there is any other answer to the question of tonight’s public forum: “Bailouts and Buyouts - Are EPF, Pensions Trust Fund & public monies safe?” except a thundering “NO”!

Many questions cry out for answer in the Time dotCom IPO bailout fiasco:

Firstly, if the placement of Time dotCom IPO shares to specific investors and those which were  privately placed or subject of restricted offer for sale were excluded, individual investors applied for  only 29.738 million shares or a mere pittance of 5.2% of the 572 million shares offered.

When private and corporate investors fight shy of the Time dotCom IPO, as evidenced by the high rejection rate of 80% of the restricted offer for sale and 75% of the entire IPO offer, why did the  EPF  and KWAP acted like "fools who rushed in where angels fear to tread"?

Did the KWAP and EPF Investment Panels acted judiciously and  independently when they  decided to commit RM903.74 million KWAP funds and  RM269.28 million EPF funds respectively in  Time dotCom IPO shares based on the cirteria of security, liquidity and yield - when every prudent investor  was keeipng a ten-feet barge-pole distance?

If the answer is in the positive, then there is something very wrong with the judgement, competence and professionalism of the KWAP and EPF Investment Panels. I do not believe however  that the KWAP and EPF Investment Panels and their advisers were able to exercise independent and impartial judgement with regard to the use of KWAP and  EPF monies in the Time dotCom IPO bailout, which would mean a violation of the statutory duties of the KWAP and  EPF and the  unlawful investment of KWAP and EPF monies.

The KWAP role in the Time dotCom IPO bailout fiasco is mind-boggling, acquiring  the lion’s share of 48 per cent of Time dotCom’s IPO issue of 572  million shares or 63.9% of the unsubscribed IPO portion of 428.83 million shares, ploughing some six per cent of its total funds by taking up 273.86 million shares of the unsubscribed portion of the Time dotCom IPO at the cost of  M903.74 million.

I was flabbergasted when the Finance Minister, Tun Daim Zainuddin nonchantly said that  KWAP subscribed for Time dotCom’s shares as a sub-underwriter during the company’s initial public offer (IPO) because it had expected the shares to be oversubscribed.

Daim said: “It (KWAP) was the sub-underwriter. I suppose it must have expected that Time dotCom’s IPO would be oversubscribed at that time.”

If the KWAP Investment Panel had really believed before  the Time dotCom IPO that it would be oversubscribed, it must be one of the rare few of its kind in the country at the time whose incompetence rank with economic sabotage in undermining the financial safety and  integrity of government-linked funds and agencies.

The members of the KWAP Investment Panel have no  satisfactory explanation whatsoever why they went against the general market investment sentiments at the time to risk RM903.74 million of KWAP funds which could only  benefit Renong and Halim Saad to help them to  extricate from their colossal debts by putting in jeopardy the pensions and gratuities of 850,000 civil servants.

According to the Deputy Finance Minister, Dato’ Dr. Haji Shafie bin Salleh in Parliament in his reply to the Royal Address debate on 29th March 2001, the involvement of KWAP through private placement of 55.25 million shares worth RM182.33 million and purchase of 721.19 million shares worth RM721.19 million was because of its obligation as sub-underwriter as a result of the IPO’s under-subscription.

He said that the decision of KWAP to sub-underwrite the Time dotCom IPO was made in October 2000 when the shares situation was good, with the KLCI in the region between 750 and 790 and KWAP had not expected the stock market to plunge six months later.

This is a most shocking explanation - as it is most extraordinary,  imprudent and downright negligent  for any underwriter or sub-underwriter to make a commitment to guarantee any IPO issue six months ahead of the issue, regardless of market developments and changes.

It would appear that the KWAP Investment Panel were  people who did not read media reports or follow market developments diligently, as in the last quarter of last year, Time dotCom’s proposed IPO was already receiving a bad press.

More than two weeks before the Time dotCom IPO,  when there was still opportunity for the KWAP Investment Panel to review its sub-underwriting commitment,  the Business Times of Singapore in its report of  5th January 2001 ran the following headline: “Investors likely to snub Time dotCom's IPO - It is being launched at a bad time after a long delay”, predicting that the Time dotCom IPO would get “the cold shoulder from investors”.

The KWAP not only did not follow media reports about the market condition, they also did not follow the movements of the stock market, as by  22nd December last year, the KLCI had fallen below the psychological barrier of 700 points to plunge to 696.39, 679.64 on 26th December, 666.63 on 2nd January 2001 and 657.52 on 3rd January.

The “sub-underwriter” explanation is most unbelievable.  In the first place, when did government-linked funds like KWAP start playing the role of underwriter or sub-underwriter for IPOs of select companies?  Malaysians are entitled to a full explanation of the underwriting business of the government-linked funds and agencies.

Secondly, it is a illegal use of the KWAP funds to sub-underwrite the Time dotCom IPO as the Pensions Trust Fund Act 1991 (Act 454) under which KWAP was established does not empower the KWAP to go into  the business of underwriter or sub-underwriter for IPOs of shares of companies.

Thirdly, KWAP was not playing the role of a sub-underwriter in the Time dotCom IPO, but was in fact its real and biggest but “secret” lead underwriter with the unprecedented size of 48 per cent  guarantee for  the  Time dotCom IPO.  This commitment exceeded that of the publicly-announced three “Joint Lead     Underwriters” announced in  the IPO prospectus, namely Commerce International Merchant Bankers Berhad, Perwira Affin Merchant Bank Berhad and Affin-UOB Securities Sdn. Bhd. and seven “Other Underwriters” who were clearly phoney “Joint Lead Underwriters”.

Fourthly, why should the KWAP be involved in such a subterfuge to  hide its true role as the  real “lead underwriter” and guarantor for the RM1.88 billion Time     dotCom’s IPO, claiming only to be an “sub-underwriter” so that its identity would not have to be publicly advertised in the Time dotCom IPO prospectus?

It is in the public interest that the  full terms of KWAP’s so-called “sub-underwriting” agreement for Time dotCom’s IPO should be made public, which
should be laid in the current meeting of Parliament, giving details  as to  its  major clauses and provisions, the size of the underwriting and whether it was a "firm commitment" or  "best efforts" agreement.

The KWAP “sub-underwriting” of the Time dotCom IPO is an unlawful and criminal misuse of public funds, and members of the KWAP Investment Panel should be prosecuted for criminal negligence in investing RM903.74 million in Time dotCom IPO resulting in RM367 million losses.

Under the Pension Trust Fund Act 1991, the KWAP Investment Panel comprised:

(i)  The Chairman of KWAP, who is the Secretary-General of the Ministry of Finance;
(ii)  a representative from Bank Negara;
(iii)  a representative from the Accountant-General’s Department;
(iv)  three other members with business or financial experience who shall be appointed by the Minister.


*Lim Kit Siang - DAP National Chairman