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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek

MARCH 31, 2000 VOL. 26 NO. 12

A Complicated Evolution
Why Renong is selling old-economy assets
By ARJUNA RANAWANA Kuala Lumpur

 
  ALSO IN ASIAWEEK

COVER: Seismic Changes
Can president-elect Chen Shui-bian meet the historic challenges posed by a changing Taiwan - and by China?
The Challenge: Now comes the hard part
Reality Check: Beijing will have to deal with the new Taiwan
Profile: Chen's split personality

Editorial: Taiwan and China have reason aplenty to make peace
Editorial: Asia needs new policies to combat prostitution

THE NATIONS
South Asia: Clinton to India and Pakistan - Start Talking
'Limited War': Don't let the term fool you
Philippines: Sister Christine vs. Estrada - yet another scandal
Extended Interview: Salamat Hashim calls for independence
Myanmar: Behind the secret "Chilston" meetings
Inside Story: Asia's "Insiders" - four people who have blown the whistle on wrongdoing
Viewpoint: A Malaysian race for Islamization?

ARTS & SCIENCES
People: Sumo's big brother calls it quits
Heritage: The struggle to save Penang's old George Town
Art: Digital works blur the line between tech and expression
Books: Why healthcare was so bad in Suharto's Indonesia
Health: Noni - The craze over a smelly green fruit
Newsmakers: Thai "List of Shame" riles the privileged

TECHNOLOGY
Games: Microsoft's X-factor
Computing: IBM's Deep Blue man is now into e-commerce
Cutting Edge: An e-book horror story

BUSINESS
Bankruptcy: The court-ordered restructuring of TPI suggests Thailand is coming to grips with deadbeat borrowers
Room to Improve: Inadequate laws in Indonesia and Korea
No Hype: Can Singapore's Pacific Internet regain investor favor?
Renong: The Malaysian conglomerate sells off key assets
Business Buzz: A deal to lift Singapore's spirits

Investing: How rising U.S. interest rates will affect Asia

In the New Economy, a company that owns and operates highways - the kind that carry vehicles - may seem like a dinosaur. But in Asia, the dinosaurs still have life. The question for many of them is when they need to evolve into something else: Start too soon, and you run the risk of charging down uncharted paths while leaving still-profitable markets behind. But change too late and you might be the one left behind.

Not long ago, Renong in Malaysia fell squarely into the dinosaur camp. The sprawling conglomerate was threatened - not so much by the New Economy as by old-fashioned problems like too much debt. But today Renong seems to have decided its direction: It is selling assets to pay down debt, dot-coming pieces of itself such as Time dotCom, a creation of Time Engineering and, along with subsidiary United Engineers (Malaysia), launching a $100 million e-commerce effort.

Deciphering Renong's exact motives these days is never simple or straightforward. To start with, Renong has a credibility problem. That is because executive chairman Halim Saad, a close friend of Malaysian Finance Minister Daim Zainuddin, has a huge potential liability hanging over his head. In late 1997, United Engineers (UEM) bought a one-third share in Renong, which already owned a controlling stake in UEM. At the time, Halim granted a put option to help guarantee that UEM wouldn't lose because of its Renong investment. (A put option grants the holder the right to sell shares at a fixed price at a later date.) With that put option, UEM could force Halim to buy its Renong holdings at the price it originally paid - RM3.24 per share (85 cents), plus carrying costs. The option could be exercised by UEM anytime for one year after Feb. 15, 2000.

Within a few months of granting the option, Renong stock plummeted to RM0.275 per share. It has partly recovered and is now RM2.84 (75 cents). A recent brokerage research report on UEM from Salomon Smith Barney says the major risk for the company is a default by Halim on the put option. "Strictly speaking," says an analyst who asks not to be named, "UEM should exercise the option and force Halim to buy. But I doubt that will happen."

What is Renong's strategy in selling assets and floating stock? The executive chairman insists the moves are mostly an effort to pay down the company's $5.3 billion debt, almost one-quarter of which is in the form of seven-year zero-coupon bonds issued by Projek Lebuhara Utara-Selatan (PLUS) in 1998. PLUS owns and operates the key highway that runs from Thailand down the Malay peninsula to Singapore. It is the star of the entire Renong Group, accounting for 90% of UEM's revenues and three-fourths of its profits in 1999. UEM's earnings were more than five times Renong's last year. UEM says it plans to spin off PLUS and sell up to 30% of it in an effort to raise nearly $1 billion.

Most of this will go to pay debt, but a chunk will help fund the e-commerce initiatives with Renong. The two companies are negotiating to buy stakes in a portal, MyWeb, and in ehealth4all. Also planned are a business-to-business website for construction materials and a 40-hectare business park in Johore tailored for e-businesses.

Renong is planning to sell its 12.4% stake in Commerce Asset-Holding, which merged months ago with Bank Bumiputra to create Bumiputra Commerce, for about half-a-billion dollars. It also plans to list its Prolink subsidiary, which owns a 24,000-hectare block of land near the Singapore border, to raise another $1 billion. Andrew Seah Saik Weng of TA Securities in Kuala Lumpur says all the sales represent a vindication for Halim: "He is keeping his promise. He said he would clear the bond payments as soon as the value of his assets increased." But an analyst who asked to remain anonymous disagrees: "[Renong] is known for various stock market manipulations. Its track record is not too good. So whenever it does something - whether the intentions are good or not - there is a veil of suspicion." Renong is finding that shedding the skin of a dinosaur, especially a Malaysian one seen as favored by well-connected government interests in Kuala Lumpur, is not easy.

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