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NOVEMBER 3, 2000 VOL. 26 NO. 43 | SEARCH ASIAWEEK

The $1.3-Billion Man
Halim looks for cash to buy most of Renong
By ARJUNA RANAWANA Kuala Lumpur

Kuala Lumpur's financial community is shaking its collective head in disbelief at the man's chutzpa. Over the past several years, Halim Saad, chairman of the Renong Group, had presided over a borrowing spree at Malaysia's largest listed conglomerate. The infrastructure giant has debts of $5.9 billion — equivalent to 5% of the entire banking system's lending. Now, it seems Halim wants to draw more water from the banking well. He is offering to buy 21.6% of Renong to add to the 16.7% he already owns. He has promised to purchase another 32.6% of the group by Feb. 15 next year. Last week, K.L. was abuzz with rumors that Halim would troll the open market for some 20% more of the company. He could end up with more than 90% of Renong, which means the company will automatically be delisted from the stock exchange.

The outcome will resonate throughout Malaysia's economy. Halim does not have the estimated $1.3 billion for the purchase. Three bank consortiums are reportedly finalizing offers to arrange new loans — despite the fact that this will raise the banking system's exposure to Renong and Halim to 7%. Because Renong's interests reach the spectrum of Malaysia's industries, it is considered a proxy for the economy. But it is also a poster company for the murky corporate-governance practices that foreign investors complain about. Prime Minister Mahathir Mohamad has asked one of his special advisers, Nor Mohamad Yacob, to brief analysts and foreigners on what the country is doing to improve corporate transparency and accountability. All that effort may well go to naught if Halim is seen as enjoying special treatment at the expense of minority shareholders. "This is an important test for Malaysia," says Yeoh Keat Seng of the online stock advisory Malaysiastreet.com.

Why would the banks be willing to make the loan? Halim, 47, is a protEgE of Mahathir confidant Daim Zainuddin, who has worked closely with the country's top leaders for years. Since his company was formed in part from the assets of the United Malays National Organization, Malaysia's dominant party, Halim once described himself as the business proxy for the organization. And it may be in the banks' interest to save Renong: Its debts are so big that if the company failed, the whole financial system would suffer.

Before the Asian Crisis in 1997, Renong was actually the bluest of Malaysia's blue chips, boasting at one point a market capitalization of $16.8 billion. One of its subsidiaries, cash-rich UEM, operates the lucrative 800-km North-South Expressway toll road that runs the length of peninsular Malaysia. But political influence can cut both ways. Renong was also expected to help with national projects. In 1998, even as Malaysia was reeling from the regional crisis, the company completed the National Sports Complex, a futuristic edifice meant to burnish the country's image as it hosted the Commonwealth Games.

As Renong's finances deteriorated, Halim persuaded subsidiary UEM to buy 32.6% of Renong for 3.24 ringgit a share — 35% higher than Renong's then stock market price of 2.40 ringgit. Naturally, UEM's minority shareholders felt their company was being used to bail out Renong — at an inflated price too. To appease them, Halim promised to personally buy back the Renong shares at the original price by Feb. 15, 2001 if the stock was trading below 3.24 ringgit then. That pledge is coming back to haunt him. Renong closed at 1.73 ringgit a share on Oct. 25 and is unlikely to improve given its debt and negative investor sentiment toward Halim.

The chairman was counting on paring Renong's obligations — and thus improving the stock price — by selling its 12.5% stake in Commerce Asset Holdings, which owns Commerce Bank, the nation's second-largest lender. But a serious buyer has yet to come forward. Halim also wants to list a dotcom subsidiary of its bankrupt unit, Time Engineering, by Nov. 17. TIMEdotCom boasts a fiber-optic cable network that covers much of the country. The dotcom announced Oct. 25 that Global One Communications, a subsidiary of France Telecom, has signed on as its technical partner. The judge who declared Time Engineering bankrupt had ruled that TIMEdotCom needed such a partner before it can list.

To make the listing more attractive, Halim is removing cross-holdings between Renong and Time Engineering. Renong owns 46.8% of Time, while Time has 21.6% of Renong, an incestuous relationship that has always rankled with investors. On Oct. 19, Halim said he will himself buy Time's stake in Renong — for 1.746 ringgit a share. That will raise his holdings in Renong to 38.1%. Under the law, a shareholder who acquires more than 33% of a company must make a general offer for the rest of the shares. Halim has asked the government for a waiver. He will need another waiver next year when he buys back UEM's 32.6% stake at the pre-set price of 3.24 ringgit.

If he gets the special dispensation, as is widely expected, Halim might go all the way and delist Renong. As a private company, Renong will have more latitude to make deals without worrying about shareholder complaints. And once it is no longer listed, the hullabaloo over bad corporate governance may fade away. Or maybe not. If granted, the government waivers Halim wants could solidify investor suspicion that Malaysia is not committed to leveling the playing field. The doubts could grow if the state bails him out or pressures the banks to help him finance his purchases. Halim may save his empire, but it may be at the expense of Malaysia's financial markets.

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