Special Report: Truth on 2001 sale of Renong/UEM finally coming out?

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KUALA LUMPUR: Tan Sri Halim Saad’s RM1.3 billion suit against the government, Khazanah Nasional Bhd and Tan Sri Nor Mohamed Yakcop in which he alleged that he was “fraudently induced” to sell the Renong/UEM Group to Khazanah in 2001, will hopefully shed some light on a major market deal that happened one week in November 1997 at the height of the Asian stock market meltdown.

On what many have described as Black Week in Malaysia’s corporate and market history, the KL Composite Index plunged 20%, wiping around RM126.78 billion off the stock market’s capitalisation.

This was after the then United Engineers (M) Bhd (UEM) announced at the close of trading on Monday, Nov 17, 1997, that it had, on Nov 13, bought a 32.6% stake in its parent company, the then Renong Bhd, for RM2.3 billion. That worked out to RM3.24 for each of the 722.9 million shares. (UEM and Renong are now part of the UEM Group controlled by Khazanah).

Incensed by the shocking deal, panicky investors sold down Renong shares, and UEM’s RM2.3 billion purchase was worth only RM1.08 billion by the end of the week. UEM shares also took a big hit as investors bailed out from a company that overnight had turned from cash rich to one laden with a big debt needed to pay for the RM2.3 billion acquisition.

Back then, The Edge had raised many questions about the RM2.3 billion purchase (see the Flashback Big Money article) and two key ones were:

1. Who were the seller or sellers of the 32.6% block and when did UEM start buying the shares?UEM, in its disclosure to the KLSE, said the shares were purchased on the open market and that there were no private or arranged deals. But according to KLSE data, in the three months before the transaction, the total volume of Renong shares traded was only around 675 million shares. How then could UEM say that the 722 million shares were bought on the open market? Despite persistent questions that The Edge posed to Halim, UEM and the market regulators, this question was never answered. This only served to make many market watchers believe that the 32.6% block was owned by very important figures who managed to get out of their Renong shares for RM3.24 apiece by stuffing them into UEM, while the less fortunate shareholders saw the value of their shares worth only RM1.49 apiece by the end of the week.2. Was the purchase of the Renong shares approved by the full board of directors of UEM?The Edge had posed questions to UEM and the two independent directors, Datuk Thomas Lee and Datuk Ernest Zulliger, who resigned from the board that same week, but never got a response from either of them.

All the unanswered questions and the reluctance of the market regulators then to act swiftly to find out and disclose what had transpired led to the conclusion that, with the Asian financial crisis getting worse and share prices plunging all round, UEM was forced to buy the block of shares from Renong so that the owner/owners could get out while the shares they held were still worth a lot of money.

Halim, a prodigy of Tun Daim Zainuddin, had strongly defended the deal as a good acquisition for UEM despite the fact that it was widely condemned. Others tried to defend it as a share buyback, which it clearly wasn’t, because a share buyback is when companies buy their own shares, for example, if Renong had bought Renong shares or UEM had bought UEM shares.

It was only weeks later that UEM was publicly reprimanded by the regulators for failing to make a timely disclosure on the purchase, which to many was a mere slap on the wrist considering that billions of ringgit were lost in the stock market as a result of its action.

All this was happening at a time when the relationship between then prime minister and Umno president Tun Dr Mahathir Mohamed and his trusted Umno treasurer Daim on one side, and deputy prime minister and finance minister Datuk Seri Anwar Ibrahim on the other, was coming apart as the financial crisis started to bite hard.

Anwar wanted firmer action taken against Halim, but the others felt nothing more should be pursued.

Halim and the UEM/Renong Group were seen as creations of Daim when he was Umno treasurer and finance minister between 1984  and 1990.

Anwar, on the other hand, built his own network of businessmen after he took over as finance minister, the most high profile of which were those linked to Malaysian Resources Corp Bhd (MRCB).  An important point to note is that Daim remained Umno treasurer even after he made way for Anwar as finance minister in 1991.

It is now clear that the fallout between Mahathir and Anwar was not merely over politics but over the handling of the billions of ringgit of assets linked to Umno and various personalities that were fast losing their value because of the financial meltdown.

A few months later in January 1998, the Securities Commission, which reported to Anwar, forced Halim to agree to personally buy back the 32.6% block of Renong shares from UEM via a put option that was to be exercisable anytime within 12 months from March 2000, at an agreed price of RM3.1 billion.

After Anwar was sacked from Umno and as deputy prime minister in November 1998, the issue went under the radar until after the financial crisis ended.

Then from 2001, Mahathir, aided by his newly appointed special economic adviser Nor Mohamed, worked on cleaning up the mess left behind by politically connected corporates and the UEM/Renong entity, which was still under Halim’s control, was among those targeted. Others included MRCB, TV3 and New Straits Times Press, which were seized from those close to Anwar, with the media assets put under a new entity called Media Prima Bhd.

(One MRCB shareholder, Datuk Khalid Ahmad, did go to court a few years ago to claim compensation for the sale of his shares but this received very little media attention )

In the case of UEM/Renong, it was decided that Halim would have to relinquish control to Khazanah and would not be allowed to exercise the put option to buy back Renong.

It is this that is now a subject of Halim’s suit (see accompanying story) in which he claimed that he was not paid the full compensation that was promised to him for agreeing to the deal. He accused Nor Mohamed and the government of reneging on their promise. According to his affidavit, Halim says  he was told the assets belonged to Umno and he was therefore not entitled to any compensation. But he insists he was the rightful owner of the assets.

But while Halim had named the government, Khazanah and Nor Mohamed in his suit, it is interesting to note that he never named Mahathir as a defendant, despite the fact he was the PM then. Halim had met Mahathir on a few occasions to discuss the matter and the former PM had in fact supported the position taken by Nor Mohamed that the assets had always belonged to Umno.

Halim filed the suit in the Kuala Lumpur High Court on April 17, 2013, some 12 years after he was forced to sell out of the UEM/Renong Group and 16 years after that Black Week in the history of Corporate Malaysia.

When the suit proceeds to open court hearing, Malaysia may well witness the surfacing of details about the opaque relationship between well-connected businessmen and their political patrons. And perhaps some of the questions The Edge had asked back in 1997 would be answered.

But then again, Halim’s suit could also go the same way as that of another corporate high-flyer and prodigy of Daim, Tan Sri Tajudin Ramli. Tajudin, who once controlled Malaysia Airlines during the height of Malaysia’s privatisation fever, was sued for hundreds of millions by MAS and several other government entities. He then countersued many of them, with claims totalling as much as RM13 billion.

In documents filed with the court, Tajudin alleged that he was asked by Mahathir and Daim to take over MAS in 1991 with certain guarantees that he would not suffer any financial loss. He claimed, like Halim, that the government never kept its promises after he was forced to sell back the airline following the Asian financial crisis.

The matter was settled out of court in June 2012 with both sides withdrawing all cases against the other, thus saving the personalities involved from having to appear in court to answer the many questions about what had actually happened.

Will we have the same outcome with Halim’s suit?  Will the government give in to his demands to avoid all the wheeling and dealing from being revealed in open court?

Or will Malaysians finally get to know the truth about the nexus between certain business groups and their political patrons and what took place that Black Week in November 1997?This article first appeared in The Edge Malaysia Weekly, on June 10, 2013.