From The Business Times, Singapore, 27th November 2000Will Halim Saad have upper hand again?

By Eddie Toh

HALIM Saad, the boyish-looking boss of Renong Bhd and associate United Engineers Malaysia, has an unusual line on his palm, according to one of his associates, that indicates his ability to survive calamitous events. It's hardly scientific but the Malaysian businessman has definitely survived more than his fair share of setbacks in the last three years.

Renong, which once personified the success of Malaysia Inc, has been besieged with endless financial woes since the onset of the regional economic crisis in 1997.

Although the group was crippled by mounting debts of RM20 billion (S$9.3 billion), or 5 per cent of the loans in the banking system, Mr Halim has managed to keep it intact.

His latest headache is the attempt to dispose of the pledged assets of Renong. In essence, UEM wants to take charge of all the pledged assets of its parent because it feels that Renong is not in a position to sell its assets to repay Plus, a UEM subsidiary.

The assets include Renong's stakes in listed companies like Crest Petroleum, Time Engineering, Park May, Faber, Commerce Asset-Holding and Camerlin. And the pledged unlisted assets are monorail company Putra and Prolink Development, the owner of a huge tract of land in Johor.

Plus, the owner of the North-South Expressway, is the cashcow of the entire group. Renong has to repay Plus over RM5 billion because the highway concessionaire had pledged its future earnings in a bond issue last year to shave the debts of Renong and UEM.

So is UEM shouldering the burden of the entire group again? UEM has already used Plus to wipe off Renong's short-term debts of RM5.4 billion last year. In return, Renong promised to sell its assets over the next seven years to repay Plus. However, the promise has yet to be fulfilled. Instead, UEM will now assume the responsibility of selling the pledged Renong assets.

UEM management says it should take control of the pledged assets and sell them as soon as possible so that it can float Plus. UEM feels it cannot afford to wait for Renong to unload its assets as the interest accruing to the Plus bonds is growing like a cancer. Sounds plausible but several questions remain unanswered.

First, why can't Renong sell the assets as promised to repay Plus? When the Plus bonds were issued to rescue UEM and Renong last year, the companies confidently said they have seven years to sell their assets to repay Plus. Why does UEM suddenly feel that Renong may not be in a position to pay back Plus?

Second, why doesn't Mr Halim -- the main driving force of UEM and Renong -- ensure that Renong stick to the asset disposal plan? Why must the burden be shifted from the right hand to the left hand?

Third, is there any guarantee that UEM will be able to sell the Renong assets? What if UEM cannot sell the assets? Besides the burden of unloading the Renong assets, UEM has been criticised for its high valuation of the Renong assets.

UEM will not cough up cash for its acquisitions of Renong assets, but will instead issue 190 million new shares at RM6.30 each as part of the proposal. The proposed share issue is huge: It will enlarge UEM's share capital by 23 per cent and dilute its earnings per share.

If UEM is so independent of Renong, why can't UEM offer a deal that will not dilute its EPS so substantially? Renong may not agree with a lower valuation, but is it in a position to bargain? After all, it could not even sell its so-called prized assets after more than a year. To show that it's an arms-length deal, Renong will rightfully abstain from voting in the proposal tabled by its 38 per cent associate.

The final arbiter may be the Malaysian government. This is because three major state-owned funds -- the Employees Provident Fund, Lembaga Tabung Angkatan Tentera and Lembaga Tabung Haji -- collectively own 9.11 per cent of UEM. This makes the group the second largest stakeholder in UEM.

Incidentally, the government has appointed the three funds to spearhead the fledgling move to protect minority shareholders in the country. It remains to be seen who will have the upper hand in the most protracted restructuring exercise of Malaysia Inc.