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SCMP Reporter

Investors in Malaysia yesterday marked down shares of both United Engineers (Malaysia) (UEM), the country's largest construction group, and affiliate Renong as analysts decried the companies' latest restructuring.

Analysts said the new deal, struck on Monday and allowing Renong executive chairman Halim Saad an extra 15 months to buy back UEM's 32.3 per cent stake in Renong, amounted to a personal 'default'.

The framework of the deal - which extended a buy-back deadline from February to mid-May 2002 - rode roughshod over the interests of minority shareholders, they said.

Politically well-connected magnate Mr Halim in effect controls both companies, which are knitted together through an array of cross-holdings, both directly and through corporate subsidiaries.

Analysts said Monday's announcement also tarnished the already shaky image of Malaysian companies' corporate-governance standards in the eyes of foreign investors.

Dresdner Kleinwort Benson's assistant director in Kuala Lumpur, Alan Inn, said: 'Like most analysts, I am highly critical of the latest proposal. It seems that Halim Saad can't secure the financing to honour the option.'

UEM slumped 10.49 per cent yesterday to M$3.24 (about HK$6.64), while Renong, the country's largest industrial conglomerate, ended 13.04 per cent lower at $1.20.

The declines bruised sentiment in the wider market, with the Composite Index finishing 11.2 points, or 1.52 per cent, lower at 724.89.

UEM and Renong hold substantial cross-holdings in each other and the management of these stakes has often raised investors' ire.

Renong holds 38 per cent of UEM, while UEM has built up a 32.3 per cent stake in Renong.

UEM's Renong stake was accumulated during the Asian financial crisis in a series of off-market transactions at $3.24 a share.

When news of the build-up of the 32.2 per cent Renong shareholding broke, the share prices of both companies sank as investors feared the deal amounted to a bailout of Renong by the stronger UEM.

To calm the storm, Mr Halim granted UEM a put option, saying that he would personally buy back the Renong stake by February next year should Renong's share price remain at less than $3.24.

However, the timeframe for the buy-back commitment has now been extended, leaving in place the companies' mutual support and giving Mr Halim more time to ready funds for a deal.

'Corporate governance is getting worse, not better in Malaysia,' another analyst said. 'Mind you, with current international sentiment towards Malaysia at a historical low, how much more damage can be done?'

Under the new arrangement, Mr Halim will pay UEM an initial M$100 million on February 14 for the Renong shares, followed by equal payments in July and December.

The remainder of the $2.87 billion will be transferred only in May 2002, when title for the Renong shares will be transferred to Mr Halim.

Interest on the deal will be charged at 9.4 per cent a year.

Analysts said Mr Halim might be hoping that, by the time he must honour the new arrangement, Renong's share price would have climbed back above $3.24.

The Renong-UEM relationship is further complicated through UEM's recent pledge to buy $5.4 billion of Renong assets through the issue of new shares and assumption of Renong debt. The deal, if completed, would see Renong's holding in UEM rise beyond the present 38 per cent.



Renong-UEM deal irks investors