Malaysia in hot seat again over CLOB<\/p>\n
By Nelson Graves<\/p>\n
KUALA LUMPUR (Reuters): Malaysia has stirred new doubts about
\nits commitment to market transparency with its handling of a plan
\nto buy up billions of dollars worth of shares formerly traded in
\nSingapore.<\/p>\n
The government on Monday distanced itself from the proposal by
\na new company to pay an estimated US$1.5 billion to buy shares in
\nMalaysian companies which had been traded on Singapore's
\nover-the-counter market but have been frozen for seven months.<\/p>\n
However, Kuala Lumpur's implicit initial support for the plan
\nhas incensed many Singapore investors unhappy with its terms, and
\ntriggered fresh criticism of the Malaysian government's
\ninvolvement with the market.<\/p>\n
\"Everything about this proposal smells,\" said an executive
\nwith a Malaysian bank.<\/p>\n
Even so, bankers and stockmarket analysts said the plan by
\nEffective Capital Sdn Bhd could end up being a useful step
\ntowards a resolution of the dispute over the shares, which has
\ncontributed to a souring of Malaysia-Singapore ties.<\/p>\n
Trading of Malaysian shares on Singapore's Central Limit Order
\nBook (CLOB) market ended abruptly last September after Kuala
\nLumpur imposed capital controls.<\/p>\n
The Malaysian government, keen to avoid undermining a six-week
\nstock market rally, has been seeking a means of unfreezing the
\nshares without having them dumped on the market.<\/p>\n
Effective Capital, controlled by little known businessman
\nAkbar Khan, pledged not to unload the shares.<\/p>\n
The firm, formed in February, received approval from
\nMalaysia's Foreign Investment Committee and a waiver from the
\ncountry's Securities Commission freeing it from takeover
\nobligations in the event its stake in a company rose above one
\nthird.<\/p>\n
Those approvals sent out a signal that the government at least
\ninitially backed Akbar Khan's plan, analysts said.<\/p>\n
They said the government appears keen to settle the issue
\nbefore Morgan Stanley Capital International (MSCI) decides
\nwhether to reinstate Malaysia in its emerging markets indices.<\/p>\n
Malaysia was removed from the indices after it imposed capital
\ncontrols. MSCI was expected to review Malaysia's status in mid-
\nMay, analysts said.<\/p>\n
Japan, which has agreed to lend Malaysia billions of dollars
\nto help it recover from its first recession in 13 years, was also
\npressing Kuala Lumpur to resolve the issue, analysts said.<\/p>\n
Effective Capital's plan won the backing of several leading
\nMalaysian banks, although one large institution stayed out on the
\ngrounds it had a major presence in Singapore, bankers said.<\/p>\n
Malaysian officials put distance between themselves and the
\nproposal only after it came under blistering criticism by
\nSingapore investors.<\/p>\n
They were upset that while Akbar's offer would pay investors
\nan average 45 percent premium on pre-capital control prices of
\nthe securities involved, it equated to an average 50 percent
\ndiscount from present price levels.<\/p>\n
\"There are several proposals, some of which might be
\nacceptable, some might not,\" Prime Minister Mahathir Mohamad said
\nlate on Monday. \"We are still studying how to solve this matter
\nwithout damage to our stock exchange.\"<\/p>\n
The plain-speaking Mahathir could not resist taking a shot at
\nSingapore investors, saying they deserved to be paid a discount.<\/p>\n
\"They did nothing to bring up the value of the shares,\" he
\nsaid. \"I don't think it is morally right for them to gain benefit
\nfrom something they did not help achieving.\"<\/p>\n
On the plus side for Singapore investors, the Akbar
\ncontroversy seems to have been a catalyst for bringing other
\nplans to light and putting Malaysia under further pressure to
\nmove forward on a solution, analysts said.<\/p>\n
Malaysia has received seven proposals to resolve the CLOB
\nissue, Channel News Asia said on Monday, citing plans by
\ninvestment houses Goldman Sachs and Jardine Fleming.<\/p>\n
Jardine Fleming declined to comment on the report. Goldman
\nSachs executives were not immediately available for comment.<\/p>\n
But whatever the outcome, the controversy over Akbar Khan's
\nproposal has dealt another blow to Malaysia's image among
\noverseas investors, bankers and analysts said.<\/p>\n
\"There's no credibility,\" a local banker said. \"Where's he
\ngetting the money? Where is it going?\"<\/p>\n
The Kuala Lumpur Stock Exchange kept a studied silence over
\nthe entire issue.<\/p>\n
The secrecy shrouding the proposal and Akbar Khan's mysterious
\nappearance with significant financial backing and regulatory
\napproval raised questions about the government's involvement,
\nbankers and analysts said.<\/p>\n
\"There's no transparency here,\" a stockbroker with a local
\nfirm said.<\/p>",
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