Malaysia in hot seat again over CLOB

Malaysia in hot seat again over CLOB

By Nelson Graves

KUALA LUMPUR (Reuters): Malaysia has stirred new doubts about
its commitment to market transparency with its handling of a plan
to buy up billions of dollars worth of shares formerly traded in
Singapore.

The government on Monday distanced itself from the proposal by
a new company to pay an estimated US$1.5 billion to buy shares in
Malaysian companies which had been traded on Singapore's
over-the-counter market but have been frozen for seven months.

However, Kuala Lumpur's implicit initial support for the plan
has incensed many Singapore investors unhappy with its terms, and
triggered fresh criticism of the Malaysian government's
involvement with the market.

"Everything about this proposal smells," said an executive
with a Malaysian bank.

Even so, bankers and stockmarket analysts said the plan by
Effective Capital Sdn Bhd could end up being a useful step
towards a resolution of the dispute over the shares, which has
contributed to a souring of Malaysia-Singapore ties.

Trading of Malaysian shares on Singapore's Central Limit Order
Book (CLOB) market ended abruptly last September after Kuala
Lumpur imposed capital controls.

The Malaysian government, keen to avoid undermining a six-week
stock market rally, has been seeking a means of unfreezing the
shares without having them dumped on the market.

Effective Capital, controlled by little known businessman
Akbar Khan, pledged not to unload the shares.

The firm, formed in February, received approval from
Malaysia's Foreign Investment Committee and a waiver from the
country's Securities Commission freeing it from takeover
obligations in the event its stake in a company rose above one
third.

Those approvals sent out a signal that the government at least
initially backed Akbar Khan's plan, analysts said.

They said the government appears keen to settle the issue
before Morgan Stanley Capital International (MSCI) decides
whether to reinstate Malaysia in its emerging markets indices.

Malaysia was removed from the indices after it imposed capital
controls. MSCI was expected to review Malaysia's status in mid-
May, analysts said.

Japan, which has agreed to lend Malaysia billions of dollars
to help it recover from its first recession in 13 years, was also
pressing Kuala Lumpur to resolve the issue, analysts said.

Effective Capital's plan won the backing of several leading
Malaysian banks, although one large institution stayed out on the
grounds it had a major presence in Singapore, bankers said.

Malaysian officials put distance between themselves and the
proposal only after it came under blistering criticism by
Singapore investors.

They were upset that while Akbar's offer would pay investors
an average 45 percent premium on pre-capital control prices of
the securities involved, it equated to an average 50 percent
discount from present price levels.

"There are several proposals, some of which might be
acceptable, some might not," Prime Minister Mahathir Mohamad said
late on Monday. "We are still studying how to solve this matter
without damage to our stock exchange."

The plain-speaking Mahathir could not resist taking a shot at
Singapore investors, saying they deserved to be paid a discount.

"They did nothing to bring up the value of the shares," he
said. "I don't think it is morally right for them to gain benefit
from something they did not help achieving."

On the plus side for Singapore investors, the Akbar
controversy seems to have been a catalyst for bringing other
plans to light and putting Malaysia under further pressure to
move forward on a solution, analysts said.

Malaysia has received seven proposals to resolve the CLOB
issue, Channel News Asia said on Monday, citing plans by
investment houses Goldman Sachs and Jardine Fleming.

Jardine Fleming declined to comment on the report. Goldman
Sachs executives were not immediately available for comment.

But whatever the outcome, the controversy over Akbar Khan's
proposal has dealt another blow to Malaysia's image among
overseas investors, bankers and analysts said.

"There's no credibility," a local banker said. "Where's he
getting the money? Where is it going?"

The Kuala Lumpur Stock Exchange kept a studied silence over
the entire issue.

The secrecy shrouding the proposal and Akbar Khan's mysterious
appearance with significant financial backing and regulatory
approval raised questions about the government's involvement,
bankers and analysts said.

"There's no transparency here," a stockbroker with a local
firm said.