Malaysia, Singapore share row needs govt intervention

Malaysia, Singapore share row needs govt intervention

KUALA LUMPUR (Reuters): A row over frozen Malaysian shares once traded in Singapore is getting pushed into the growing list of unresolved bilateral issues between Kuala Lumpur and the island republic.

Analysts said government intervention was needed to unlock the shares of Singapore investors after they rejected an offer from a Kuala Lumpur-based businessman to buy them out at deep discounts to current market prices.

For the moment, the two governments are taking completely different approaches in resolving the issue which has frozen shares of 172,000 Singapore investors worth US$2.8 billion in 112 Malaysian corporations.

Kuala Lumpur is saying it is a private sector matter and, at best, between the stock exchanges of the two countries, while the Singapore government has said it will help its investors in finding a solution, but will not fund any buyouts.

"It originally was a dispute just between the stock exchanges, but I think it has now assumed the proportions of a diplomatic row," said Bhanu Baweja, economist with economic think-tank I.D.E.A. in Singapore.

"While Malaysia is saying that it's Singapore's problem, that's not entirely true because these are investors who have invested in Malaysian companies directly. Therefore it's not only a Singapore problem," he said.

Singapore investors were stuck with the shares after Malaysia imposed capital controls last September and declared the Central Limit Order Book (CLOB) over-the-counter market, where the Malaysian shares were traded, illegal.

Under pressure from angry investors and probably fearing a legal backlash, the Stock Exchange of Singapore (SES) has since then unsuccessfully tried to restore trading in the shares by transferring them to the Kuala Lumpur Stock Exchange (KLSE).

The simmering issue erupted into a heated debate last week after Singaporean businessman Akbar Khan, a permanent resident of Malaysia, offered to buy the shares at discounts of up to 85 percent to current market prices.

The sense of urgency created by Khan's offer, which has Malaysian regulatory approval, is giving way to the realization that the proposal is probably only an opening gambit.

But many believe that a revised offer from Khan would not be much better and, therefore, the issue needs a political resolution.

Singapore Deputy Prime Minister Lee Hsien Loong told his country's parliament that Malaysia had rejected a proposal to include the CLOB issue in the bilateral package awaiting resolution between the two countries' leaders.

Ties between the neighbors have been strained over the last year over issues such as the supply of water to Singapore, a Malaysian decision to restrict Singapore's access to its airspace and the location of a railway customs and immigration operations.

"I think it is going to be linked to other items in the bilateral package, then we may find EPF (Employees Provident Fund) and other such funds taking over the shares," said the head of a futures brokerage in Kuala Lumpur.

Analysts also said that Kuala Lumpur had little to worry about even if all CLOB shares came into the market. In terms of capitalization, they said, CLOB makes up only about 2.5 to three percent of KLSE's capitalization.