Singapore to use care in untying CLOB tangle

Singapore to use care in untying CLOB tangle

SINGAPORE (Reuters): Singapore Deputy Prime Minister Lee Hsien Loong said on Thursday investors will be helped with their problems over funds locked in frozen Malaysian shares, but stopped short of saying the government would buy them.

It would be "a very, very dangerous precedent" for the government or the Government of Singapore Investment Corp (GIC) to buy the shares, Lee told Parliament, adding that investors were responsible for their own investments.

Angry investors have pressured the government to step in and help them regain control of about S$4.7 billion (US$2.8 billion) worth of shares they own in Malaysian firms, frozen last year when Kuala Lumpur imposed capital controls.

The shares, formerly traded over-the-counter on Singapore's Central Limit Order Book (CLOB) market, have been the topic of furious debate since an offer to buy them at a steep discount was made public last week.

Kuala Lumpur-based businessman, Akbar Khan offered 172,000 investors about S$2.6 billion in cash for their holdings.

Investors said the offer was inadequate, a view shared by the Stock Exchange of Singapore (SES), and wanted alternatives.

But Lee appeared to rule out a government-funded rescue.

"Investors went in hoping to make a good return. There was no arrangement that if they made a good return the government would collect a small percentage and if they went down, the government would bear some of the loss," he said.

The Malaysian government on Thursday sought more details on the Khan proposal and reiterated that it was a private matter.

"For us, the CLOB issue is an important one although at present the initiative (to settle the issue) appears to be a private sector one, and not that of the government," Malaysian Deputy Prime Minister Abdullah Ahmad Badawi was quoted by the national Bernama news agency as saying.

Singapore, meanwhile, has taken legal advice on the matter and had sought negotiations with Kuala Lumpur to help investors.

Lee said Singapore wanted CLOB to be part of a package of outstanding bilateral issues to be resolved, including a water supply deal and the siting of Malaysian customs and immigration facilities in the city-state, but Malaysia had rejected that.

Analysts said Lee's parliamentary statements were no more or less than they expected.

"We won't bail you out, but we'll try to help. I think that is fair enough," Goh Keat Jin, strategist at Kim Eng Securities told Reuters. "There was nothing surprising to what he said."

I.D.E.A. economist, Bhanu Baweja agreed that there was nothing surprising in what was said, but added that what Lee did not say was more intriguing.

"It's interesting that he did not say that there is no way that the GIC would come in," he said.

"It could be a viable last option if nothing else works and Singapore investors raise their hands up and say someone, somewhere should be blamed."

Analysts wondered if the SES might be vulnerable to law suits from disgruntled investors if they were forced eventually to accept deals under which they suffered heavy losses.

SES might be targeted on the grounds CLOB trades were never recognized by the Kuala Lumpur Stock Exchange during CLOB's nine- year lifetime and was declared illegal by Malaysia in September last year.

SES has also sought legal advice on CLOB and Khan's offer.

"This entire thing is in a grey area and if it is a grey area, there might be a risk that the SES could be sued," Baweja said. "The government wouldn't want to see a situation where Singapore investors were actually pointing the finger back here."