Kuala Lumpur May Force Investors to Sell at a Loss : Cash Offer for Frozen Shares 
International Herald Tribune
May 3, 1999
Michael Richardson 

When Malaysia shocked foreign investors by imposing currency controls in September, some 170,000 Singapore-based investors were stung by the news that Kuala Lumpur would no longer recognize offshore trading in the Malaysian shares they held.

Now, after months of recrimination and wrangling over the issue, a Malaysian company with close links to powerful government and corporate figures has made an offer to buy all the frozen shares, worth 10.5 billion ringgit ($2.8 billion), for a price that values them at about 50 percent, on average, of their closing prices Friday.

The offer by Effective Capital Sdn. late Friday has further infuriated many of the investors in Singapore's defunct market for Malaysian shares, known as Clob International.

The Stock Exchange of Singapore, which runs the authorized nominee company for the Clob shares, said it was studying the plan and would make a statement Monday. It is expected to criticize the offer as being unfair to holders of the Clob securities and insist that they be transferred to the Kuala Lumpur Stock Exchange for trading there.

Some analysts said Sunday that the Malaysian government was likely to use the uproar over the heavily discounted cash offer by Effective Capital as an opportunity to step in with a somewhat better offer of its own that would involve setting up a closed-end fund to buy the shares at a lesser discount, probably about 25 percent.

The analysts said such a move would give the government management control or substantial leverage over 17 Malaysian companies, with interests spanning property development, finance, engineering and manufacturing. The Clob shares account for equity stakes in these firms ranging from a maximum of 61 percent to a minimum of 13 percent.

This would enable the government of Prime Minister Mahathir bin Mohamad to hasten plans for corporate restructuring and consolidation.

It would also be consistent with the currency controls put in place in September by Kuala Lumpur. They were designed to ensure that all Malaysian shares were traded locally, not offshore, and to prevent speculative trading in the ringgit.

After the September controls, the Kuala Lumpur Stock Exchange outlined a plan to transfer the shares to Malaysia for trading. Analysts said the government vetoed the plan because it feared that the sudden release of the shares could cause a major sell-off in the Malaysian market.

Copyright © 2006 the International Herald Tribune