'Rebranding' His Government, Mahathir Takes on a Former Ally
International Herald Tribune
July 24, 2001
Thomas Fuller

Malaysia announced Monday it would spend $1 billion in a quest to take control of Renong Bhd., the country's largest conglomerate, a move analysts said was an attempt to sever ties with failed business "cronies" and rebrand the image of Prime Minister Mahathir bin Mohamad.

The effort, if successful, would strip control of a deeply indebted group of companies from Halim Saad, once widely considered to have the best political connections of any businessman in Malaysia.

Monday's announcement comes amid several other signs that the prime minister, after 20 years in power, is attempting to remake his administration.

Mr. Mahathir has tried both to shore up support from ethnic Chinese voters and to strengthen relations with the United States.

He recently hired an ethnic-Chinese political secretary and press secretary in what was seen as a concession to Malaysia's Chinese community, which makes up about one quarter of the country's population and today forms the backbone of the prime minister's support.

Mr. Mahathir is reportedly seeking a meeting with the U.S. president, George W. Bush. In recent years the U.S.-Malaysian relationship has often been frosty. But on April 3, the prime minister met for one hour with Lynn Pascoe, the U.S. ambassador to Malaysia, in what was his first formal meeting with a U.S. ambassador here in at least five years.

The United States is Malaysia's largest investor and trading partner.

Political observers say they expect Mr. Mahathir, known for his sometimes abrasive comments, to shift toward a more practical tone.

"There's going to be pragmatism all around," said Jomo K. S., a professor at the University of Malaya. "We'll hear much less of the rhetoric of recent years."

Analysts say Mr. Mahathir is calculating that a "rebranding" of his administration will help him weather both growing dissent at home and the affects of the global economic slowdown.

The attempt to oust Mr. Halim is perhaps Mr. Mahathir's most radical financial move and comes six weeks after Mr. Halim's mentor, Daim Zainuddin, stepped down as finance minister.

If Mr. Halim is indeed eclipsed, the takeover is likely to be cheered by investors and fund managers, who have complained for years about political favoritism for businessmen with close ties to the ruling party.

But after 20 years of cultivating men like Mr. Halim — and relying on the advice and patronage of people like Mr. Daim — the takeover also comes with significant risks for the prime minister: he is effectively severing links with men who served as the pillars of his privatization policy and the financiers of his party.

"The message is: There are new people in town and you guys pack up your bags," said a Malay businessman with close links to the party. "Mahathir is basically destabilizing the people who have funded the party."

One of the hallmarks of Mr. Mahathir's 20 years in power has been the privatization of highways, power plants, stadiums and even the post office. But many of the businessmen Mr. Mahathir handpicked to manage the billion-dollar projects followed the career trajectory of Mr. Halim: the projects were often completed in time, but were never economically viable and resulted in unmanageable debts.

Renong, the conglomerate the government hopes to take over, has debts of more than 20 billion ringgit ($5.26 billion), which the government hopes to settle or restructure through asset sales.

The deal is both complex and at this point uncertain.

Shareholders may choose to reject the government offer or hold out for a higher bid. The government says the offer is conditional on 90 percent of shareholders accepting it.

The government has offered to pay 4.50 ringgit for every share of United Engineers Malaysia Bhd., which will give it a controlling stake in Renong. The offer price is a 26 percent premium to its current share price of 3.56 ringgit, but is a significant discount to the imputed value of 6.50 ringgit used by government pension funds and other investors during a debt restructuring exercise for the group in 1999.

That means that Malaysia's future pensioners — who have been burned by similar government deals in the past — could once again be paying for the mistakes of the government's privatization policies.

It is also unclear whether Mr. Halim will have to repay the $852 million he owes to United Engineers as part of a complex deal he entered into to appease investors angered by United Engineers' bailout of Renong in 1998.

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