Sept 27, 2000 

Danaharta's 'misleading' picture of NSC mis-venture
Kim Quek

Pengurusan Danaharta Nasional Berhad's (Danaharta) statement of denial of any bailout in the Halim Saad's RM3-billion loan scandal is misleading. It wholly misses the essence of the scandal.

In a press statement on Sept 21 apparently in response to an Asian Wall Street Journal article on Sept 19, Danaharta denied there was any bailout of the four Malaysian banks or the borrower, Hottick Investment. It further claimed that Malaysian taxpayers suffer a maximum loss of RM4 only (Danaharta paid RMl to each of the four lending banks for taking over the loans).

On the surface, Danaharta seems correct, as it has not paid out any money to the banks or Hottick. But it misses completely the central figure of the scandal, Halim Saad, who is the real borrower of the RM3-billion loan. 

In an intricate manoeuvre, Halim (photo) took over National Steel Corp (NSC) of Philippines, using Hottick Investment of Hong Kong as the vehicle, whose main registered shareholder is Abdul Rashid Manaff, lawyer for Halim as well as for the Renong Group. With NSC shares as the only collateral, the banks lent out RM3 billion to Hottick to take over NSC.

The vital question in this scandal is: Why have the lending banks sold the RM3-billion loans to Danaharta for a nominal RM4, instead of taking steps to recover the money from the real borrower and investor Halim Saad, who must have stood as a personal guarantor to these loans? 

The option taken by the banks is all the more puzzling when Halim happens to be one of the most prominent businessmen in this country. He is the controlling shareholder of the Renong Group, one of the largest and most powerful conglomerates in Malaysia, having some 10 listed companies under its umbrella.

Surely, Halim is worth billions, and is quite capable of repaying the debts, at least substantially if not fully. Why have the banks decided to forego this wonderful option for a hopeless one, which is recovery through Danaharta, which can do nothing other than selling the worthless NSC shares? 

By Danaharta's own admission, Hottick shareholders' investment is subject to a complete write-off. By virtually writing off these loans when the option to recover them through the guarantors is still feasible, the management of these lending banks have committed an unforgivable sin, and have betrayed the interests of their shareholders. Which sane banker would have dared to do that?

Government influence

To understand the intrigue of this scandal, one has to recognise two facts. 

Firstly, these lending banks, Malayan Banking, Bank Bumiputra, RHB and Commerce Asset, are subject to direct or indirect government control or influence, through shareholdings and other connections. And in this country, the wishes of the political masters can be interpreted as commands, as far as these banks are concerned. 

Secondly, Halim Saad is no ordinary businessman. He is generally considered as proxy for the financial interests of the ruling leadership, as apparent from the fact that his Renong Group is usually given preference to take on government contracts and privatised projects. And again in this country, it may not be surprising that he is recognised among banking circles as someone out of bounds to the pursuers of debts.

Under these circumstances, a simple political directive from the top may be all that was needed to persuade the banks to let Danaharta take over the loans at a nominal price in exchange for the privilege of writing off these bad loans by annual instalments over a comfortably long period, as has happened. (Incidentally, by what authority or under what legal basis were these banks allowed to write off the bad loans by instalments over a prolonged period?)

As for Danaharta's claim that Malaysian taxpayers only lose RM4 in this fiasco, this is totally false. By letting Halim off scot-free, his RM3 billion losses are then transferred to these four banks, some of which are wholly or partially owned by the Malaysian government (taxpayers). Hence, the taxpayers are shouldering a substantial amount of this RM3 billion loss, and the balance is borne by corporate and individual shareholders of the respective banks, many of whom are ordinary citizens.

Questionable conduct

The second part of this scandal is the questionable conduct under which these loans were given out in the first place. The net asset of National Steel was found to be only one quarter of the price paid for by Halim at the time of takeover, as calculated from the data published by AWSJ. And with NSC's poor track record of profits and difficult financial position then, NSC should have been taken over at a discount, not at a whopping premium to its net asset, if at all any taking over this concern was considered wise.

The lending banks had therefore blundered in agreeing to accept the grossly over-valued NSC shares as the only collateral, and in failing to evaluate the risks involved. But how could these banks have erred by such big margin, considering their formidable cumulative expertise in project evaluation and lending? And how could any banker be so daring and foolhardy as to commit such a huge sum on such precarious terms? 

The only plausible explanation is the hidden hand of politics again, considering Halim's closeness to the centre of political power in this country. This of course does not preclude the additional possibility of criminal improprieties on all parties concerned: the lenders, the borrowers and even the vendors (who sold the NSC shares to Halim), in view of the strangeness of these transactions.

As the Malaysian taxpayers and public investors are the real losers in this colossal scandal, doesn't the government owe the people of this country a full explanation?