Saturday, June 23, 2012

Tan Sri Syed Mokhtar's Empire Built on RM34.3 Billion Debt

In 1998, the Asian Financial crisis precipitated the collapse of UMNO crony company, Renong Bhd.  Renong which had debts in excess of RM20 billion, or approximately 7% of all loans in the banking system then, went bankrupt under the weight of its debt.  It caused hundreds of millions in losses to investors, the collapse of the stock market index and triggered a RM10 billion bailout of the company.  Renong was one of the largest and favoured conglomerates by the BN government with interests in highways (PLUS, UEM, Linkedua), rail (KTM, Putra LRT), property, telecommunications (TIME) and a whole host of other companies.

Fast forward 14 years later, we now have Tan Sri Syed Mokhtar Al-Bukhary’s group of companies which have a combined debt of RM34.3 billion or more than 10% of all local currency outstanding corporate bonds as at 2011.  These companies have an estimated total cash and cash equivalents of RM7.8 billion as at May 2012.

Hence the debt far exceeds that of Renong’s, causing genuine fears that a repeat of the crisis requiring monster bailouts with tax-payers’ funds.  This fear is especially real in the light of a global economic slowdown and a fallout from the Eurozone financial crisis.

Tan Sri Syed Mokhtar’s empire spans across scores of companies and industries, which are generally held under 4 listed entities.  The largest of them is the 51.8%-owned MMC Corporation Bhd whose group alone has outstanding debt of RM24.2 billion.  The key subsidiaries of MMC Corporation are Malakoff Corporation, Gas Malaysia, Aliran Ihsan Resources (water utility company), Port of Tanjong Pelepas, Johor Port, Senai Airport Terminal Services, SMART Tunnel and the MMC-Gamuda joint ventures.

His second largest entity is the 55.9%-owned DRB-Hicom Bhd which has debt of RM5.7 billion, inclusive of the most recent RM3.0 billion debt raised to acquire Proton Bhd.  The other companies of the group are Edaran Otomobil Nasional, MODENAS, Honda Malaysia, Bank Muamalat, PUSPAKOM, Alam Flora, POS Malaysia, Defence Technologies and several property development companies.

The third entity is 43.0%-owned Tradewinds (M) Bhd which has debt of RM3.48 billion.  It owns BERNAS which has a monopoly of rice purchase, import and distribution in Malaysia, Central Sugar Refinery and smaller stakes in Malaysian Sugar Manufacturing Bhd which together monopolises the Malaysian sugar market, and Tradewinds Plantations.

The final entity is 71.5%-owned Tradewinds Corporation Bhd which has debt of RM890 million. Tradewinds Corporation runs several major hotel chains in Malaysia, including Crowne Plaza Mutiara Kuala Lumpur, Hilton Kuching and Petaling Jaya and Hotel Istana.

Despite the expansiveness of his empire, and the load of his debt holdings, the Prime Ministers’ Department has just confirmed the privatisation of Penang Port to him.  With no details yet available, the acquisition will certainly require him to raise possible several billions of additional debt to fund the exercise.  What’s more, it has been widely rumoured that Tan Sri Syed Mokhtar is also leading the race to acquire Port Klang (Northport Holdings) as well as KTM Berhad.

The Government must explain the measures which are being taken to ensure that a repeat of the 1998 financial crisis will be avoided at all cost.  The Ministry of Finance must make available data on how much our financial institutions, statutory bodies such as the Employees Provident Fund (EPF), Civil Service Retirement Fund (KWAP), Tabung Haji Fund and Armed Forces Fund (LTAT). In addition, we call upon the Government to assure the Malaysian tax-payers that in the event of default, the rakyat’s monies will once again not be made to pay for the follies of Barisan Nasional cronies.
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