opinion

The MCA purchase of the Nanyang Press Holdings exemplifies much that is wrong with Malaysia. There is no financial justification for either the transaction itself or the financing. That a political party would encumber itself to invest over RM230 million in order to control a business with profits under RM5 million per year defies any investment logic.

It is justified by MCA President Ling Liong Sik as 'a strategic political investment', which is translated to mean the readers of Malaysian local news printed in Chinese characters are susceptible to propaganda such that their votes for MCA and BN in future elections will be guaranteed. It is a big gamble, one no prudent businessman would take.

The purchase is in cash, in the form of a loan from a local financial institution. Collateral for the loan is said to be shares of The Star newspaper, of which MCA owns over 66 million shares.

The market price of Nanyang has remained stable, at around RM5.20, since the transaction was announced. But MCA is potentially bound to purchase the balance of the shares at a comparable price, and this tends to support the share's market price. This is especially true since the float of Nanyang is relatively small, MCA already having removed more than 72 percent of the shares from open trading.

The market price of The Star , however, has come under selling pressure. For months, The Star held to a level of RM8.50 or higher, and had strong support. Now the price has dropped to around RM8.10, dipping to RM7.95 in Friday's trading, and it may erode further.

For each 50 sen drop in the Star shares, the value of the MCA collateral falls RM33 million. The value of Star shares held by MCA at the time of the Nanyang purchase was about RM560 million. It is now reduced to around RM530 million.

A week's pay

The Chinese community has expressed its displeasure with the MCA action, which included the impromptu sacking of the Nanyang editors. The has lead to withdrawal of advertiser support by Chinese businessmen and refusal of popular writers to submit material to the paper.

These, combined with a drop in readership regard, make the purchase a highly questionable one, from either a financial or political point of view.

Ignoring for the moment the political aspect, one must wonder at the burden assumed by the MCA party. Where are the funds to come from to make the interest and principal payments on the loan?

The Nanyang has little in the way of income, and the annual bill for MCA will exceed RM15 million at a minimum. Depending on the exact terms of the loan, the cost could be much higher.

The payment, it seems, must come from voluntary donations by the MCA members. Assuming there are half a million active MCA members, the annual contribution for each would amount to only RM30 or so, not a particular burden for anyone.

But many MCA members oppose the transaction, and they would not agree to make this payment voluntarily. It is estimated that only 25 percent or fewer of the MCA membership actually are in favor the Nanyang purchase, and it is these members who must be willing to pay RM150 per year to support Ling's decision. For many this is a week's pay.

The crucial question revolves around the viability of the Star 's shares placed as collateral. Nanyang is said to have real estate holdings, though the value at conditions of a forced sale is difficult to assess. These might be sold off to defray part of the purchase price.

The question is, how reliable is the backing of individual MCA members to support the Nanyang purchase, and at what point would the collateral be deemed insufficient. Should the shares in The Star fall to RM4, the value of the collateral would be RM265 million, or sufficient to cover 100 percent of the present Nanyang purchase.

University funding

Should The Star earnings fall from investor unease in the present unfavorable investment climate, the value of the share value could suffer the fate of that other once-popular English paper in Malaysia, the New Straits Times , which has fallen from the heights of RM19 to a yearly low of RM2.4, though it has recovered somewhat to a Friday's closing price of RM3.30.

The potential liability of MCA is over RM330 million, if the requirement to bring in the remaining 28 percent of the shares is enforced. That means the shares in The Star must remain above RM5 to give total protection without selling Nanyang real estate assets.

The Star earns about 50 sen per share, and pays out most of it in dividends. MCA, with its 66 million shares derives RM25-30 million from its investment in The Star . The totality of this party income is required to fund the Nanyang venture.

With this purchase, the MCA is gambling its financial future on the success of the Nanyang Press purchase as a 'strategic political investment'. Only a businessman in dire straits would take such a risk considering today's financial uncertainty, especially when success faces such opposition from the very people who must be relied on to achieve it.

The MCA has just announced the establishment of a university, to be funded by private donations. The Chinese community is asked to contribute to this worthwhile project. The president of the new university, as well as the MCA party, is Ling himself, author of the Nanyang Press deal.

Gambling funds

The history of MCA's handling of funds donated to it is clouded by public perceptions of misappropriation. MCA was entrusted to disburse generous donations that were collected to aid pig farmers who had lost their livelihood during the JE virus epidemic.

Much of the money raised is unaccounted for, in spite of MCA assurance that the private accounting firm of Price Waterhouse Cooper would keep track of 'every sen'. The promised accounting has never been made, and funds were traced to MCA supporters and party operatives not associated in any way with the pig farming industry.

Price Waterhouse Coopers is not known to have made a statement in defense of its reputation.

The MCA leaders were entrusted with RM10 million to distribute to deserving students. This fund has never accomplished its purpose, and MCA to this day has not offered up the funds or the interest. It is as though they have disappeared. Neither the funds nor the interest have been brought forward, in spite of a court order to do so.

Thus, when MCA asks for public donations for its university, the public immediately considers whether the donations will be used for the purposes intended, or will they go for what must be considered by prudent potential donors as funds for further gambling.

Should the market value of The Star shares fall to four, and no longer provide adequate collateral for the Nanyang purchase, the lender has the option to call for new collateral, or declare the shares forfeit in satisfaction of its claims on the loan.

If The Star income falls, and MCA cannot make the required payments on the principal and interest as agreed, the same situation occurs. The MCA thus has taken a great gamble with its major investment.

HARUN RASHID is a scientist avidly interested in the application of Islamic principles in international affairs. The promotion of goodwill through civilisational dialogue motivates his writing. His Worldview column is a personal analysis of Malaysian affairs from a global perspective.