(AFP) The government is planning a takeover bid aimed at restructuring Malaysia's most debt-burdened conglomerate, a report said today.

The Asian Wall Street Journal said an unspecified government agency would announce a takeover plan for United Engineers Malaysia Bhd, which owns a 32.6 percent stake in conglomerate Renong Bhd, as early as next week.

There was no immediate confirmation of the report. Shares in both Renong and UEM were suspended today.

UEM said it sought a four-day suspension pending the expected announcement of a major transaction on Monday.

Renong in turn owns 37.1 percent of UEM. Due to the group's interlocking ownership, a successful bid for UEM would result in Renong executive chairman Halim Saad losing control of his empire, the paper said.

UEM spokesmen declined to comment and no one could be reached at Renong.

Senior government officials were also unavailable.

Renong, once the investment arm for Prime Minister Mahathir Mohamad's ruling party, has some RM13 billion in outstanding group debt, the Journal said.

It has interests in banks, toll roads, oil and gasfields and real estate.

The Journal , citing government officials and financial executives close to the deal, said the planned takeover is part of plans to resolve Malaysia's bad debt problem.

Takeover directed by Mahathir

It said the takeover, expected to cost as much as two billion ringgit, was personally directed by Mahathir last week.

The Journal said Azman Yahya, head of the Danaharta official agency which handles bad loans, would supervise the deal and was expected to succeed Halim as head of Renong's new management team.

The report said the government expects many acceptances for its offer to come from banks that hold UEM shares as collateral for loans to Renong, and from minority shareholders.

It expects to accumulate at least 45 percent of the shares at an offer price slightly above market value.

Halim was a protege of Daim Zainuddin, who resigned without explanation as finance minister on June 1.

Daim, in the public's perception, was chiefly responsible for a series of costly and unpopular state bailouts of well-connected private firms.

Government officials quoted by the Journal said the removal of Halim was intended to send a message that politically well-connected companies would no longer enjoy special treatment.

The Journal said Renong, under Azman's leadership, would consider selling some group assets to repay debts.

A Danaharta spokeswoman could not confirm or deny the report and Azman was said to be unavailable for comment.

Government takeover 'possible'

Some analysts said a government takeover of UEM was entirely possible.

"This will probably have a good ending," said Yee Yang Chien of HLG Research.

"It's all about putting the right (person) there. That is critical because it will remove the perception of cronyism and bailouts," he told AFX-Asia, an AFP-owned financial newswire.

"They're (government) probably not paying an exorbitant price," Yee added, noting that UEM has a cash cow in toll road operator PLUS.

One major question was the "put" option which UEM has with Halim, requiring him personally to buy back almost all UEM's stake in Renong .

A construction analyst said any takeover of UEM was likely to cost at least RM3.6-RM4 billion, assuming a price of RM4.50-RM4.80 per share.

This made it more plausible that the government, rather than an individual, would step in.

The analyst said any government involvement could raise concerns of another bailout but "if it's at market prices, then it's more acceptable."

The group would most probably be broken up to sell off some assets to repay debts, the analyst added.

However Ng Han Sing, head of research at Hwang-DBS, described the report of government involvement as possible but "a bit far fetched."

Ng also said any takeover of UEM would not necessarily resolve the put option.