(AFP) The government confirmed today it would mount a takeover bid as part of moves to restructure Malaysia's most debt-burdened conglomerate.

A government agency plans to take over United Engineers Malaysia Bhd (UEM) as a prelude to restructuring its parent group Renong Bhd, said a statement from Danaharta, the official agency which handles bad loans.

Danaharta said its own managing director Azman Yahya would not take over as head of UEM or Renong, as earlier predicted, and was expected to remain with the debt restructuring agency.

Shares suspended

"He is assisting a government agency in taking over UEM and restructuring the group as part of his portfolio as the managing director of Danaharta," the statement said.

A spokeswoman declined to identify the agency involved. The New Straits Times said it was Khazanah Nasional, the government's investment arm.

UEM has a 32.6 percent stake in Renong, which in turn has a 37.1 percent stake in UEM.

Shares in both companies have been suspended pending what UEM calls the announcement of a "major transaction" on Monday.

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

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

In public interest

Mahathir, who is also acting finance minister, said the government was looking for a solution to Renong's financial woes.

It does not discount the possibility of taking over Renong, Bernama news agency quoted him as telling reporters. Mahathir also raised the prospect of taking Renong private.

"When you talk about debts, you have to talk about assets also," the premier said.

"If its debts exceed assets, then it is foolish to buy. But if the assets are undervalued... and if you can release the asset value, then it would be worthwhile."

Given that Renong was involved in many public-related projects, it was possible for the government to buy into the group in the public interest, he said.

Mahathir said the financial woes at Renong had pulled down the Kuala Lumpur Stock Exchange composite index very badly. If it were to be removed from the market, "it might do something to help the KLSE."

UEM has a cash cow in toll road operator PLUS.

Halim's woes

The Asian Wall Street Journal said yesterday 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, the paper said.

The takeover is complicated by a "put option" which Renong executive chairman Halim Saad extended to UEM in 1998.

This requires him to pay a total of RM3.2 to buy back UEM's 32 percent stake in Renong.

Last Friday UEM said it had granted Halim a two-month extension to settle a second RM100 million instalment from the put option agreement.

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.

Another bailout not welcomed

An analyst said the planned takeover of UEM would enable its shares to be re-rated upwards provided the price the government pays is deemed fair.

Ng Han Sing, head of research at Hwang-DBS Securities, said investors would now focus on the structure of the takeover and the price to be paid for UEM.

"The market would not like to see it as another bailout," he said.