(AFP) updated version

The government today announced a takeover bid worth about RM4 billion for a unit of Malaysia's most indebted conglomerate Renong Bhd - the first step in taking control of the entire group.

Khazanah Nasional Bhd, the government investment arm, announced an offer for all shares in United Engineers Malaysia Bhd (UEM) at RM4.50 ringgit a share.

If the takeover is successful, construction giant UEM will be taken off the Kuala Lumpur Stock Exchange (KLSE).

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

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 and is Malaysia's most debt-burdened conglomerate as well as one of the largest.

Its massive debt burden has been a major deterrent to Malaysian efforts to attract foreign investors into its stock market.

Total revamp

"The UEM-Renong saga has continued for so many years and obviously there is a problem," said Azman Yahya, managing director of the official debt restructuring agency Danaharta.

"We were being told that is why investors shun the (stock) market," said Azman, who will oversee the takeover and Renong's restructuring.

"The government has realised the only entity that can resolve it is the government..." he told a press conference.

Azman has been appointed a director of Danasaham, a special agency of Khazanah created to make the takeover bid.

"If we succeed in the general offer we will look at revamping the UEM and Renong board," said Mohamad Sheriff Mohamad Kassim, another director of Danasaham.

"Tan Sri Halim will not have a role to play in the restructuring," he added.

"Renong will also be restructured but I must emphasise the current exercise is on UEM."

Mohamad Sheriff said the takeover would cost RM3.8 billion ringgit and would be Khazanah's largest ever investment.

Conditional vuluntary offer

Khazanah, in a notice to the UEM board of its conditional voluntary offer, made a bid for 99.78 percent of UEM shares and for 98.84 percent of its warrants. It already owns the remainder.

The offer will cost Khazanah some RM3.67 billion if its offer for all the shares is accepted. It has offered RM0.40 for each warrant, which could cost a further RM39 million.

Khazanah has made its offer through a unit called Syarikat Danasaham Sdn Bhd, which was specially set up for the takeover. It stressed it will not raise its offer for either the shares or the warrants.

The offer is conditional upon not less than 90 percent acceptance.

"It is the intention of Danasaham to delist UEM from the official list of the KLSE pursuant to the successful completion of the voluntary offer," the notice said.

Until the East Asian financial crisis struck in 1997, Renong used its close ties to the ruling party to become one of the country's largest conglomerates.

Its executive chairman Halim Saad was a protege of the then-finance minister and party treasurer Daim Zainuddin, who resigned without explanation 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.

By taking over UEM the government would also wrest control of Renong from Halim, who has a 16.5 percent stake in the parent company.

Fair value

Bankers involved in the takeover, quoted by Monday's Asian Wall Street Journal , said six ringgit is a fair valuation for UEM shares and the 4.50 offer price is not expected to trigger accusations of another bailout.

Mahathir, who is also acting finance minister since Daim's resignation, acknowledged last week that Renong's woes had pulled down the entire stock market.

The Journal said the government has secured tacit pledges of acceptance from the state Employees Provident Fund, which controls nine percent of UEM's shares, and from Renong itself which has 37.1 percent.

It said Khazanah was confident of securing at least another 28 percent of UEM stock through its general offer, to bring its holding above 75 percent and allow it to delist the company.

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

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

Earlier this month UEM said it had granted Halim a two-month extension to settle a second 100 million-ringgit instalment from the put option agreement.