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Wednesday, July 22, 2009

Learn Something Here...

It has been a while, Pak Sedaro crushed into the idea. Its time to enrich our shallow black box with this short notes.

On February 15, 2001, the Ministry of Finance announced Azizan's appoitment as Chairman of MAS. Ex-banker and advisor to the Ministry of Finance, Md. Nor Md. Yusof, was named as the new Managing Director. Their task was to turn around an airline, which had just been rescued by the government after having suffered losses since 1998. About 2 months earlier-the governmnet had decide on the re-acquisition of a controlling stake in MAS from Naluri Bhd, a company owned by Tajudin Ramli. Following this transaction, Tajudin resigned as Chairman. The government had paid Naluri RM 1.792 billion for a 29.09 per cent stake in the national carrier.

MAS had been a profitable government-owned airline that underwent a privatisation exercise in the mid-1980s to raise fresh funds and support its growth internationally. The company was listed on the KLSE in December 1985, but control remained in the hands of the government. Bank Negara Malaysia was the single largest shareholder with 43 per cent ownership. Other government interests were the unit trust Amanah Saham Nasional which owned 5.4 % and the Finance Secretariat of Sarawak and Sabah, each with 5% stake, respectively.

In the early 1990s, the pace of the country's privatisation programme gained strong momentum as the Mahathir and UMNO led-BN government actively pursued the Malaysia Incorporated policy. This was aimed at encouraging a more active private sector dole in the country's business and economy. In June 1994, the government sold a controlling 32 % stake in the airline to RZ Equities (RZE) Sdn. Bhd., a company owned by Tajudin. The sale, which was undertaken by Bank Negara, saw RM 1.79 billion changing hands from RZE to the central bank. RZE was later wholly taken over by another company controlled by Tajudin, Malaysia Helicopters Services-later renamed Naluri Bhd.

To finance the purchase, Tajudin signed a RM 1.792 billion syndicated term loan, in July the same year. At that time, the amount was the largest facility ever raised for an individual. The banks involved were D&C Sakura Merchant Bankers, United Malayan Banking Corporation, Development and Commercial Bank, Arab-Malaysia Merchant Bank dan Bank Bumiputra Malaysia Bhd.

With the Malaysian economy booming, and world travel registering a high growth, MAS under Tajudin went on to enjoy good profits-RM263 million (after tax & exceptional items) in the financial year ended March 31, 1995. In the subsequent 2 years, there were profits of RM 247 million and RM 333 million respectively. Everything seemed to be fine; but the airline, like some others in the region, went into red in 1998, losing RM 259 million, after reeling from the real impact of the Asian financial crisis. In 1998, Malaysia went into recession, and the economy of Southest Asia, South Korea and Japan were severely affected.

Tajudin's plan to expand MAS by extending its international routes, the the purchase an dleasing of new planes, were scuttled by the Asian economic crisis. Badly affecting air travel, the crisis could not have come at a worse time for Tajudin. Earlier in 1996, MAS had embarked on a fleet rationalisation programme, which saw the airline urchasing 10 B777-200s, five B777-300s and 10 B747-400s from Boeing for more that RM 10 billion.

The expansion was mainly financed by foreign loans, notably in US dollar. Business matters for MAS and Tajudin were further worsened by capital control and the pegging of the ringgit against US dollar 9at RM 3.80) imposed by the Malaysian government as pat of its economic recovery plan. Although the measure had helped to revive Malaysia's economic growth and prevented more speculative attacks on the ringgit, the capital control impacted negatively on MAS' foreign currency loans, its cash flow as well as its profitability.

Burdened by higher cost of borrowings and fuel due to the cheaper ringgit, MAS was locked into foreign curreny debt. The airline continually incurred heavy losses totalling RM 700 million in 1999, RM 258 million year 2000 and RM 417 million (2001).By this time, MAS was one airline badly in need of capital injection to meet its loan obligations and prop up its working capital. The losses became too much of a burden for Tajudin and that was when the government came into the picture.

The rescue, nevertheless, became the target of heavy criticisms. While many agreed that it was crucial for the government to save the national carrier as it served as an important economic link to international business, the deal was seen as a bailout for yet another businessman closely linked to UMNO, Mahathir and Daim. A bitter point of contention was that the government paid RM 1.79 billion of RM 8 per share, the same price that Tajudin had bought MAS in 1994, when the prevailing market price then was at RM3.68 per share and its net tangible asset only stood at RM 1.74

Dear readers, Pak Sedaro thinks that we Malaysian should learn something out of this Management Buy Out. This excerpt is taken from "The Quintessential Man : Tan Sri Azizan Zainul Abidin."

Pak Sedaro fikir, anak Malaysia amat wajar mengetahui peristiwa MAS kerana sebahagian kaedah berfikir anggota Pentadbiran dan Kerajaan condong melihat ini sebagai strategi yang berkesan dan ampuh.

Selamat BerFIKIR.

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