Zarinah should really answer for ECM Libra-Avenue merger

Securities Commission Chairman Tan Sri Zarinah Anwar should really answer to the Malaysian public on the ECM Libra-Avenue Capital merger, which SC gave an approval in mid 2006.

Many Malaysians may conveniently forgotten the scandal that looms the merger of two financial houses Avenue Capital Bhd. and ECM-Libra Bhd., which was first proposed sometime in early December 2005. It started when Bumiputra Securities was hived off by Khazanah Holding Bhd. to some ex-Hong Leong Securities people during PM ‘Flip-Flop’ Dato’ Seri Abdullah Ahmad Badawi time and the new owners and promoters of the securities firm decided to bring in then NSTP Deputy Chairman Kalimullah “Riong Kali” Hassan and then the recently resigned Deputy Chief of Staff in Prime Minister’s Office Khairy “The Most Powerful 28 years old in Malaysia” Jamaluddin into the board.

The inclusion of the two controversial characters opened a new dimension for ECM Libra. They aspire to be a boutique investment bank and wishfully, with a universal broking license. As the shareholders worth then was only RM 200 million, ECM Libra may not qualify for all the licenses they want. So it is naturally to bring in another firm  to beef and muscle up their application.

Avenue Capital Bhd. at that time was the parent company of Avenue Securities and the largest shareholder is Ministry of Finance Inc. It was particularly controversial because Khairy as a Director, who is also son-in-law to PM ‘Flip-Flop’ Abdullah  was making a proposal to MOF Inc for the the take-over (guised as a ‘merger’) and the latter is the Chairman. When rumours about the takeover were leaked in December 2005, journalist asked PM ‘Flip-Flop’ Abdullah who is also then the Finance Minister,  “I don’t know, I am not involved”. The denial was totally inexcusable.

The merger was highly controversial. Amongst the issues are:

1. Undervaluation of Avenue shares

2. Overvaluation of ECM Libra shares

3. Unfair purchase terms on Avenue Capital to acquire ECM Libra subsidiaries

4. Improper justification by independent advisers: K & N Kenanga Bhd.

5. Improper EGM for ECM Libra for the approval of the merger

6. ‘Collusion’ of the various authorities

ECM Libra’s shareholders account was valued at only RM 200 million was to merge with Avenue Capital which was valued at RM 800 million. As the gap is so huge, efforts were made to prop up ECM Libra’s market value and bring down Avenue Capital’s to a point where  goodwill was ‘impaired’ to the amount of RM 306 million, which is far more than the premium and reserve profit account combined. The impairment of goodwill  was not illegal, but irregular to common practice.

Post merger (which in actual fact should be called a ‘hostile take-over’), ECM Libra as the ‘smaller fish eating the larger fish’ took control of the combined company ECM Libra-Avenue and decided to drop the name ‘Avenue’ entirely. Shortly, SC issued a universal broking license and ECM Libra is now an investment bank. Naturally, Khairy now calls himself an ‘investment banker’.

Then another controversy happened. The manner the Avenue Capital Bhd. EGM was conducted on 17 May 2006 raised so many eyebrows. The minority shareholders raised so many questions on the ‘irregularity’  on the process of the merger, which include mandatory general offer (MGO) not conducted and ‘interested parties’ were allowed to attend and actually voted in the EGM. Minority Shareholders Watchdog Group made a protest for the minority shareholders for the irregularities.

Complaints were lodged by so many parties, especially minority shareholders to SC for the ‘irregular’ processes, EGM and eventually announcements made through media, which some considered misleading. However, SC played deaf and dumb about it, so much so that the best that anyone got as a response was just a mere acknowledgment of complaint filed. Even Police reports were made to the Commercial Crime Division,which referred the matter back to SC as the ‘subject matter expert’ and never got a response.

This is where Zarinah is accountable and should answer to the Malaysian public. She and SC have the legal, moral and ethical obligation to explain with full disclosure on the merger and all the queries and complaints filed. Many saw the ECM Libra-Avenue as the point were capital and financial market savvy people started to diminish their ‘feel good factor’ what so many had on PM ‘Flip-Flop’ Abdullah (reflected on the 11th GE April 20004 thumping landslide victory) leadership and administration. Eventually, the same bullish people lost faith on the man who so many thought to be  a ‘clean and pious’  leader.

In short, indirectly Zarinah played a strategically accessory role to BN’s poor performance in the 12th GE on 8 March 2008. Until today, BN has not manage to recover from the many of PM ‘Flip-Flop’ Abdullah’s mess, which include the ECM Libra-Avenue scandal. Now Rocky is reminding us all her role in Proton’s ‘slow death’, which was an orchestrated effort led by immediate past Proton Chairman Dato’ Azlan Hashim, who so many believed was acting on behalf of ‘Level Four Boys’. Then again, when talking about ‘Level Four Boys’, it is always about then the Mighty-Khairy.

Published in: on March 26, 2010 at 12:39  Comments (38)