Renewed war of words may delay Clob resolution

Associated Press in Kuala Lumpur February 2, 2000

THE stock exchanges of Singapore and Malaysia have escalated a war of words over US$4.3 billion of Malaysian shares formerly traded in Singapore, dashing hopes of a quick breakthrough to the 17-month dispute.

The Singapore Exchange (SGX) lashed out on Tuesday at the Kuala Lumpur Stock Exchange (KLSE), saying its Malaysian counterpart had issued an "incomplete and misleading" statement following a meeting between the two exchanges on Monday.

The meeting had raised hopes the deadlock might be broken. Instead, the SGX threatened to take the impasse to court or the World Trade Organisation (WTO) if it was not resolved amicably.

That could damage bilateral ties, already strained by a string of disputes between the next-door neighbours ranging from immigration to fly-over rights.

After Monday's meeting, the KLSE said the SGX had "recognised" that a proposal by private Malaysian firm Effective Capital Sdn Bhd was part of a solution to the dispute over the shares, formerly traded on Singapore's Central Limit Order Book (CLOB) market.

The KLSE said the offer by Effective Capital, which has close ties to the Malaysian government, was the only one that complied with Malaysian securities laws.

But the SGX said Effective's offer was unsatisfactory and concerns remained over the transfer of CLOB shares to investors' individual accounts. It asked the KLSE to address the shortcomings of Effective's offer by February 8.

"It seems to be far from a done deal," said Ramesh Sidhu, vice president of institutional sales at Prudential-Bache Securities in Singapore.

"It appears that Malaysia favours Effective Capital's offer while the SGX clarified that there were problems which existed with Effective's offer..."

DEEP DIFFERENCES

The CLOB shares were frozen in September 1998 after Malaysia imposed controls on capital flows.

Most of the 172,000 CLOB shareholders are Singaporeans, and they have been pushing for a solution that allows the shares to be transferred to their individual accounts with Malaysia's Central Depository System (CDS).

But the KLSE has resisted any solution which could result in a flood of shares being dumped in Malaysia.

Effective Capital's proposal involves the transfer of CLOB shares from nominee accounts in Singapore to individual CDS accounts in Malaysia. The shares would then be released to the KLSE on a staggered basis between five and 18 months.

The SGX said it did not agree with the KLSE that CLOB investors who reject Effective's proposal recognise their securities will otherwise be transferred to Malaysia's Finance Ministry after June 30.

The Singapore exchange said if the shares were not transferred to the investors' accounts, "the SGX would have no choice but to resort to the courts and the World Trade Organisation to require the KLSE to perform its legal obligations."

Many CLOB shareholders prefer an offer by Bintang Melewar Sdn Bhd, a Malaysian firm run by a prince. Bintang would have the shares released gradually over 14 months.

DEADLOCK PRICED INTO MALAYSIA RISK

Malaysian deputy finance minister Chan Kong Choy said on Wednesday the government would not interfere in any dispute between the KLSE and SGX.

"The important thing is that they must talk," Chan was quoted by the official Bernama news agency as saying.

Analysts said the impasse had been priced into Malaysia's risk profile.

"It's lucky for Malaysia that the CLOB issue has been priced into its political risk following the policy flip-flops and management atmosphere," said Chong Yoon Chou, investment manager at Aberdeen Asset Management in Singapore.

"The fundamental improvements in Malaysia have been too great for investors to resist."

The benchmark Kuala Lumpur Stock Exchange's Composite Index has risen more than 15 percent this year.

According to an AFP report, David Gerald, a representative of the mainly Singaporean shareholders whose holdings have been frozen, accused the Malaysian exchange of threatening investors.

"There have been bankruptcies. Pensioners have lost all their savings. They (the KLSE) are playing with human lives and miseries," he told AFP.

Gerald, president of the Securities Investors Association of Singapore which represents some 50,000 of the CLOB investors, told AFP: "Reading between the lines it is very clear that the KLSE wants us to accept this (Effective Capital) offer."

He said Effective would charge shareholders a fee of two percent upfront and allow 22 months before everything was settled. "We are not interested in that sort of deal."

An alternative offer by Bintang Melewar, he said, involved a maximum one percent fee and settlement within 14 months. "Why is Effective Capital being publicised so widely by the KLSE?" he asked.

Gerald described the statement that investors should consider Effective's offer seriously or face the takeover of their shares as a threat. "Is this the way they deal with foreign investors?"

He said shareholders had grounds to take legal action or refer the dispute to the WTO.