Offer for frozen stock shares strains S'pore, Malaysia ties

JUST as ties between the squabbling neighbors seemed to be warming, Singapore and  Malaysia are at odds again - Singaporean investors are pitted against a Malaysian company over some frozen Malaysian stock shares.

                  At stake is  $2.7 billion worth of shares held almost entirely by about
                  170,000 Singaporeans or Singapore-based investors.

                   The shares were frozen in September when Malaysia banned external
                  trading of its stocks an attempt to stop speculators from manipulating its
                  financial markets.

                  Last week, the Malaysia-based company Effective Capital, headed by
                  Singapore expatriate Akbar Khan, offered to buy back shares at a 32
                  percent to 85 percent discount off current prices on the Kuala Lumpur
                  Stock Exchange.

                  The offer outraged Singaporeans and raised suspicions that official circles in
                  Malaysia might be behind the deal.

                  "The tempting conclusion is a sad one: that cronyism, Malaysian-style, is
                  alive and well," a government-controlled Singapore newspaper said in a
                  front-page editorial Tuesday.

                  "Inevitably, the deal has invited speculation that Akbar Khan is a front for
                  more powerful figures lurking in the shadows," the Business Times said.

                  The fact Khan is a Singaporean "adds to both the insult and the injury," the
                  paper continued.

                  Singapore's government-controlled news media are usually more tactful in
                  handling issues related to Malaysia.

                  "This is an unusually strong editorial," said Bruce Gale, an analyst in the
                  Hong Kong-based Political and Risk Consultancy.

                  It's hard to believe that such an editorial would be written without the
                  acquiescence of authorities, Gale told the Associated Press.

                  Singapore and Malaysia merged in 1963 after independence from Britain,
                  but split two years later amid bitter feuding. Tense since then, their relations
                  sank to a new low last year.

                  They have argued over the location of a border post, the cancellation of
                  automatic flyover rights for Singaporean military aircraft in Malaysian air
                  space, Malaysia's withdrawal from military exercises, and imports of
                  Malaysian water to Singapore.

                  Relations began to thaw in November, when the two countries decided on a
                  series of meeting to resolve their problems.

                  But the latest events underscored the fragility of their ties.

                  "Malaysia seems to be testing the water with the offer, to see how far it can
                  go," said Jimmy Koh, analyst at the London-based Independent Economic
                  Analysis. But the offer, he said, "has only infuriated people here."

                  Singapore has said it wants the frozen shares problem to be solved in a
                  package, along with the water and border post disputes.

                  But that is not in Malaysia's best interests, said Gale. "From Malaysia's point
                  of view, they are in a stronger bargaining position on almost every issue,
                  including the shares."

                  While foreign investors are watching how Malaysia will handle the problem,
                  share-holders have asked the Singapore authorities for help.

                  "Come on, (Singapore Stock Exchange), are you going to stand up for
                  170,000 Singaporeans or sit down and get kicked around," one reader said
                  in a letter to the Business Times.

                  Singapore's powerful deputy prime minister, Lee Hsien Loong, was to
                  address the issue in parliament on Wednesday. Meanwhile, the Singapore
                  bourse has said it is studying Khan's proposal.