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Clob row tied to return of foreign funds

Agence France Presse in Kuala Lumpur. December 19, 1999

FOREIGN funds want Malaysia to settle a dispute with Singapore investors over frozen shares worth more than US $3 billion dollars before they decide on future investment, analysts say.

 A speedy settlement to unlock the shares trapped for 15 months by Malaysian capital controls will encourage foreign funds to return, they say.

The shares were once traded over the counter in Singapore under the Central Limit Order Book International (CLOB) scheme. They were frozen when Malaysia imposed the controls in September 1998, banning trading of Malaysian-listed shares outside the country.

Some 100 Malaysian issues were traded under CLOB. An estimated 170,000 CLOB shareholders, mainly Singaporeans, were hit by the freeze which has become a sensitive issue between the two countries.

Singapore warned last month it had legal grounds to raise the issue with the World Trade Organisation but would await the outcome of talks between the two sides.

Several Malaysian companies have offered to buy up the CLOB shares at discounted prices and also proposed fund schemes to mop up the shares.

But disgruntled Singapore investors have rejected the offers. They recently made their own proposal before a December 31 deadline to move the shares from Singapore's central depository into the Malaysian system.

Analysts say this deadline is likely to be extended until a solution is reached.

The Singapore Securities Investors Association has suggested breaking the shares into weekly batches and migrating them back to Kuala Lumpur over a year, eliminating the volatility a sudden move might have.

The CLOB shareholders will pay a one percent administration fee to the Kuala Lumpur Stock Exchange, the association reportedly said.

Victor Wan, analyst with Mercury Securities, said the Singapore proposal was unlikely to be accepted by Kuala Lumpur as the one-year timeframe was deemed too short.

 "There is a genuine fear that dumping all the shares over a year will create a flooding in the market ... not all the shares can be absorbed," Wan told AFP.

The Malaysian bourse is recovering but still far from its heyday before the economic slump two years ago, he said.

Wan said foreign funds would use the CLOB issue as a "gauge of how Malaysia treats its foreign investors. How it resolves the matter will have a bearing on future investment."

A research chief with a foreign brokerage said the proposed one-year period was not likely to go down well with Kuala Lumpur as it could create jitters in the stock market.

"It may cause a selldown and could put a dampener on the market for the whole year," he said.

Some foreign investors see the CLOB issue as a corporate governance issue and as an "indication of how Malaysia treats its minority shareholders," he said.

TA Securities economist Helen Tan said CLOB was a key factor affecting foreign investors' confidence in Malaysia.

"CLOB is just one of the many issues but it is still an issue," Tan said.

"It is however not the sole issue as foreign investors will still look at Malaysia's reinstatement into the Morgan Stanley Capital International indices in May, economic growth and political stability."

If a breakthrough is achieved, Tan said it would encourage foreign funds to invest in Malaysia.

She said the offers made so far to buy up CLOB shares were deemed not attractive by Singapore investors, who "appear to want as close to market prices as possible."

Tan said the December 31 deadline for the CLOB shares to be moved back to Malaysia was likely to be extended until a solution is reached.

She predicts that an "eventual resolution will come through a staggered release of the shares but the question is over a period of how long."

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