Renong bullish on bid for UEM

Mahathir says Halim is not under investigation by authorities or being set up as a "fall guy"

By CNN's Alex Frew McMillan in Hong Kong

KUALA LUMPUR, Malaysia -- Renong Bhd.'s directors are recommending that its shareholders accept the government's offer for the Malaysian conglomerate's key company.

The Malaysian government on July 23 offered $1 billion (3.7 billion ringgit) for United Engineers Malaysia Bhd. (UEM).

UEM is Malaysia's biggest construction company and the most important business in the Renong group, Malaysia's biggest conglomerate.

Taking control of it would put Renong under the control of the government and likely mean the ouster of Halim Saad. Halim has run the Renong group for 11 years.

Renong's shareholders will vote on the offer at an as-yet unscheduled extraordinary general meeting.

Its directors advise accepting the offer, which amounts to 4.50 ringgit per share, they said in a filing made to the Kuala Lumpur Stock Exchange on Friday.

A web of cross-holdings

COUNTRY PROFILE At a glance: Malaysia Provided by CountryWatch.com    CNN.com Asia More news from our Asia edition

The bid would give the government control of Renong thanks to the companies' web of cross holdings.

Renong owns 37.1 percent of UEM, which in turn owns 32.6 percent of Renong. The government hopes to restructure Renong, the country's biggest borrower, by taking over UEM.

Renong and its affiliate companies are suffering under a $3.4 billion (13 billion ringgit) debt load left over from the Asian financial crisis.

The government has offered to buy all of UEM and delist it, via Syarikat Danasaham, part of its investment wing Khazanah Nasional. The move would give the government a greater stake of Renong than executive chairman Halim, who owns 16.5 percent of Renong.

Halim, a protégé of former finance minister Daim Zainuddin, would likely leave the company. He has already stepped down from UEM's board.

Prime Minister Mahathir Mohamad says Halim is not being investigated by authorities and is not being set up as a "fall guy," according to Dow Jones. But the Renong group needs government help after being mismanaged, he said.

Investors in Malaysia applauded the bid as a sign of reform. But some believe the government's offer doesn't reward UEM's long-suffering investors sufficiently.

Critics also say it shows how much control Mahathir's administration still has over business in that country.