The month when Shell Human Resource woman Zarinah Anwar appointed Chairman of Securities Commission in 2006, the capital market was shocked with the proposal of smaller securities firm ECM Libra teaming up with the firm four times its size Avenue Capital Resources Bhd. It was deemed ‘financial merger of the decade’.
So much ruckus were raised then. Media raised them. Malaysian Minority Stockholders Watchdog Group raised them. Even the Avenue Capital EGM in May 2006 to approve the merger proposal turned heated. To our knowledge, at least three police reports were made on the merger, on top of 17 different reports and complaints where lodged directly with SC.
In our minds, Malaysians have forgotten about that ‘merger’. Kalimullah “Riong Kali” Hassan and former Deputy Chief ofStaff in Prime Minsiter’s Office Khairy Jamaluddin, who is also then son-in-law of then Prime Minister ‘Flip-Flop’ Dato’ Seri Abdullah Ahmad Badawi managed to convince MOF Inc to unfairly sell Avenue Capital to ECM Libra.
Suddenly, in the wake of the recent 30% acquisition of E&O by PNB controlled Sime Darby Bhd. at 60% premium (which was dubbed ‘ECM Libra-Avenue Capital II’), MPs beginning to talk about this merger which was mooted late 2005. Bayan Baru MP Dato’ Seri Zahrain Hashim raised the historical 2006 merger, which is yet to be explained:
Tuan Yang DiPertua,Kontroversi berkenaan syarikat berkaitan kerajaan atau GLC nampak-nya tidak pernah reda sejak kepimpinan terdahulu.Jika dahulu sebuah syarikat kecil seperti ECM Libra dibenarkan ‘menelan’ syarikat milik kerajaan Avenue Capital tanpa penjelasan ynag sewajarnya, kini muncul pula beberapa kes yang baru.Pembelian 30% saham E&O Berhad oleh Sime Darby Berhad untuk satu jumlah yang tidak masuk akal sama-sekali harus di-siasat pihak kerajaan kerana terdapat pelbagai bukti kukuh yang menunjukkan ke-arah jenayah komersial, iaitu ‘insider trading’.Isu penukaran saham atau penggabungan MAS dan penerbangan tambang murah Air Asia, seperti yang di-utarakan rakan saya YB Wangsa Maju, juga menjadi suatu tanda tanya yang besar.Saya berpendapat isu ECM Libra dan Avenue Capital masih belum selesai dan harus di-siasat semula bersama Sime Darby – E&O, MAS – AirAsia serta kontroversi yang melibatkan Pengerusi Suruhanjaya Sekuriti Tan Sri Zarinah Anwar serta suaminya Datuk Azizan Abdul Rahman – kerana individu yang sama kelihatan terbabit dalam kontroversi – kontroversi terkini.*****************
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 which appeared in The Star, 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 in the whole scheme of things
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 by then he 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.
The take over of Avenue Capital warrants ECM Libra to be issued a universal stock broking license. ECM Libra became what it is today, a boutique investment bank. The value of the company increased when ECM Libra was able to do what it could not do without the merger with Avenue Capital.
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’.
Now that Abdullah no longer around and ‘Level Four Boys’ no longer in PMO, its time that Zarinah face the music. A lot at stake when the people who is supposed to safeguard corporate governance is doubtful, especially a lot of questions still unanswered. The time is now. Probably it is five years too late but this episode would be something to learn from.