Old VW is Uruguay president's only asset

Uruguay's new president may be one of the world's poorest sitting leaders: has Jose Mujica formally declared his entire wealth amounts to a 1987 Volkswagen Beetle

The 23-year-old car is valued at about $US1900 ($A2260).

Since the former leftist guerilla leader has no bank accounts or other assets and put his small flower farm in his wife's name, the car is all he owns, according to his sworn declaration, which appeared in Thursday's official bulletin.

Mujica's only reported income is his presidential salary, about $US11,000 ($A13,100) a month. He gives 20 per cent of this to his political movement.

At 75 years old, Mujica is used to an austere lifestyle.

Not so his vice-president, Danilo Astori, whose declared wealth of $US250,000 ($A297,000) includes a house and car worth nearly 10 times Mujica's Beetle.

Source: AP
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Can a nation go bankrupt?

IT is common to hear of individuals and companies going bankrupt. But for a country to go bankrupt – is that possible?

Such is a rare phenomenon, but national bankruptcy is not impossible. In the past, it used to happen after a country had to empty its treasuries to go to war. For example, Germany went bust twice – once after losing World War I and again after losing World War II.

The risk of national bankruptcy exists in modern history too; such is the case for Argentina in 2001 and Iceland two years ago. And it is proven that such risk is not contained merely to third-world and developing nations. It can happen to developed nations too.

At present, the risk of national bankruptcy is seen by many as running high in certain parts of the world – in this case, the euro zone comes to mind.

The underlying notion of national bankruptcy is pretty much the same as most personal and corporate bankruptcies; and that is, the inability to repay debts when they are due.

Countries with huge fiscal deficits and debts – in particular, external or foreign-currency debts – are said to face higher risks of being insolvent. The concern is that the governments’ deficit spending and debts could spin out of control that they might find it hard to service their interest payments, let alone pay back their dues.

Take the case of Iceland. In late-2008, its banking system – that saw the country’s three largest banks then having combined debts, largely to foreign investors, that exceeded six times the nation’s gross domestic product (GDP) – became a casualty of the global financial crisis.

The inability of Iceland to repay the huge foreign debts resulted in the loss of confidence in the country’s system, and its currency, krona, plunged to become almost valueless to outsiders. This also implied that the country could no longer pay for its imports.

Running out of money, the country had to seek a lifeline from the International Monetary Fund (IMF) and Russia. Of course, such assistance always comes with strings attached as outlined by the IMF.

The core issue is really about the confidence of foreign investors, explains RAM Ratings Bhd group chief economist Dr Yeah Kim Leng.

“There are certain indicators that rating agencies use to gauge a country’s ability to manage its finances. When certain criteria are not met, it will result in a country’s credit rating being downgraded. This could affect investors’ confidence and result in foreign capital pulling out of the country and draining the country’s reserves,” Yeah puts in simple terms.

Greece is the most recent example of a country whose credit rating was downgraded to a “junk” level by an international rating agency. With fiscal deficits at 13.6% of GDP and rising public debt levels that reached 125% of GDP last year, there has been a loss of confidence in the country’s ability to manage its finances and repay its foreign lenders without the help of other EU member countries.

Over the week, several reports emerged to refute the projections made by the Performance Management & Delivery Unit (Pemandu) of the Prime Minister’s Department that Malaysia could go down the Greek road and become bankrupt by 2019 if no drastic efforts were done to cut spending and reduce public debts.

Malaysia’s economy had recovered

Several high-ranking government officials claimed the remark was an exaggeration, as Malaysia’s economic fundamentals were strong and the country was well positioned to ride out its fiscal challenges over the longer term. For one, they argued that Malaysia’s economy had recovered and were expected to grow at healthy levels going forward.

They also pointed to the fact that Malaysia had been enjoying more than 10 years of comfortable trade surpluses and international reserves remained at healthy levels. Last year, the country’s total trade surplus stood at RM118.4bil, even though that was a decline of 16.6% from the preceding year, while international reserves as at the end of March 2010 stood at US$95bil (RM311.2bil).

(This compared with Greece’s trade deficit of US$42.8bil (RM140.25bil) and international reserves of US$5.5bil (RM18bil).)

Another plus point for Malaysia is that, although its public debt at RM362bil represents 50% of GDP, the bulk of it are domestic borrowings. They like to compare this with Japan, whose public debt at present is more than 200% of its GDP, but they mainly comprise domestic borrowing.

Some would argue that if a country’s debts were mainly made of up of domestic borrowing, the headache could be less. This is because the country can always print money to repay the domestic funds. Nevertheless, printing money, if uncontrolled, could result in the local currency losing its value and the country could face a situation of hyperinflation – another element that could destabilise a country’s financial system – as in the case of Argentina in 2001.

Deficit financing is forgivable if the money is used to finance projects that will bear fruits in terms of future revenues for the government, says Malaysian Rating Agency Corp Bhd chief economist Nor Zahidi Alias.
“Such revenue stream can help the government to reduce deficits or build up surpluses in time to come; hence this factor should be taken into consideration when analysing a government’s ability to meet its financial obligations,” he explains.

“If a deficit is not financed through money creation or large increases in government and external debt, then incurring a budget deficit, especially during challenging times like these, is justified,” Zahidi adds.

Malaysia’s fiscal deficit last year stood at RM47bil, or 7% of GDP, as the Government implemented RM67bil worth of pump-priming measures to mitigate the effects of the global economic crisis.

Certain assumptions

To be fair, Pemandu’s bankruptcy remark was made based on certain assumptions (after all, economics is all about assumptions). These assumptions include that if the national debt level were to continue growing at 12% per year, resulting in the total debt level to exceed RM1 trillion by 2018.

Malaysia’s situation may not be likened to that of Greece per se. However, if the Government’s finances are not managed properly, we can come face to face with our own set of different problems in the near future.

Harsh remarks as that made by Pemandu may be hard to swallow for some. But it is warnings like these that jolt us into action and reform, for in this fast-paced and competitive world, no country can afford to remain complacent and maintain that business-as-usual approach and expect to progress and prosper.

 By CECILIA KOK,cecilia_kok@thestar.com.my

Ishak – no newcomer to corporate controversy

WHILE the jury is still out as to whether Datuk Ishak Ismail (pic) is a white knight or opportunistic raider in Kenmark Industrial Co (M) Bhd, his return to the limelight after a long absence somewhat brings back memories of eye-brow raising corporate tussles and surprise manoeuvres that had once made him an icon in Malaysia’s corporate scene.

While he has had a fair share of the limelight since the 1990s, starting with Idris Hydraulic, Aokam Perdana Bhd and later KFC Holdings Bhd, Ishak had been relatively quiet for much of the last decade, at least as far as corporate news was concerned.

The Penang-born Ishak last made the front pages of business newspapers in 2005, when he was actively fending off parties who had sought to take over KFC’s parent company, QSR Brands Bhd. Since the late 1990s, it was widely perceived that Ishak was in control of QSR and KFC.

KFC, during Ishak’s time, was riddled with boardroom tussles and several curious developments, and had found itself a takeover target of various parties given its healthy cash flow. In fact, it probably holds the record of having had the most number of board changes as a result of these feuds. Ishak was a key character in this entire saga.

In the last battle over QSR and KFC in 2005-2006, it was reported that Ishak’s trusted aides had let the company slip into the hands of others. The saga came to an end when Johor state-controlled Kulim (M) Bhd emerged to take control of QSR, in a deal many perceived was orchestrated by Ishak.

Ishak’s major entry into the corporate scene started in the early 1990s when he staged a takeover of Idris Hydraulic (M) Bhd, which became a darling of retail investors during the stock market’s bull run then.

Idris Hydraulic held various timber concessions in Keningau, Sabah, which were collectively known as the Sagisan Concession, spread over 256,000ha. To leverage on its concessions, it had entered into a joint venture with Aokam Perdana Bhd in 1992 with Teh Soon Seng. Ishak forged a bond with Sarawakian Teh to win a high-profile battle against Leong Hup Holdings Bhd for control over KFC, which marked Ishak’s entry into the fried chicken retailer.


Aokam Perdana’s shares rallied in the early 1990s as investors were drawn to the notion that the company earned fat margins due to a cheap supply of logs from Idris’ concessions. Idris Hydraulic’s shares also had a phenomenal run. Stories of its planned expansion and diversification plus a healthy dose of rumour further fuelled optimism; Idris Hydraulic’s share price skyrocketed from 80 sen to RM8 within a year during the super bull-run of 1993–94.

The company was involved in a wide array of businesses, from timber concessions in far-flung places like Gabon in Africa, to hotel operations in Myanmar and multi-billion ringgit sewerage concessions at home. There was also a steady stream of talks and deals, most of which never came through, that had added to the sugar rush in the counter.

However, having reached its peak of RM8, the stock steadily began its downward spiral. Even the stock market rally of 1996-97 failed to lift the counter which appeared to have lost its lustre. Many of the promises on the company’s future plans were not delivered.

Ishak also controlled several other companies involved in retail, food and beverage, hotels and property development and had stakes in Parit Perak Bhd and hypermarket chain Carrefour.

He was also once a secretary of the Permatang Pauh Umno division, the stronghold of then deputy prime minister and now Opposition Leader Datuk Seri Anwar Ibrahim.

But like many other businessmen, the 1997-98 Asian financial crisis dealt his impressive portfolio a massive blow. He lost Idris Hydraulic in a debt-restructuring exercise. In 1998, Aokam was declared insolvent and could not pay some RM33.3mil of debt.

It was reported in 1997 that the police was looking for Teh to assist in investigations surrounding an alleged theft and misappropriation of funds from Aokam worth some RM55mil.

According to the Securities Commission (SC) website, in 2001, Ishak was convicted by the courts for disclosing false information to the SC in a proposal by Idris Hydraulic to the SC that stated he did not hold any shares in KFC. The information submitted was in connection with a proposal for the acquisition of an asset of KFC by Idris Hydraulic. Ishak pleaded guilty and was convicted on Aug 23, 2001. He was fined RM400,000, in default six months imprisonment.

In 2003, Ishak, as a director of Idris Hydraulic, was also compounded RM400,000 by the SC for misusing RM50mil of the proceeds raised from the disposal of Kewangan Bersatu Bhd. As a result of the compound, the charge was withdrawn.

His long absence from the corporate limelight ended this week following his entry into Kenmark, a homecoming of sorts as he was a shareholder in Kenmark way back in 1993. Kenmark was listed in 1997 and Ishak sold his 20% stake subsequently. He acquired a chunky 32% or 57 million shares in Kenmark early in the week, after the stock price tanked on some puzzling uncertainties. The question in most people’s minds – is he merely seizing an opportunity as an investor or is there more to the story?

By RISEN JAYASEELAN ,risen@thestar.com.my

Directors shed some light

AT a hastily arranged press conference yesterday, Kenmark Industrial Co (M) Bhd’s newly appointed directors sought to shed light on their plans to turn around the company and to explain some of the puzzling developments that had plagued the company over the last few days. Below, excerpts from the press conference with Datuk Abd Gani Yusof, Woon Wai En and Ho Soo Woon:

SBW: What is the priority at this point?
 Gani: It is to see how fast we can commence operations. We are also accessing the situation and will release statements as new developments happen.

Who gave you access to start operations? Have operations actually started?

Datuk Abd Gani ... ‘If out customers and banks support us, I believe we can turn the company around.’

 

Gani: We met key members of management and we asked them what is required to restart the production. We will take it from there. Management is supposed to do an assessment of various departments, the equipment, and the personnel required. Some new recruitment may be needed.

Are there enough raw materials, enough workers?
Ghani: I can’t answer that yet. We are meeting management on Monday to see where we stand and decide whether there is a need to purchase more raw materials or get more workers.

Where will the funds for the operations come from?
Gani: As we saw yesterday, we have enough machinery and raw material stock. There are also some debts that can be collected. Any additions will have to be reviewed as we go along.

What’s the situation with Kenmark’s creditors?
Gani: We are not under any threats from creditors. The term loan with EON Bank was taken for our factory in Port Klang. And that too, is well secured.

Have you defaulted on any of your debts?
Gani: We have not.

So why did the bank come out with this notice to secure the premises?
Gani: They had to once they found out there was no management in charge and nobody is looking after the business. Somebody has to look after the asset that is charged to the bank.

It’s been reported that key management has resigned. Is this true?
Gani: We talked to key management yesterday, and they told us none of them have resigned. Only one person resigned, and we asked her to come back and she is willing.

Doesn’t Kenmark have to meet orders from customers in time?
Gani: We only have one order to deliver by month-end, that is why as soon as we get the company working again, the business can recommence and the delivery for month-end will be met.

There is another executive director, Chang, who’s role is to take care of the plants. So how did the new directors come into the picture?
Ho: He is mainly in charge of the Vietnam plant.

Is he in communication with the new directors?
Ho: Yes he is, with the company secretary.

Does he hold the key to the factory’s production?
Ho: No.

We are trying to establish when and why was the factory shut down, and what has happened between that time. Can you comment?
Woon: We did not do a post-mortem on those events when we met with management this morning. We are not out to do a witch hunt. That can come later. We want to recommence the business as soon as possible. The idea now is to instill confidence, get the staff back so that we can deliver our orders. If we have to double time to get it done, we’ll do it.

How much damage has happened at Kenmark’s Vietnam factory? We heard there was some looting.
Ho: It is intact, because they can’t take away big machinery. The most they can take away are computers. In any case, we don’t want to speculate. We are not able to identify who the culprits are.

How soon will it take for you to come out with a regularisation plan?
Gani: I don’t know, but we have a board meeting scheduled on Monday followed by a staff meeting. We will come out with a firm plan. We know the mistake now. We know there was some communication gaps that resulted in this whole mess. We won’t let that happen again.

What are the special auditors who have been appointed tasked to do?
Gani: The terms of reference will be given upon the approval of their appointment by Bursa. Bursa will draw up what they want the special auditor to do.

Is there hostility between James Hwang’s people and this new team?
Gani: I do not know, but they voted us in yesterday.

Do you represent Datuk Ishak Ismail? He seems to have bought so many shares in Kenmark in two days. How is that possible?
Gani: Why don’t you ask him that.
Ho: I think if you look at the turnover of the volume done for Kenmark, it was quite high.

On James Hwang’s disappearance.

Are any of the four new directors in contact with Hwang?
Ho: Yes, he calls us.

What does he want?
Ho: As he explained in the letter, he is very sorry this has happened and is asking us to help him rectify the situation.

Does he feel sorry for what he has done?
Ho: Yes, as he said in the letter. I think he’s very depressed.

How could he just leave everything and run off?
Ho: I think the issue is he did not leave everything. Sometimes when you collapse, there is no such thing as “I am going to collapse, I need to get this and that done”. I was told that he collapsed due to exhaustion and lack of sleep. At one point, he was without sleep for nearly 20 days which I don’t think is humanly possible.
This is something which is unplanned, and very unfortunate for a man who thinks he is superhuman.

But he has other directors. Why didn’t they come out?
Ho: The management and operations are very tightly controlled by one man. And without this person’s direction, the other directors will not do anything.
We are here to put the situation right. Even from the board position, the executive directors are all Taiwanese, and they all report to him. There is no local executive director to liaise with the market to say what is happening. So this is a situation that we have rectified by appointing four local directors.

Why didn’t his family members alert the public as to where he was?
Ho: His family also did not know where he was. The initial reaction was that he was kidnapped.

So you believe you can make Kenmark better?
Ho: With the co-operation of everybody, we can.

But what is the main plan for Kenmark?
Woon: Too early to say as this is only our second day of being appointed.
Gani: We are here to work and to deliver. We want to get the business going on again. If we didn’t believe in that, we won’t waste our time here.

What would it take to win confidence?
Gani: Start operations again, and return to profitability.

When can this happen?
Woon: As soon as possible.
Ghani: The first task is to get the company out of PN17.
Ho: We want to get the business going on again. I think if you look at the company’s track record, it has been very solid. For this to happen overnight, it is very unfortunate. The fact that the key management staff we met today, most of them told us that they have worked from between 19-26 years. That says a lot of the company. If the key people are with us, if our customers still trust us and the bankers support us, I believe we can turn the company around.

By BK SIDHU and TEE LIN SAY, starbizweek@thestar.com.my