Mahathir Turns Over An Old Leaf

As the economy improves, Malaysia's Prime Minister goes back to bashing foreign investors

Prime Minister Mahathir Mohamad is at it again. During Asia's financial crisis, the Malaysian leader made himself infamous in the West for his often bizarre attacks on foreigners. While financier George Soros and the Jews were among the prime culprits he singled out at the peak of the turmoil, Mahathir has been lashing out at foreign investors for years.

For a time, Mahathir seemed on the verge of being toppled by a campaign against him led by former Finance Minister Anwar Ibrahim. Today, though, Mahathir is still firmly in charge and enjoying the last laugh. Anwar is languishing in jail, and Soros has been bruised by the stock market. Malaysia's economy is growing again, despite widespread criticism of Mahathir's unorthodox economic policies, and attracting renewed investment from abroad. Ironically, the investor inflow is offering Mahathir tempting new targets for foreigner-bashing. The 74-year-old leader's high-handed actions show he's still intent on defying market forces and bailing out sick local companies his way.

The latest episode is the battle for control of Time Engineering, the debt-ridden Malaysian company that manages the country's biggest fiber-optics network. Under court protection since July, 1998, the company has been looking for an investor with cash to help repay some of the $1.25 billion it owes. In April, up stepped Singapore Telecom Ltd., the cash-rich communications giant from Malaysia's neighbor. Looking for fresh opportunities in Asia since losing its monopoly at home, SingTel proposed a $580 million deal to buy 14.5% of Time as well as 20% stakes in Time's Internet subsidiaries, Time dotCom and Time Online.

Partnership with SingTel, the dominant player in one of Asia's most advanced telecom and Internet markets, sure sounded interesting to Time. Wanting more money, of course, its management proposed a deal worth $790 million. But the prospects seemed good, especially with the announcement in early May by NM Rothschild & Sons, the adviser to Time's creditors, that it supported the SingTel deal. Not so one of the creditors, Malaysia's Sapura Group. Time owes $115 million to Sapura, which has interests in telecommunications, information technology, and property. In a counterbid, Sapura proposed to put $470 million into the company and take a 40% stake in Time dotCom. When Time's board rejected the offer, it looked like the end of the story.

But not in Malaysia, where little separates business from politics. Time is controlled by Renong, the vast Malaysian conglomerate that's closely tied to Mahathir and his ruling party. Regardless of what Time thought about teaming up with SingTel, Mahathir had other ideas. Singapore has long been an irritant to Dr. M, who over the years has had nasty spats with the island republic's elder statesman, Lee Kuan Yew. And the chief executive of government-owned SingTel is--guess who?---Lee's son, Lee Hsien Yang.

DEAD DEAL. So it came as no surprise when, shortly before a deadline to seal the SingTel investment, rumors started flying that a Malaysian government investment company, with Mahathir as chairman, was interested in Time. On May 1, Mahathir issued yet another warning about the dangers of selling Malaysian companies to foreigners. The next day, Time announced that the SingTel deal was dead.

It's almost enough to make you feel sorry for SingTel. It recently saw its attempt to buy Hong Kong's main phone company and Internet service provider, Cable & Wireless HKT, founder--also, in part, for political reasons. In that case, Hong Kong politicians denounced the prospect of archrival Singapore getting its hands on Hong Kong's most valuable communications company.

But don't shed too many tears for SingTel. It has managed to do some promising deals, such as a recent partnership with Loxley Information Services (Loxinfo), one of Thailand's top Internet companies. And SingTel may yet make another attempt to nab HKT.

The real loser in the Time saga is Malaysia. It shows yet again that business in Malaysia operates under a very different set of rules--Dr. M's. They serve Mahathir's personal and political ends, at high cost to Malaysian companies.

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