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Wednesday, June 3, 2015

WHEN IS A BAILOUT NOT A BAILOUT?

mt2014-no-holds-barred
Hmm…how do you do nothing and still not lose money? Maybe 1MDB should look for someone the likes of David Copperfield who can perform magic or someone like Jesus Christ who can perform miracles such as feeding thousands with just one loaf of bread.
NO HOLDS BARRED
Raja Petra Kamarudin
This was what Tajuddin Rosli wrote in The Malaysian Insider today:
Should the government save Proton again?
Proton has been sluggish all the while. With the sales of Proton being at an all-time low, it is speculated that the government needs to pump in about RM1.5-2 billion to save it from shutting down. Although Dr Mahathir will continue to say Proton needs no bailout, it does not curtain the truth of Proton’s true suffering.
In March 2000, under the premiership of Dr Mahathir, Petronas hit the headlines (as it has numerous times) when it sealed a deal of about RM1 billion to purchase 27% of Proton shares, making it the controlling shareholder. The stake was held by DRB-Hicom Group Bhd, which was deeply in debt. This came about after Proton reported a loss of RM19 million over a period of nine months in 1999.
Since its induction, Proton has always been a failing organisation and year in year out speculators predict the timing of its closure. Proton has been plummeting again and the question of whether the government should continue to bail Proton out has re-emerged.
Initially, Proton dominated the local industry with 60% of car sales. As late as 2001, it still dominated the local industry with sales of more than 50% compared to other international models.
However, in 2014, its sales dropped to 17% and have further reduced to about 15% during the first quarter of 2015. Currently, Perodua leads the local industry while Proton is second, barely above third placed Honda.
Yes, while Malaysians have been focused on (or should I instead say ‘distracted by’?) 1MDB, the PAS-DAP tussle regarding whose dick is bigger, the so-called ‘rebellion’ against Prime Minister Najib Tun Razak where no one is yet brave enough (or principled enough) to resign from the cabinet to prove they do not support 1MDB, and so on, another drama is quietly playing out in the background but unnoticed by all and sundry.
And this drama is regarding the fate and future of Malaysia’s national car, Proton.
Proton, yet again, needs to be bailed out. Tun Dr Mahathir Mohamad wants the Prime Minister to pump in another RM2 billion into Proton and it seems that Najib is reluctant to do that. That was around the time when Dr Mahathir coincidentally decided to go for Najib.
But there are those who resent it being called a bailout. Pumping more money into the ailing car company is not considered a bailout but about saving national pride.
This is the same argument being used regarding Malaysia’s national airlines, MAS. MAS may have already cost the nation RM20 billion but if billions more need to be pumped into MAS then it has to be done because national pride is at stake here.
MAS, which used to be called MSA, used to be viable when it was called Malaysia Singapore Airlines. Then when Malaysia and Singapore separated and MSA split into two, SIA and MAS, SIA became one of the world’s leading airlines while MAS became a four-letter word.
No doubt part of the problem was bad management but MAS really started to get seriously sick when in 1994 it was ‘sold’ to Tajudin Ramli so that the government could make a ‘paper profit’ to camouflage a RM30 billion ‘paper loss’ on the 1992-1993 Forex disaster.
Later, the government had to bail out Tajudin when he got into trouble by buying back MAS at RM8 a share when it was actually worth less than half that.
But then that involved national pride, like Proton does. So spending billions is not a bailout but saving national pride. 1MDB, however, does not involve national pride even though it involves RM42 billion. So it must not be saved via a bailout.
Yes, the message is clear. There must be no bailout of 1MDB. But then the RM42 billion in 1MDB must not be allowed to disappear into thin air either. So how do you save RM42 billion from disappearing into thin air without bailing out 1MDB?
Well, then you sell 1MDB’s assets or part of its assets to convert these assets into cash so that 1MDB would not suffer from a cash flow problem.
But that must not be done either.
You must not bailout 1MDB by pumping more money into it (like in the case of Proton and MAS). You must not embark on asset stripping by selling off some of its assets to convert them into cash to aid 1MDB’s cash flow. You must also not allow 1MDB to lose any money.
Hmm…how do you do nothing and still not lose money? Maybe 1MDB should look for someone the likes of David Copperfield who can perform magic or someone like Jesus Christ who can perform miracles such as feeding thousands with just one loaf of bread.

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