Malaysia's Latest Proton Saga

Thursday, 16 February 2012

Questions of insider trading in national car shares remain unanswered a month after sale to a Mahathir crony

For nearly three decades, Malaysia’s national car project, Proton, has suffered through endless troubles, nearing its demise several times only to be propped up again and again by the government.

The government has regularly sought foreign buyers to come in and save the project, Perusahaan Otomobil Nasional Bhd. The carmaker has cost the country’s consumers billions in lost opportunity costs from the steep tariffs levied against other carmakers in addition to the losses the company made on its own, estimated at US$2-3 billion, plus the cost of building its factories. The preferential tariffs haven’t stopped consumers from turning to other makes anyway.

In January, DRB-Hicom Bhd, controlled by billionaire Syed Mokhtar al-Bukhary, a longtime Mahathir friend and United Malays National Organization crony, agreed to take the ailing carmaker off the hands of Khazanah Nasional Bhd., the state-owned investment fund which owned 42.7 percent of the shares after taking the company over during an earlier period of distress. The subsequent events have raised many questions of insider trading, none of which have ever been addressed either by Proton, Hicom or Bursa Malaysia, the country’s stock exchange.

In the two months prior to the announcement of the sale, Proton’s shares went on a wild ride, beginning on Nov. 14, when the shares traded thinly, at only about 300,000 per day at a price of around RM2.70 (US88 cents)

According to official announcements by Bursa Malaysia, the Kuala Lumpur main board, the shares took off on Nov. 15, rising to RM3.21 on volume of 4.3 million traded. Over the next 12 days, daily volumes averaged 4.4 million shares. By Dec. 5, volumes increased to 20 million shares per day – 60 times the November average - with the price rocketing up by nearly 25 percent over the period to RM4.50 per share.

Proton’s Wild Ride
It wasn’t until Dec. 5, three weeks after the shares began to gyrate that Bursa Malaysia issued an Unusual Market Activity enquiry. On the next day, Proton announced: “"The Board of Directors of Proton wish to clarify that after making due enquiry with the Board of Directors and major shareholders, the company is not aware of any reason for the unusual market activity in the shares of the company recently, and further, that there is no material corporate development not previously disclosed."

Certainly not! On Jan. 17, DRB-Hicom announced it would buy Khazanah’s stake in the carmaker for RM1.291 billion, the equivalent of RM5.50 per share. That meant that those smart enough – or informed enough -- to buy the Proton shares in November at RM2.70 had effectively doubled their money in two months.

Insider trading?
“The above chain of events makes a bad overall impression. It looks very much that certain parties were privy to inside information,” wrote M A Wind, who blogs for Asia Sentinel. “Why was Bursa Malaysia so late with its Unusual Market Activity query? The share price of Proton had increased already over three consecutive weeks by a whopping 70 percent while daily turnover had risen 20-fold when it finally took action.”

The announcement on December 6, 2011 by Proton that neither it nor Khazanah Nasional were aware of any unusual activity looks puzzling to say the least. The market was rife with rumor, but neither Proton nor Khazanah Nasional said they were aware of any activity.

More suspiciously, the share price more or less stratified at RM 5.50 several days before the final announcement on January 16, 2011 – the DRB-Hicom offer price, which seems to suggest that unknown parties might have known what it would be.

Also, both Proton and DRB-Hicom appeared remarkably passive in issuing announcements, both only responding to queries from Bursa Malaysia (most notably on Dec. 6, 8 and 13, 2011 and Jan. 9, 2012), not initiating the announcements themselves although the stock exchange’s website says: "We place significant emphasis on timeliness, adequacy and accuracy of disclosure to enable investors to make informed investment decisions."

”Let’s be clear,” said a Kuala Lumpur-based investment banker. “All of Malaysia is one big insider-trading casino. There aren’t any other kind of trades.”

The banker declined to speculate on who made the killing. However, he said the clues point to top political figures. The car company was government-owned, the new ownership is close to top United Malays National Organization figures. Read more.