The story of Mokhzani Mahathir and the biggest coup in Malaysian banking history
The Third Force
It’s been four days since I last posted an article. I needed to do a lot of research on a particular topic that I wanted to get out into the open. It’s important, in a sense that what I am about to say today relates directly to what I have in store for you in the coming weeks. So this article will serve as a prelude to the next one, and so on and so forth.
Okay, let me not bore you with that. Instead, let me tell you what this article is all about. Today, we’re going to traverse through time to the year 1989, the year Sultan Azlan Shah was installed the ninth Yang di-Pertuan Agong. But the inauguration wasn’t the only major event that stole the limelight and made headlines.
That year, Malaysia played host to the eleventh Commonwealth Heads of Governments Meeting (CHOGM) in Kuala Lumpur. It was the year the Communist Insurgency in Malaysia (1968-1989) officially ended and a Boeing 747 jetliner owned by Flying Tiger Line crashed 12 kilometres from the Subang International Airport while on approach.
But a lesser known incident, one that may have been eclipsed by all the major-league events that I just mentioned, was the nudging in of Dr. Mahathir Mohammad’s son into the directorial board of Tongkah Holdings Berhad. Now don’t get me wrong – I’m not suggesting that the coming of Dato’ Mokhzani Mahathir into Tongkah was planned to coincide with all these events. I’m just saying.
In the many interviews Mahathir gave since he passed over the reins of government to Tun Abdullah Haji Ahmad Badawi, the former premier categorically denied ever having abused his position in office to help any of his family members amass fortunes befitting those of princes. Yes, Dato’ Mokhzani Mahathir was recently listed on the Forbes 50 richest list as the 28th richest man in Malaysia, and Mahathir says he had nothing to do with it.
He lied.
All evidence seems to point the other way. It’s amazing when one wonders how Mokhzani was able to stamp his mark on the corporate walk of fame almost as soon as he walked out of the University of Tusla in Oklahoma with a Bachelor’s degree in Petroleum Engineering. Isn’t it strange, that in just two years after earning a basic degree, Mokhzani was able to meander his way into a dominating position within a group heavily vested in nominee and trustee related services for beneficial owners of stocks, shares and other securities?
Just ask Tan Sri Vincent Tan, Tan Sri Ananda Krishnan, or any of the foremost capitalists who associated themselves one way or the other with Mahathir back in the eighties and nineties and even in 2015 and earlier this year. I’m sure they’ll tell you how Mokhzani’s jetting to the tier one rank within corporate circles stood nothing short of enigmatic. Despite Mahathir claiming never to have donned his ringgit-laden coattails for Mokhzani to latch on, the latter’s ushering in as Managing Director of Tongkah told a very different tale.
The seat Mokhzani held in Tongkah eventually unlocked a door through which the then Prime Minister’s son acquired an indirect stake in the much sought after PhileoAllied Bank (previously known as Allied Bank). Back then, the bank, owned by Phileo Allied, was considered a dynamic and technologically innovative concern with very promising prospects. Mokhzani’s flirt with the banking industry was cemented through this venture, made possible through cross-holdings that existed between Tongkah and a healthcare concern, Pantai Holdings Berhad, which Mokhzani personally had a huge stake in.
Imagine, at the age of 35, Mokhzani became known as a “well-positioned major-league player” in the banking industry virtually overnight through what many a banker now regards as the “greatest banking coup” ever contrived in Malaysian history.
Thanks to an eleventh-hour manoeuvre by his father, Mokhzani built a cash-rich shell company in no time at all. And that’s what this article is all about. Today, we’re going to find out why Mahathir was dishonest when he denied ever having abused his position in office to push any of his sons towards corporate stardom and elitism, so to speak.
The lead up to the greatest coup in Malaysian banking history
To begin, let us do a brief on what has already been detailed in existing literature. According to the accounts of Edmund Terence Gomez in the book Corruption and Good Governance in Asia (Google link below), both Tongkah and Pantai jointly owned a 28 percent stake in the public-listed Phileo Land, a company that later came to be known as Avenue Assets. Just to note, everything that pertains to this article is centred on Phileo Land, which we will henceforth refer to as Avenue Assets, simply to avoid confusion.
Other accounts – including those from very reliable sources – reveal how Mokhzani was convinced by Mahathir and Daim that PhileoAllied Bank was a cash-cow. It is said that the eventual acquisition of shares in Avenue Assets and Tongkah by Pantai afforded Mokhzani a domineering role in the bank, owing to the fact that Avenue Assets was the single largest shareholder in Phileo Allied, the owner of the bank, at 20 percent.
Several reports that were hardly ever circulated detailed the exact manner in which these acquisitions had taken place. An inspection of the reports (one of which is included in the links I have provided below this article), made available by a source, indicates that the acquisitions were conducted in an extremely hurried and hush-hush manner.
According to the reports, Hospital Pantai had an ownership that was split between Tongkah and Mokhzani at a stockholding ratio of 21:35.5. Here itself, you can already guess the kind of role Mokhzani played in sale and purchase agreements that jointly involved Tongkah and Pantai.
To further consolidate this position, Mokhzani got the cash-rich Pantai to collect substantial stakes in Avenue Assets and Tongkah Holdings since August of 1997 – a month after the Thai Baht got devalued and triggered a regional financial crisis. Pantai began by collecting from Tongkah 16.4 million shares on the 29th of August at RM4.64 per share and another 3.6 million shares between the 5th of September and the 26th of November at RM1.60 – RM4.39 per share.
The purchases represented a 12.2 percent increase from Pantai’s initial block of 2.2 percent in Tongkah prior to the 29th of August. The cost of amassing the 14.7 percent stake in Tongkah came to RM87.4 million.
Thereafter, Pantai got to work on Avenue Assets and began purchasing 5.5 million of the company’s shares from the 12th of September to the 17th of November the same year. Not only was the purchase of shares from Avenue Assets coincidental with those from Tongkah, the whole affair was shrouded in extreme secrecy.
The estimated price of the new purchases by Pantai was between RM5.07 to RM7.49 per share. That nudged Pantai’s overall stake in Avenue Assets to 18.6 percent from the 14.7 percent that was amassed since September. Only later did Pantai come out to admit that it had begun nibbling on Avenue Asset since mid-August in 1997.
In short, and to sum up, as of the 18th of November 1997, Pantai had successfully accumulated an 18.6 percent stake in Avenue Assets at an estimated cost of RM190 million, cash. It was a deal that is believed to have been negotiated through the kitchen door between Mahathir, Daim and Mokhzani long before the financial crisis hit the region.
Incidentally, the purchases of shares from Tongkah by Pantai created the so-called cross-holding that I had mentioned earlier, with Mokhzani Mahathir listed as the common denominator, or shareholder. Ironically, Pantai did not declare the purchases – done in the open market – until early in December that year, way beyond the two-week disclosure requirement.
As a matter of fact, there is a very specific reason why the purchases were made to coincide with the onset of the Asian financial Crisis. But I’ll come to that in some other article at a later date. To go into it here would only stretch this article longer than it already is.
One thing that remains uncertain to this day is if Bank Negara (BNM) had acquiesced to Pantai’s purchase of stakes in Avenue Assets, which in turn, had an estimated 20 percent stake in Phileo Allied, the owner of PhileoAllied Bank. As you can see, Phileo Allied was heavily vested in the business of banking and securities. What business did Pantai have in banking concerns?
But then, when you think of it, these purchases came under the scrutiny of Tun Daim Zainuddin, who was then holding the Ministry of Finance portfolio. A source in the know seems to think that the purchases were carried out at Daim’s behest by virtue of an agreement the latter had with Mahathir.
It gets weirder when one realises that Avenue Assets had initially offered its 20 percent stake in Phileo Allied to minority shareholders in July of 1987 on a 1 for 3 basis at RM4 each, a discount to the market price of RM4.54. The offer was ‘suddenly’ differed in October “until further notice,” around the time Pantai was secretly snapping up the shares of Avenue Assets in the open market.
Mahathir’s and Mokhzani’s corporate acrobatics
A little over a year later, in 1998, PhilioAllied Bank acquired the assets and liabilities of PhileoAllied Finance – a subsidiary of the Phileo Allied Group – to integrate it with the bank’s books and operations. This, again, is believed to be an undertaking that was jointly planned by Daim and Mokhzani, although, I can’t be certain of it.
Under the terms of a secret pact both Mahathir and Daim entered into long before the Asian Financial Crisis, PhileoAllied was to be assigned to Multi-Purpose Bank (MPB), Daim’s onetime business concern, under a consolidation scheme that Daim himself floated behind closed doors in 1994 or sometime thereabouts. The consolidation plan was engineered by Daim on the pretext of strengthening the domestic banking sector. Some sources believe that Daim only sought to consolidate his presence and influence in the banking sector, and that Mahathir had known about it.
In line with terms of the pact, the shrewd and cunning Daim quickly got his associates to snap up controlling stakes in the Multi-Purpose Holdings (MPHB) Group soon after Dato’ Seri Anwar Ibrahim was sacked from government. Mahathir kept his end of the bargain and reaffirmed that Multi-Purpose Bank would be granted anchor status in the consolidation exercise.
However, in a shocking turn of events even the shrewd Daim did not foresee, Mahathir got the Malayan Banking (Maybank) group to offer Avenue Assets a share swap deal to gain control of PhilioAllied Bank. Just so that you know, Maybank came under the purview of the national trust agency, Permodalan Nasional Berhad (PNB), which fell under Mahathir’s jurisdiction by virtue of his position as the head of government.
The proposed swap deal was part of a revised consolidation scheme and did not come without its fair share of theatrics. Avenue Assets, which as we know, was under Mokhzani’s firm control, announced that it couldn’t support the 1.2 billion ringgit merger plan by Maybank, which it claimed had undervalued the company’s investment in Phileo Allied. This raised many eyebrows, considering that the person who triggered the bid was Mahathir, while the one doing the complaining was his son.
Interesting, is it not?
Many began to accuse the father and son team of performing corporate acrobatics to justify the eventual 1.3 billion ringgit cash deal that Maybank offered for PhileoAllied Bank’s equity. With the deal, PhileoAllied became a cash-rich shell company almost overnight, paving the way for Mokhzani to rake in a large portion of the proceeds without fear or favour. Daim was inconsolable, incensed that Mahathir had breached the terms of an unholy pact the duo had entered into long before the Asian Financial Crisis, the one I spoke of earlier. But we’ll discuss what happened thereafter at a later date.
Before I end, there is one other thing – prior to the merger, there was a frenzied buying of shares to increase the bank’s capital base, which was quite the norm in Malaysian politics during Mahathir’s era. Following the purchase by Maybank, the shareholding was distributed to Public Nominees (15 percent), CIMB Nominees (10 percent), foreign investors (10 percent), Avenue Assets (18 percent), Ahmad Abdullah (13 percent) and EPF (4 percent).
And that more or less wraps up the very exciting yet enigmatic tale of how Mokhzani and his father may have performed the biggest coup ever in Malaysian banking history in what many believe was a conscious attempt by the duo to stock Phileo Allied’s vaults, perhaps even their own, with the proceeds from the merger.
Of course, reading this, die hard Mahathir supporters will swear heaven and earth that all of Mahathir’s sons had thrown their own dices in the business sector. They will insist that Mokhzani had come up on his own accord, that his father had never bent the rules for him. Like I said at the beginning of this article, the former premier has categorically denied ever having abused his position in government to assist his family in any way.
Read this article guys, and tell me, did Mokhzani not rise up the corporate rungs with the help of his father? Did Mahathir not abuse his position as Prime Minister to deliver an unfair advantage to Mokhzani? And the biggest question that begs to be answered is this – were both father and son complicit in twisting the arms of banking bigwigs to siphon wealth through the sale and purchase of PhileoAllied Bank?
I’m not saying.
And all I’ve done here is to scrape the tip of a very large iceberg that floats amid a sea of other icebergs filled with conspiracies that trace to the very enigmatic yet cryptic Mahathirian circle. The only reason I’m going to put my pen down here is because this article has gotten too long.
Stick around guys. Tomorrow, I will tell you why Mahathir is contemplating calling it quits. He told his associates that he may call it a day.
Important links to follow:
Chapter by Edmund Terence Gomez:
The Rise of the Corporate Economy in Southeast Asia:
Wall Street Journal Article 1:
http://www.wsj.com/articles/SB988561380805012670?mg=id-wsj&mg=id-wsj
Wall Street Journal Article 2:
www.wsj.com/articles/SB963772492805741575
Capitalcorp Investment Weekly Report: Capitalcorp Investment Weekly Report
