The government has to take over United Engineers (Malaysia) Bhd (UEM) as no other interested party in the corporate sector would rescue the debt-ridden construction company, the parliament was told today.

According to Hashim Ismail, parliamentary secretary to the Finance Ministry, former UEM vice-chairperson Halim Saad's debt of about RM20 billion would be pursued by Syarikat Danasaham, a special purpose vehicle set up by government's financial arm Khazanah Nasional, after it takes over UEM via a voluntary general offer.

Khazanah Nasional is involved because it has the financial means to take over UEM effectively and restructure the high-profile construction company to prop up its real value, Hashim added.

He said undervalued stock price and problems relating to corporate governance were the reasons that prompted the government to take over UEM.

Hashim also explained that UEM's poor corporate governance has deterred foreign investors from returning to the Kuala Lumpur Stock Exchange (KLSE).

"Most investment analysts said foreign investments will return to KLSE if Khazanah succeeds in the takeover," he said.

Fair and equitable

Hashim was speaking in the Dewan Rakyat after winding up the debate on the Supplementary Supply Bill 2001.

On July 23, the government announced a RM4 billion takeover bid on UEM, a subsidiary of Malaysia's most indebted conglomerate Renong Bhd - the first step in taking control of the entire debt-ridden group.

Hashim added that the takeover of UEM by Khazanah Nasional at the offer price of RM4.50 per share was fair and equitable as this was a premium over the last traded price of UEM on the KLSE.

Hashim defended the move, saying that the UEM stock price has increased since the takeover was announced.

"UEM's stock price is about RM4 now. Before Khazanah took over, it was lower at RM2 to RM3 per share," he said, adding that the true value of UEM shares is between RM5 and RM8 per share.

Renong, once the investment arm for Prime Minister Dr Mahathir Mohamad's ruling party Umno, has some RM13 billion in outstanding group debt.

It has interests in banks, toll roads, oil and gas fields and real estate. Its massive debt burden has been a major deterrent to Malaysia's efforts to attract foreign investors into the stock market.