Frankly Speaking:Sep 20-26, 2010

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A new chapter, a new resolveMalaysia and Singapore are finally set to firm up the long overdue Points of Agreement (PoA) this week. The PoA is the landmark agreement that Lee Kuan Yew, the former premier of Singapore, agreed on with Malaysia’s former finance minister Tun Daim Zainuddin on Nov 27, 1990, to resolve the long-standing issue of the redevelopment of Malayan Railways’ (KTMB) land in the island republic.
Although KTMB used to own some 500 acres in Singapore, and the PoA was signed some 12 years ago, nothing came of it until a few months ago. A few years ago, the Singapore authorities took back 100 acres without having to pay any compensation, leaving another 400 acres.

There was no compensation because technically, the land can only be used for railway purposes and can be taken back if the railway lines are not utilised.

Singapore was willing to settle the matter amicably, and Prime Minister Datuk Seri Najib Razak has hammered out an agreement under which Malaysia will exchange its remaining railway land in Singapore for some 200 acres. The land will be jointly developed, with Malaysia holding a 60% stake in the JV, and Singapore owning the rest.

More importantly, Malaysia has secured a commitment from Singapore to establish a rail transit system between both countries and for the republic to build an iconic project in Iskandar Malaysia in Johor. The rail link and the project augur well for Malaysia as it strives to position IDR as Shenzhen is to Hong kong.

Right from the start, it was said the agreement might not be politically popular for Najib. But it is necessary if both countries are to go forward and realise the development potential of the assets in land-scarce Singapore.

Now that the PoA is finally being firmed up, it will open a new chapter in Malaysia-Singapore ties. It will also raise questions as to how the various projects will be implemented.

Of particular interest will be the development of the land in Singapore. The practice in the island republic is to tender out all land development projects and to give the job to the best proposal. Will this also be adopted by the JV company mandated to develop the land? Will state-controlled investment arm Khazanah Nasional Bhd or the new kid on the block, 1Malaysia Development Bhd, be entrusted with it?

Which entity will get to develop the train systems? What about the financing required for the development of the land? While one issue is being resolved, several others have sprung up. It will be interesting to see how they are resolved.

Agusta sold for a nominal sum againRemember MV Agusta Motor Spa, the boutique Italian motorcycle company in which Proton Holdings Bhd acquired a controlling stake in 2004? It paid RM367.6 million for a 57.75% stake in December that year and sold it off the following year for a nominal ₤1.

Well, it’s back in the limelight. This time, US-based Harley Davidson Inc has sold MV Agusta — also for a nominal sum — back to its original owner, Claudio Castiglioni.

Proton had acquired the debt-laden MV Agusta from Cagiva group and later sold it to Gevi Spa, a special purpose vehicle controlled by an Italian finance and insurance company.

When the national carmaker sold MV Agusta for a pound, it came under fire from some quarters, including former prime minister Tun Dr Mahathir Mohamad.

In the hot seat was Proton’s former chairman Datuk Mohammed Azlan Hashim, who defended the sale.

One of the reasons cited for the purchase of MV Agusta — which was done before Azlan came on board — was to diversify Proton’s earnings stream. But that did not hold water, Azlan contended, as the Italian manufacturer had a string of losses and was the producer of a niche product.

The Proton management under Azlan took the stance that since it did not have a motorcycle manufacturing programme, MV Agusta was not a viable fit for the national car company.

More importantly, the management contended that MV Agusta needed more financial aid before it could be transformed, and if it were to go bankrupt, Proton would have been subject to a contingent liability of ₤202 million (RM920 million at that time, based on an exchange rate of RM4.57).

Now, Harley Davidson — which bought MV Agusta for US$109 million (RM338 million) in 2008 to expand its presence in Europe and subsequently forked out more money to revamp the Italian manufacturer’s product line — has made the same decision as Proton’s previous management.

If Harley Davidson, a world renowned motorcycle producer, was unable to capitalise on MV Augusta, what could Proton have done to turn it around without incurring massive cost?

More so when Proton already had Lotus International Group Ltd, the UK-based automotive engineering company that is also in need of financial support. 

In hindsight, the decision taken by the previous Proton management under Azlan seems to be the correct one.
This article appeared in Forum page, The Edge Malaysia, Issue 824, Sep 20-26, 2010