Sept 1981 – The Dawn Raid

A modern world story of David and Goliath


By Leela Barrock

There is something about Kumpulan Guthrie Bhd that strikes a cord with the underdog — though it is not quite clear why. Guthrie was, after all, never an underdog, it was instead, once upon a time, a market favourite. Neither was Guthrie ever a small player, it was always big. And Guthrie was always within the sights of the powers-that-be as a favoured son with great things intended for it.

But on the eve of its erasure from listed territory into the annals of history, it feels like Guthrie has played a valiant Daniel, but lost to a Lion with sharper teeth and a bigger balance sheet. Strangely, it now also feels like Guthrie was the little engine that could — but then again nobody could call it little and, Guthrie has proved many times that it couldn’t. And it seems to have the wounded feel of a Grand Olde Dame replaced by a buxom starlet — but though Guthrie was once a stock market darling, there are very good reasons why the market fell out of love with it and sought others.

So what is it about Guthrie that makes us feel like we are saying goodbye to an era, an epoch maybe, more than a company incorporated for profit?

The Guthrie story started almost 200 years ago, in 1821, when a Scotsman called Alexander Guthrie founded and lent his name to the company, Guthrie & Co.

Alexander Guthrie landed in Singapore from the Cape of Good Hope and established the Guthrie agency house, the first British trading company in Southeast Asia, granted a licence by the British East India Company. Guthrie was among the first to extend two-way trade between Europe and Southeast Asia. Imports then included cloth, brandy and sherry while exports included spices, minerals and raw rubber. And there was set the foundations for Guthrie to become one of the largest import/export and rubber-producing businesses.

In 1896, Guthrie took root in Malaya with rubber cultivation, as one of the pioneers who brought the Amazonian native here. Even as rubber cultivation took off in a big way, another foreigner, this time the oil palm, was brought over to the British colonies. Guthrie introduced oil palm to Malaya in 1924.

The company grew from strength to strength and, in 1965, was listed on the London Stock Exchange as Guthrie Corp Ltd.

In post-1969 Malaysia, the government embarked on a massive affirmative action policy aimed at eradicating poverty and reducing social inequity. This wave of post-independence pro-Malay paternalism also saw an increasing awareness of what were essentially Malaysian assets but owned and run by westerners.

In 1978, national unit trust agency Permodalan Nasional Bhd was set up. A year later, another government agency, Pernas, undertook the first dawn raid to bring home Sime Darby Bhd.

Two years later, it was Guthrie’s turn. This time it was a move from PNB, then headed by Tun Ismail Ali, aided rather ably by a young analyst called Khalid Ibrahim (now Tan Sri).

The Dawn Raid story as Khalid told The Edge:

“The toughest thing you have to do when you decide to raid is to pick the right stockbroker. We chose Rowe & Pitman. They had to have at least 30 or 40 of their staff at the time we were going to market, call all the prospective sellers of Guthrie shares to secure their acceptance.”

The worry at the time was that if the news leaked, Guthrie’s share price would have gone up. It had been decided that the offer price would be £2. “So, our challenge was not to tell these people anything.”

It took Khalid and his team four months to get everything in place.

On Sept 7 1981, 4pm Malaysian time or 9am London time, the raid began.

Under London’s rules, a raider was given 30 minutes to acquire 5% of its target’s shares and then make the relevant announcement. The faster the 5% is secured, the better.

“While we were acquiring the 5% in London, Tun and I were here. On Sept 7, Tun flew to Singapore to secure a block held by OCBC,” Khalid says.

There was no tacit agreement with the Singaporeans unlike with other friendly shareholders.

“In order for Tun to broach the subject with the OCBC owners, he had to wait till 3.30pm. We timed it. By 3.45pm, he had to get their acceptance, then make the call (to Rowe & Pittman). By 3.45, we had to tell the brokers that these are the people, these are the prices, so execute. So, Tun had a late lunch!”

Meanwhile, Khalid stayed behind in Kuala Lumpur to secure the stakes from other identified “friendly” shareholders. “I got confirmation from Bank Simpanan Nasional, Genting group… And also I had to get confirmation from Kuwait.”

Kuwait came in readily, so did the other Malaysian parties. But there was a hiccup.

“I was stationed at the MIDF building. Bank Simpanan was at Jalan Ampang. They were supposed to bring the acceptance (notice) to me at MIDF but… you know what happened? There was a traffic jam!”

Khalid needed the acceptance from Bank Simpanan by 3pm but could not leave MIDF because he was needed by the phone. “You know what Tun did? He told Aziz Taha (then governor of BNM), you get out of Bank Negara and you get it and go to Khalid! And Aziz Taha did!”

Once the acceptance was in, Khalid had about 30% acceptance in his hand.

Meanwhile, Rothschild had secured the support of other British shareholders.

“Then we said, GO! The market came in and we announced that we had 45%. And we said, we are proceeding.”

Tun Ismail was unable to secure OCBC’s support.

“Tun called me and asked, ‘Khalid, how have you done?’. I said, ‘I have already executed. There is no turning back’.”

By the end of the trading day, PNB had secured 47% of Guthrie. In less than a week, they had 51%, and within three months had taken over the whole company.

Once Guthrie was brought back, the other foreign-owned plantations fell in line. Harrisons & Crossfields negotiated to sell the Malaysian assets to PNB two years after the raid on Guthrie and Golden Hope Plantations Bhd was born (see next story).

For Khalid however, there was another coup waiting. “When we got Guthrie back, we did the housekeeping and sold the British business back. And we got more than what we invested. This was two years later. So, we literally got Guthrie for free.”

After the Raid

After the raid, Guthrie went through a reorganisation and expansion exercise that saw it increasing its land bank. Guthrie was listed on the Kuala Lumpur Stock Exchange (now renamed Bursa Malaysia Securities Berhad) on Aug 25, 1989, following an offer for sale by PNB of 100 million ordinary shares of RM1 each, representing 10% of the issued and paid-up share capital of the company. The offer price was RM2.10 per share.

The reorganising continued and in 1994, Guthrie was neatly divided into plantations and property businesses. That was the year Guthrie started selling bungalow lots in Bukit Jelutong. And that was the year Khalid left PNB to helm Guthrie.

Khalid was offered an option to take up 5% of Guthrie, or 50 million shares, at RM2.50 per share. The market price for Guthrie shares was then RM2.96. He was given a further option to take up another 15% in Guthrie within three years. He was appointed Guthrie’s group chief executive, after stepping down as PNB CEO, a position he took for “sentimental and professional reasons”, as he told pressmen then.

It was openly discussed then that Khalid would eventually lead an MBO of Guthrie and nobody doubted for a moment that he would. He never did though. Perhaps Khalid was distracted by his expansion strategy — into Indonesia just as the crisis ended and the country was shedding its military dictator-past.

In 1999, Guthrie announced that it was buying 234,000ha of plantation land in Indonesia for RM1.38 billion. While crude palm oil prices were riding high in 1999, the market knew that the good times had rolled long enough and that a decline in the CPO cycle was imminent. The deal was signed in 2000, but by Feb 16, 2001, CPO prices fell to a low of RM662.50 per tonne. That year, Guthrie issued RM1.5 billion worth of US dollar-denominated sukuk bonds to finance the deal.

(This all transpired before the advent of biodiesel when non-traditional uses for palm oil had not yet been conceived.) Worse, at the time, Indonesia was tottering under the weight of political and economic strife.

It appears that it was not just Khalid’s timing that was suspect. Lore from the ground says that Khalid was not given an honest picture of just what he was buying and thus Guthrie paid too much for the estates.

Guthrie then put a brave face on things and the official stand was, it hoped to concentrate its plantations activities in Indonesia, where cost is lower, and sell off some of its Malaysian operations.

Saddled with the Indonesian debts and far from sterling operations in Malaysia, Guthrie fell from grace fast and hard. Analysts ceased coverage of the stock, fund managers removed it from their radar.

Khalid worked hard behind the scenes, along with a group of staff who remain loyal to him to this day. By 2001, word had spread that the government was looking at removing Khalid.

He hung on and came up with plans on how to turn the operations around. But in late 2003, Khalid learnt that his board had decided not to renew his contract. And there ended an era.

Khalid was replaced by Datuk Abdul Wahab Maskan in January 2004, an old PNB stalwart who had headed another PNB company, Golden Hope Plantations Bhd. Wahab was tasked with turning the company around operationally, dealing with the debt burden and renewing Guthrie’s relationship with the investment community.

It did not look like he was getting very far when, after a briefing last year, analysts and fund managers came away unimpressed.

But it was fairly obvious that something was brewing within the PNB stable as Guthrie’s share price became surprisingly buoyant and remained so for months. There was talk of reorganising the PNB stable and Guthrie was definitely fingered for a possible seismic shift of some sort. By then Indonesia was doing a whole lot better than it had right after the acquisition — but it was still performing short of expectations.

In November 2006, Synergy Drive Sdn Bhd made its offer to acquire all the assets and liabilities of Guthrie and its subsidiaries. Synergy Drive was also going to buy up Sime Darby group’s and Golden Hope’s assets and liabilities as well.

For those who had followed the Guthrie saga over the years, the news was not unexpected. It, however, took time before realisation seeped in that this old planter would soon be relinquished to the history books.

Guthrie had become, for a time, the symbol of Malaysian determination to own its own assets even if it required raiding a foreign stock exchange. It represented the hopes and aspirations of a young nation. It stood for something more than what it was — as did the man who helmed Guthrie for nine years. For 186 years, Guthrie was part of the Malaysia story, and for nine of them, Khalid was its face.

Last Wednesday, Guthrie was traded for the last time on Bursa Malaysia. It closed at RM7.10.

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