KUALA LUMPUR - Malaysia's bailout of beleaguered carmaker Proton has turned the spotlight on its main shareholder, politically well-connected tycoon Syed Mokhtar Albukhary.
The reclusive businessman controls one of Malaysia's most diversified conglomerates, including ports, power plants, rice distribution, logistics, transportation, infrastructure development and even the national postal service.
But this impressive build-up of assets in the last two decades has been fuelled by debt. The combined long-term borrowings in his listed and privately held entities are estimated at RM34 billion (S$11.2 billion).
This makes Tan Sri Syed Mokhtar's corporate group one of the most heavily indebted private entities in Malaysia and on a par with scandal-plagued 1Malaysia Development Berhad, which at its peak was saddled with RM42 billion in debt.
The debts have bankers and investors worried over the potential stresses that big conglomerates, such as Mr Syed Mokhtar's, could have on the banking system, particularly at a time when Malaysia's economy is showing signs of weakness following the sharp fall in global commodity prices.
There is broad agreement among economists and bankers that the Malaysian banking system is in better financial shape today than during the regional economic crisis that began in mid-1997.
But there are potential trouble spots and several financial executives see the recent bailout of Proton as acknowledgement by the government of the deepening woes at the tycoon's group.
Mr Syed Mokhtar, 64, was born to a family of tradesmen with roots in Bokhara in present-day Uzekistan. An assiduous networker, he started business by forging links with Malaysia's political elite and in the aftermath of the mid-1997 financial crisis emerged as the government's partner of choice.
He is is the only surviving poster boy of the many ethnic Malay businessmen groomed by the government from the Mahathir era.
His businesses include strategic ports around Peninsular Malaysia which are grouped under publicly listed MMC Corp, independent power plants through recently listed Malakoff Berhad, and concerns involved in rice and sugar processing and plantations that form the core of Tradewinds Berhad. His group also has extensive interests in property development and hotels, auto assembly and distribution and infrastructure development.
Under the deal struck last week, the Najib administration has agreed to inject RM1.25 billion by subscribing to new preference shares in the carmaker, a wholly owned subsidiary of Mr Syed Mokhtar's flagship corporate vehicle DRB-Hicom group.
Should Proton fail to repay the soft loan, the government will be able to convert the shares and wrest control of Proton.
The carmaker has bled more than RM2.5 billion since it was taken over by DRB-Hicom four years ago, due to slumping sales, weak cash flows and the high inventory levels of unsold cars. "From a purely market standpoint, there is no reason why a private company should be bailed out. But the government is clearly looking at the troubles Proton is causing for vendors and dealers that rely on the company," says Mr Jason Chong, chief investment officer at Manulife Asset Management Services in Kuala Lumpur.
The lanky, pale-complexioned businessman - Malaysia's eighth- richest man, according to Forbes - shuns the media and could not be reached for comment.
Senior executives in his stable of companies who spoke to The Straits Times on condition of anonymity dismissed the growing perception that Proton is being bailed out and the debt concerns swirling around the group.
Of the group's debt burden, a senior executive of DRB-Hicom acknowledges that the "absolute numbers do look huge" but he says the debt levels are manageable.
"Many of our businesses require huge capital outlays and our infrastructure projects are largely project-finance debts that are ring-fenced by cash flows," he says.
A senior executive of a state-controlled commercial bank with exposure to Mr Syed Mokhtar's businesses concurs. "Compared to a decade ago, he is in a far better situation and we are comfortable as lenders to the group," says the banker.
Still, concerns over the businessman's debt burden persist for a number of reasons.
For starters, Mr Syed Mokhtar is widely seen as a product of the corporate patronage system that featured the intertwining of business and politics. Politically well-connected businessmen were favoured in the award of lucrative contracts and long-term concessions, such as toll roads and the right to operate independent power plants.
But this economic model is packed with spectacular failures and often involved public bailouts to protect the banking system, such as the takeovers of Malaysia Airlines and the controversial Port Klang Free Trade Zone that have gobbled billions of dollars in taxpayer funds.
There are fears that Mr Syed Mokhtar's group could face a similar fate should the Malaysian economy slip into a major recession.
The businessman's secretiveness adds to the reputational risk, say bankers and financial executives.
"He has the reputation of injecting his private businesses into his listed assets at the expense of minority shareholders and that is why his stocks don't have a strong following and trade at a discount," says a head of research of a bank-owned stockbroker.
Raising new capital is becoming a major challenge for his businesses as banks grow increasingly skittish about extending new loans to heavily indebted groups in a slowing economic environment.
"Our focus will be consolidation and streamlining our asset base to generate value over the next three years," says a chief executive of a diversified holding company in the Syed Mokhtar corporate empire.