He was alleged to have dishonestly authorised a payment for the sum to the account of Frilsham Enterprise Incorporated with the American Express Bank Limited, Hong Kong, for technical assistance provided by NKK Corporation Japan for the “Beam and Section Mill Plant project” in Gurun, Kedah, when in fact no such payment was due to NKK Corporation.
How the saga started?
Everything started when the former Malaysian premier Mahathir asked Eric, his close associate, to
take charge of the ailing industrial steel giant in 1988. Former Finance Minister Anwar Ibrahim once confirmed in parliament that the steelmaker had racked up debts of $975 million
under Chia’s stewardship. Unofficial numbers, based on figures reportedly derived from an earlier company audit, put the debt at closer to $2.3 billion, while oppositionists have claimed it may reach $3.9 billion.
The plant, located in the northeast state of Trengganu, had to depend on a largely untrained, strongly conservative workforce of Malays, who were not used to making steel. In Dec. 1986, after its first year in business, it ended up with a loss of $51 million.
At first, Eric Chia seemed to make headway with increased production and even one of the local press reported in 1993 that Perwaja’s Trengganu operations were so healthy that “it will produce one million tons in 1993 and it will have written off all its debts.” The company even expanded, with the opening of a second plant at Gurun, Kedah (Mahathir’s home state). But these good signs hid the fact that the company continued to suffer from operating problems, dubious contracts issued without any tendering, and lots of debt taken on to ride out of earlier difficulties and finance expansion. Much of the leverage came from Japanese banks and trading companies, and was denominated in powerful yen.
When pay back time arrived, there was no money to cover those investment loans since Perwaja, even with a protected home market, remained unable to turn a respectable profit. In fact, for the fiscal year ending in March 1995, the company reported a loss of $147 million. You can’t cover the dirty holes forever, the saying goes. So when the magnitude of the mess became apparent, the government stepped in. Eric Chia was sent packing, leaving behind not just a mountain of Malaysian and yen-denominated debt, but also evidence of an apparently fraudulent transaction.
Arrogance and Threat
Nobody seems to be surprise (are you?) with the outcome from the trial since the result already crafted on the stone since it’s heavily political-connected, not to mention the potential embarrassment to the government. Eric Chia once said “I will not talk unless I am forced to talk”. There were talks about the failure of the Perwaja Steel from the start, ranging from how the project should not be started at the first place due to insufficient know-how to the arrogance of Eric in running the company.
Malaysia-Today once reported how all the bankers in town were summoned to meet Eric and the guy just informed all the bankers that Perwaja needs a few hundred million Ringgit and that all of them were to all fork out the money. When one brave soul asked Eric Chia what he wanted the money for, Eric shouted at the guy “You want to know what I want the money for? Here, you phone the PM (Mahathir) yourself … if you have any questions or if you are not happy you can phone the PM”
A banker who attended the meeting said “Eric Chia said that all he knows is Perwaja needs a few hundred million Ringgit. He does not know or care how it is shared out. We can discuss amongst ourselves which bank is going to take up which portion of the amount. He will leave us for awhile to discuss this amongst ourselves. He then walked out of the room … But we knew it was going to be a one-way street. We would never see the money back. But what could we do about it?”
Are you surprise with how businesses are being transacted in Malaysia especially when it involves political-linked companies? Don’t, because if you do, chances are your business will fail miserable before it even starts. So, as foreign investors, you’ve to adapt to the world-class culture of doing business in the country.