Malaysia's Dawn Raid On London

On the 7th of September 1981, the London stock exchange was taken by surprise when hugely successful British-owned Guthrie plantation company was taken over by the Malaysian government. What came as a bolt from the blue was the fact that the company fell into the hands of the Malaysian government just within four hours under the leadership of then Prime Minister Dr . Mahathir Muhammad who had only assumed the post for a couple of months.

The issue of Guthrie being British-owned even after independence stemmed following the company's continuous rejections of the Malaysian government's efforts in replanting rubber trees to help small time Malay farmers and cooperating with workers unions that the British considered troublesome.  British companies in general kept delaying meeting with the Malaysian government representatives in their effort to work together to find a resolution for this matter. 

However, following the pressure imposed on them by the Central Bank of Malaysia, the people at Guthrie finally set up Guthrie-Ropel,  a subsidiary of Guthrie which owned about 17% of the total land area in Malaysia that was owned by Guthrie. This allowed locals to acquire a small piece of land owned by Guthrie through the Kuala Lumpur Stock Exchange. However, it was later discovered that most of the land that belonged to Guthrie - Ropel was unsuitable for agriculture and they were mostly located on the hills of Malaysia.

When Mahathir came into office in 1981, he was seen as being rather different from his three predecessors. For starters, he does not smoke, nor does he enjoy playing golf, a sport considered posh by most Malaysians. He is also not of blue blood, nor did he attend a British university. Apart from that, he does not have many British friends, and based on the articles he wrote in the papers, is not really pro-British. This would later prove to be true to a certain extent with his Buy British Last and Look East policies. He was also temporarily banned from his party following alleged seditious remarks on the May 13th Tragedy, but was readmitted three years later. 

Before the famous, or infamous depending on how you see it, Dawn Raid on London, the British government not only stopped subsidizing the education of Malaysian students in the United Kingdom, they also increased the tuition fees for foreign students. This new ruling was only limited to students from certain countries like Malaysia, while foreign students from other European countries were not effected.

This move was a big blow to the nearly 17,000 Malaysian students studying in the UK who were now burdened with the increased tuition fees which in some cases were threefold the original price. Many Malaysians, maybe Dr. Mahathir included, saw this as being unfair since Malaysia had one of the largest number of foreign students studying in the UK at that time. Malaysia also could not afford to educate these students at the time since there were only two universities operating in the country back then. Dr. Mahathir, who was then the Minister of Commerce during this change warned that increasing the fees for Malaysian students would harm Britain in the long run . However, his warning went unheard.

Soon, things got from bad to worse when the UK refused Malaysia's proposal for additional landing rights for the national carrier, Malaysia Airlines at Heathrow. However, at around the same time, a British supersonic Concorde aircraft invaded Malaysia's international airspace in Subang on its way to Singapore.

Dr. Mahathir was not the only Malaysian public figure who was deeply offended by the British's recent actions. His brother-in-law and governor of the Central Bank at the time, Datuk Ismail Ali also shared his views. He was behind the pressuring of Guthrie to set up Guthrie-Ropel. Upon assuming the position of governor of the Central Bank, Datuk Ismail displayed an unfriendly attitude towards the British. Mark Gent, the chairman of Guthrie back then said he and the director of Guthrie, Eric Griffith- Jones were made to wait outside his office for nearly half an hour before every meeting they had.

When Datuk Ismail became the governor, the nation's money which was deposited in British banks such as HSBC and Chartered were transferred to local banks. Foreign banks, in particular British banks, were also no longer given the opportunity to open up branches in Malaysia. Most of Guthrie's assests where sold to MPH, a company co-owned by wealthy Chinese tycoons in Malaysia in 1981. This decision, similar to most made by Guthrie, was not done by consulting the Malaysian government while in fact, PNB, a government agency owned 25 % of Guthrie's shares. The majority poor Malays had no chance for equal opportunity in this area.

For these reasons, Dr. Mahathir and Ismail decided that Guthrie must be taken over as soon as possible .

A year before becoming Prime Minister, Dr. Mahathir and Tengku Razaleigh Hamzah, who were Minister of Trade  and the Finance Minister respectively were informed by Datuk Ismail Ali that he planed to take the British by surprise with the acquisition of one of their largest companies.

Four months before the Dawn Raid, the Malaysian government agency led by an investment manager named Khalid Ibrahim was given the special task to examine and develop strategies to ensure everything ran smoothly during the Raid.

Khalid, who had worked at Barings London, the firm which was one of a Guthrie's financial advisers, along with Malaysian investment experts and advisers from the merchant bank NM Rothschild & Sons Ltd. were asked to study whether Guthrie can be acquired. If it was possible, they were directed to formulate detailed strategies on how it could be done .

From their intensive study, the team discovered a flaw in the London Stock Exchange Act that can be exploited. With this vulnerability, an ambush to acquire Guthrie could be carried out. The condition was it had to be carried out as quickly and as covertly as possible, so much so that the British cannot detect it and stop it.

With Dr. Mahatir's consent, a capital acquisition worth 282 million pounds was taken from threedifferent sources - Petronas, Pernas and a new trust scheme offered to the Malaysian natives four months before the attack - the Amanah Saham Nasional (ASN ). To ensure that the British would not realize that the government of another country was behind this acquisition, Khalid was advised by Rothschilds to open a bank account in Switzerland for the payment of the shares.

Of all the British-owned companies owning large properties in Malaysia, Guthrie was targeted because other non-British investors owned shares in Guthrie; investors who were friendly with the folks at the government agency in charge of the Raid. Among the companies were Genting, Bank Simpanan Nasional , the Kuwait Investment Office and OCBC.

With the existing holdings amounting to 25 %, the government agency only needed to acquire another 15 % more for a total stake of 40 % of shares , making it a major shareholder of Guthrie.

For this, Rothschild was appointed to buy shares in Guthrie from large investors on behalf of the government agency, while Rowe & Pittman was appointed as the broker to buy shares in Guthrie from small investors .

The idea here is that most of the shares in Guthrie in Malaysia and London would be purchased simultaneously before the Stock Exchange was even opened, and it must be taken without being noticed by the management of Guthrie themselves.

To ensure the success of this covert raid, only a small group of planners who participated directly in the 'attack' was briefed on its details. It was later revealed that even Mohammad Desa Pachi, the chief executive of the government agency responsible for the Dawn Raid back then was not informed in detail on how the operation would be executed .

The day of the Raid - September 7, 9am London time (4 pm Malaysian time) .

According to the plan, all involved will get the approval of sellers before the the Stock Exchange opens . When it opens, the government agency will announce this groundbreaking news to the world and manage documentation only - as a surprise to Guthrie and other shareholders .

The complication lies in ensuring that the purchase is done covertly. This is because if the Raid is exposed too early, the stock price will soar and Guthrie's  management will respond to derail this ambush.

In Malaysia, Khalid who was given the task of managing purchases locally was optimistic that the Bank Simpanan Nasional, Genting and Kuwait Investment Group will accept the government agency's offer because all three were considered "friendly" to the Malaysian government.

Meanwhile that afternoon, Ismail rushed to Singapore on that day to meet the chairman of OCBC. His plan was to convince OCBC to accept the offer to buy shares in Guthrie owned by the bank at 3:30 pm, and then send a notice of receipt at 3:45 pm.

In London, it is still morning. Rowe & Pittman and Rothschilds were awaiting the green light from Malaysia to buy the shares from investors of Guthrie in the UK.

While in Singapore, Ismail and OCBC chairman Tan Chin Tuan discuss the purchase of shares in Guthrie over lunch. The discussion took a long time and ended with devastating news -  OCBC rejected the Malaysian's offer.

Khalid Ismail phoned in to inform everyone of the bad news. However, since Khalid was already able to buy shares from Kuwait, Bank Simpanan Nasional and Genting , they have no other way but to go on the offensive .

In London, the moment they received the green light, the two firms hired by the Malaysians started the purchasing process as quickly as possible. Rothschild managed to persuade M & G Investment Trust, a British trust company which owned 17 % of Guthrie, to sell 11 % of its shares in Guthrie to the Malaysians.

The brokers at Rowe & Pittman were assigned to buy shares from British small investors bought 5% of shares once owned by the British people.

Even without OCBC, in four hours time, the Malaysian government agency managed to acquire 8 million shares, or 50.41 % of the company without the knowledge or consent of the management of Guthrie .

By late afternoon London time , Guthrie had fallen into the hands of Malaysia .

Guthrie chairman,  Mark Gent only realized that that company was now owned by Malaysia after hearing about it on the news on the radio.

The sudden acquisition of a British-owned company through exploitation of the London Stock Exchange's system by one of their own former colonies was said to have caused great embarrassment to the British government. British Prime Minister Margaret Thatcher only found out about this a few days later. It was only natural that the Thatcher government responded immediately by tightening the rules at the exchange to prevent a recurrence of similar takeover by a foreign power of other major British-owned companies such as Dunlop.

While some brokers in London praised the transaction and even described it as being"cunning ", the British media mostly slammed the attack by calling it a " backdoor nationalization ".

Only a month later, Dr. Mahathir announced the boycott on British goods and services through the 'Buy British Last' campaign. This was Dr. Mahathir's response to the tin corner scandal of which the United Kingdom played a major role in. This scandal caused Malaysia's major export at that time to fall sharply in the world market. As a result, Dr. Mahathir ensured that all government contracts with the British to be frozen.

Dr. Mahathir's actions had a big impact on the British's businesses in Malaysia at the time and in the future. A Dunlop contract which was to supply tires to the government since 1963 was instead given to an American company, causing Dunlop to sell its assets to the Chinese Malaysian company, MPH .

Within three months, all the shares of Guthrie were slowly sold to the Malaysian government agency. At the end of 1981, 100% of Guthrie was fully owned by locals.

Ismail eventually took over the management of Guthrie and transfered its operational headquarters from London to Kuala Lumpur to mark the end of British control over the company. Shortly after the Dawn Raid, Mahathir boycotted the Conference of Commonwealth of Nations led by Britain. According to him , the meeting was another one to meet the white man's interests and not those of his former colonies. 

Dawn Raid had a large impact on many levels in the long run. For one, British firms in Malaysia which were previously said to have paid little attention to what the Malaysian government had to say started to become more open to negotiating new terms. 

Also, not long after the Malaysian takeover of Guthrie, the other three great British plantation companies operating in Malaysia - Highlands & Lowlands,  Barlows and Harrisons & Crosfield (H&C) finally sold their interests in Malaysia to the government agency. As a result, the land owned by Guthrie other former British-owned companies in Malaysia were taken over by Malaysians.

Since companies like H&C had rubber estates, palm oil plantations and other assets not only in Malaysia but in other countries such as India, New Zealand and China, the Malaysian government agency also become the new landlord to former British-owned assets around the world .Khalid would later on say that the profits gained from all these new assets exceed the cost used to finance Dawn Raid. He was quoted as mentioning something like "... we actually got Guthrie for free."

On February of 1982, After five months following the implementation of the 'Buy British Last' campaign, the United Kingdom sent its Foreign Secretary, Lord Carrington along with its Defense Minister, John Notts to Kuala Lumpur to negotiate but it was not fruitful. This forced the British Prime Minister, Margaret Thatcher herself to meet Dr. Mahathir to end the 'Buy British Last' campaign and solve the CHOGM issue. 

Following a meeting that was held in London in 1983 by Mrs. Thatcher, a few resolutions were made. One of it was that the British government would offer several financial aids amounting to 160 million pounds to subsidize Malaysian students furthering their studies in the UK. Also, Malaysia Airlines would be given added landing rights in Heathrow.