* Malaysian govt starts corruption crackdown
* Ex-leader of second largest govt party charged
* PKFZ bonds trade wide of sovereign despite guarantee
By Razak Ahmad
KUALA LUMPUR, July 29 Malaysia's government
charged a veteran ethnic Chinese politician with graft on
Thursday in a corruption case that has worried bondholders and
tarnished the country's investment image.
Ling Liong Sik, 66, is a former transport minister and led
the Malaysian Chinese Association (MCA), the second largest
party in the ruling coalition, for 17 years.
Ling was charged with two counts of corruption for his
involvement in a free trade zone at Malaysia's largest port,
Port Klang, whose cost has ballooned five-fold to 10 billion
Malaysian ringgit ($3.13 billion).
Ling pleaded not guilty to both counts.
The port project was started by Ling, although most of the
problems, including concerns about whether bondholders would be
repaid, surfaced after he stepped down as transport minister.
Bonds from the special purpose vehicles used to finance the
project were sold with a government guarantee that turned out
to be fake, angering holders some of whom are overseas
A 3-year bond issued by one of Port Klang's special purpose
vehicles trades more than 600 basis points wider (cheaper) than
a 3-year Malaysian government bond MY3YT=RR.
Prime Minister Najib Razak was questioned about the issue
by fund managers when he sought to promote Malaysia as an
investment destination on a visit to New York last year.
GOVT SERIOUS ABOUT TACKLING CORRUPTION?
Last year, Najib promised to prosecute any wrongdoing with
regards to the port project and this move could be an attempt
to show investors that the country is serious about tackling
Malaysia's ranking dropped to a record low of 57th in
anti-corruption body Transparency International's 2009 report.
At the same time, foreign direct investment has fallen off
a cliff to 3.5 percent of the total going into Southeast Asia
in 1999 from an average of over 21 percent annually from
1990-2000, according to United Nations data.
"This is part of an effort by Najib to address Malaysia's
Anti-Corruption Commission credibility deficit, especially
among Chinese, and win reform points. A decision of this nature
is definitely reviewed at the top," said Bridget Welsh, a
Malaysia expert at Singapore Management University.
Malaysia charged a serving minister in 2004 when former
Land and Cooperative Development Minister Kasitah Gaddam was
charged with corrupt practice and cheating in 2004.
He was acquitted in 2009.
($1 = 3.193 Malaysian Ringgit)
(Additional reporting by Niluksi Koswanage; Writing by Royce
Cheah; Editing by David Chance and Sugita Katyal)