(SINGAPORE) Ferrari distributor Hong Seh Motors has hit a roadblock in its bid to establish itself in Malaysia, where its potential partner has found its supply of approved permits (APs) suspended and its shareholders hauled up for questioning.

A week ago, Malaysian company Next Car - the franchise holder for Ferrari and Maserati in Malaysia - invited Hong Seh's directors to take a 30 per cent stake. The stake has not yet been priced.

Last year, Next Car sold about 30 Italian sports cars, and an 'entry-level' Ferrari F430 starts in Malaysia at more than RM1.5 million (S$664,000).

Next Car's move to sell and transfer 30 per cent of its equity must be approved in writing by Malaysia's Foreign Investment Committee (FIC) and the Ministry of Trade and Industry (Miti). The remaining 70 per cent, to be held by bumiputras, is consistent with Miti's National Automotive Policy.

But before Next Car could submit its application, its AP allocation was suspended by Miti. The two Singapore directors of Hong Seh, as well as the bumiputra partners and shareholders of Next Car, were also called up for questioning by the Anti-Corruption Agency (ACA).

Edward Tan, one of the two Hong Seh directors invited to sit on the new Next Car board, said he was 'shocked' by the moves.

'As Singaporean investors with our other Malaysian bumiputra shareholders and directors, we are shocked that ACA has been pulled into the fray instead of the Registrar of Companies or Miti and FIC to investigate this matter,' he said. 'This has serious and dangerous implications for foreign investors on the sensitive matter of doing business in Malaysia in general.'

Sources say the problems apparently started when Next Car's former chairman, Nasimuddin Amin, was asked by the board to step down over a business disagreement. But Mr Nasimuddin, who owns Naza Group, a major Malaysian automotive assembly and distribution company, was retained as a director of Next Car. He also remains a shareholder of the company.

Hong Seh has been the Ferrari distributor in Singapore since 1984. When Next Car was formed in 1996, it tapped Hong Seh's expertise in selling and marketing the Italian marque. Over the past 10 years, the two distributors on both sides of the Causeway have been involved in joint promotions and other collaborative efforts, although they are separate entities.

Hong Seh also plans to invest in the Iskandar Development Region or IDR in South Johor by setting up automotive and tourism-related businesses.

But the problems with Next Car have put a dampener on things, said Mr Tan, adding that Hong Seh is now less confident about investments across the Causeway.