The Corporate Debt Restructuring Committee, which was formed in 1998 to help large corporations restructured their debt, said it had "accepted the application'' by the Pahang state agency. However, the CDRC did not disclose the amount of debt.

In a statement, the CDRC said it would create a steering committee to "coordinate, formulate and manage" the implementation of an acceptable restructuring scheme for PKNP.

During the boom years of the early 1990s, several Malaysia states went on a buying spree, investing in numerous companies, funded largely by bank borrowings. But since the 1997 Asian crisis many of those have been struggling with raising debt level.

The Pahang state, the largest state in Peninsula Malaysia, owns stakes in several companies, including Mentiga Corp., a timber company, while Johor owns stake in about 200 companies ranging from plantations, industrial development, healthcare to property. Five of these companies are listed on the Kuala Lumpur Stock Exchange (Damansara Realty, Johor Land, KPJ Healthcare, Kulim and Sindora )

In June, Johor Corp. seek help from the CDRC to restructure about $789 million worth of debt out of a total $1.42 billion.

According to the Rating Agency Malaysia Bhd, debt-ridden Johor Corp. has failed three time this year to redeem some of its debt for a total $148.7 million. The state agency has another $131.6 million of zero-coupon Islamic bonds due in June 2002.

The debt restructuring plan of Johor Corp. was expected to be unveiled before the end of this year, but there has been no official announcement.

According to banking sources, Johor is said to be seeking a 30 percent debt forgiveness on its debt, though lenders are unlikely to agree to such high figure. Most of the lenders are local banks.

Johor Corp. Chief Executive Officer Muhammad Ali Hashim has previously indicated that the debtor will sale some of its assets and issue new bonds to settle its debt. Non-core assets like hotels and land holdings are expected to be divested, but core businesses such as healthcare, plantation operations, unit trust and food industry will stay.