By Jose Barrock
Speak to any merchant banker about businessman Syed Mokhtar Albukhary and chances are the talk may centre around his companies’ high gearing levels, and how he could be a “systemic risk” to the banking system. KiniBiz looks at the tycoon’s assets and debt levels.
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Market talk has it that back in end 2007, a group of bankers had met up with the highest levels of the Government, suggesting that businessman Syed Mokhtar Albukhary’s debt levels were too high and that he posed a serious threat to the banking system, were he to crumble.
A market watcher familiar with the incident had said, “Quite a few bankers were there and they met Government officials…it was a very serious complaint, it was a problem to them,” he explained.
However about a year later Syed Mokhtar in a private meeting with a few journalists had assured them that he was financially sound. An aide of his rubbished the whole notion, saying that it was just market talk.
“The debts are ring fenced…every debt is backed by assets. You think the banks don’t have checks and balances?” he had retorted.
Nevertheless six years down the road, similar talk still persists.
The three main companies
KiniBiz looks at the tycoon’s three main companies, MMC Corp Bhd, DRB Hicom Bhd and Tradewinds group.
His flagship MMC, for its six months ended June 2013, posted net profits of RM52.68 million from RM3.24 billion in revenue. Earnings per share (EPS) meanwhile stood at 1.73 sen.
MMC’s finance cost for the six months ended June was RM526.45 million, meaning the company’s interest expense when annualised exceeds RM1 billion a year.
The conglomerate as at end June had deposits, bank and cash balances or RM4.94 billion.
On the other side of the balance sheet MMC had long term debt commitments of RM21.26 billion and current liabilities amounting to RM2.42 billion.
MMC’s shareholders funds as at end June was RM9.92 billion.
However it is noteworthy that a chunk of these debts are from independent power producer Malakoff Corp.
Malakoff in September this year allowed the approvals for its floatation exercise to lapse, and is looking at refinancing its borrowings via the issuance of debt papers. According to Maybank Investment Bank, as at end September last year Malakoff had long term borrowings of RM14.75 billion and short term debts of RM1.3 billion.
It is noteworthy that bond yields are on an uptrend as a result of the uncertainty in the markets.
Diversified DRB meanwhile registered net profits of a mere RM10.26 million in net profits from RM3.05 billion in sales for its first three months ended June 2013. EPS was 0.53 sen for the three months ended June.
For the three months in review, DRB’s interest expense was RM88.62 million.
Considering DRB has banking operations under 70% owned Bank Muamalat, a look at its cash and bank balances, and debt commitments may not be an accurate indication of its financial health.
What is telling however, is that DRB had a net cash outflow from operating activities of RM1.47 billion.
In its notes which accompany its financial results, DRB mentioned that its performance was adversely impacted by slowing auto sales, but does not divulge more.
Some of DRB’s auto assets include wholly owned Proton Holdings, and 34% in Honda Malaysia Sdn Bhd and distributor Edaran Otomobil Nasional among others.
Other assets include postal operator Pos Malaysia.
Syed Mokhtar’s Tradewinds Corp was privatised and delisted in September 26 this year.
For its six months ended June this year, Tradewinds Corp posted net profits of RM75.44 million from RM474.57 million in turnover. EPS for the six months ended June was 6.82 sen.
Tradewinds Corp’s finance cost for the six months was RM24.57 million or 32.57% of its net profits. Compared to the other two units, Tradewinds Corps debts seem manageable.
As at end June Tradewinds Corp had cash and bank balances of RM189.53 million and long term debts amounting RM479.86 million and short term borrowings of RM436.97 million.
Tradewinds Corp’s shareholders’ funds as at end June stood at RM1.95 billion.
Importantly Tradewinds Corp’s net cash flow for the six months in negative territory of RM15 million.
Tradewinds Corp’s main assets are its hotel operations where it has nine hotels under the Hilton, Istana, Mutiara, Crowne Plaza and Meritus brand names and its property arm under Tradewinds Properties Sdn Bhd, which has both investment and development properties under its belt.
Another key unit of Syed Mokhtar’s Tradewinds (M) was demerged from Tradewinds Corp in February 2008.
Tradewinds Corp sold its 53% in Tradewinds (M) to its shareholders at RM3.80 per share on a rights basis of 142 Tradewinds (M) shares for every 1,000 Tradewinds Corp shares held.
Basically Syed Mokhtar ended up with 42.95% of Tradewinds (M), in February 2008, but privatised the company and its 69.76% unit Tradewinds Plantations and its 72.67% unit Padiberas Nasional in end December last year.
On Christmas Eve 2012 Syed Mokhtar via his privately-owned vehicles made a conditional takeover offer to minority shareholders for shares he does not own in Tradewinds (M) for RM9.30 each in a deal valued at some RM1.5 billion.
In March this year after receiving large acceptance levels Syed Mokhtar’s shareholding strengthened to 94.5% triggering a mandatory general offer for both Tradewinds Plantation and Bernas.
The offer was pegged at RM5 per Tradewinds Plantations and RM3.13 per Tradewinds Plantations irredeemable convertible unsecured loans stocks or ICULS, and RM3.70 per Bernas share.
A chunk of the funds for these exercises were obtained from Malayan Banking (Maybank).
As at end December last year, Tradewinds (M) had cash and bank balances amounting to RM834.26 million while its long term debt commitments were RM1.94 billion and RM1.72 billion in short term liabilities.
According to banking sources Tradewinds (M) was initially supposed to pare down its shareholding in Bernas to 51% and settle some of its borrowings to Maybank, but this has not happened as yet.
The company, Tradewinds (M) with the strength of Bernas, Tradewinds Plantations and Central Sugars Sdn Bhd among others posted RM208.2 million in net profits from RM8.15 billion in revenue.
Excluding DRB, the three other main companies MMC, Tradewinds Corp and Tradewinds (M) (Tradewinds (M) taken until end last year) have more than RM28 billion in debts.
While the debt levels may be astounding, the groups under Syed Mokhtar do have greats assets, large tracts of property in Johor, ports such as Port of Tanjung Pelepas, Johor Port, some nine hotels under Tradewinds Corp, rice and sugar distribution, under Bernas and Central Sugars and Malakoff just to name a few,
But then it wasn’t too long ago that a larger than life corporate personality, Halim Saad crumbled, after being saddled by some RM30 billion in debts held under Renong and United Engineers Malaysia (UEM).
Some market watchers and Halim say that the assets held under the two groups, Renong and UEM could have been used to pare down the debts to more manageable levels, and salvage the holding companies, but this is a moot point.
“Is it fair to compare Syed Mokhtar to Halim, UEM and Renong? Is Syed Mokhtar a systemic risk? Only in time can you tell,” a market watcher aptly said.
Yesterday: Syed Mokhtar, the early years
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