By A. Stephanie
The relisting of Malakoff Corp Bhd – Southeast Asia’s largest independent power producer – on the main market of Bursa Malaysia has been on the cards since 2012. Can Malakoff’s return to the exchange weather Malaysia’s tepid equity markets?
Business model: Incorporated in 1975 as a plantation-based company, Malakoff initially listed on the then-Kuala Lumpur Stock Exchange’s (KLSE) main board in 1976. Upon a shift in its corporate direction, the company disposed its plantation-based assets in 1993 and ventured into the power sector.
In 2007, the power producer was delisted from Bursa Malaysia after all its non-cash assets were acquired by construction and ports giant MMC Corp Bhd for RM9.3 billion in cash.
Malakoff is the leading independent power producer (IPP) in Malaysia and Southeast Asia, with an effective capacity of 5,346 megawatts (MW) from six power plants – all located in Peninsular Malaysia – that run on oil, coal and gas.
Overseas, it acts as an independent water and power producer with a nett daily capacity of 690 MW power production and 358,850 cubic metres (m³) water desalination across assets in Bahrain, Saudi Arabia, Algeria, Australia and Oman.
Management: Malakoff chairman and former accountant Syed Anwar Jamalullail started off with Malaysia Airlines in 1975 before moving on to hold senior positions in various companies. His last position was as Amanah Capital Partners group managing director. Formerly a chairman with the Tabung Haji Investment Panel, Media Prima, MRCB, DRB Hicom, EON Bank, and Uni Asia, he was also previously a director with Maxis and Bangkok Bank.
Syed Anwar is still chairman of Nestle Malaysia, Cahya Mata Sarawak, Lembaga Zakat Selangor and Pulau Indah Ventures Sdn Bhd (a joint-venture company between Khazanah and Temasek of Singapore) as well as SEGi University chancellor.
Prior to joining Malakoff as chief executive officer (CEO) last July, accountant Syed Faisal Albar was Pos Malaysia group managing director and subsequently CEO of Gas Malaysia Bhd, another MMC subsidiary. He is a non-executive director with integrated logistics company Konsortium Logistik Berhad (KLB), a leading integrated logistics organisation in the country. For a short span he was KLB executive director, assisting KLB owner Ekuinas to dispose the business.
Syed Faisal has previous served as non-executive director with Malaysia Airports Holdings, Hong Leong Bank, Kwasa Land Sdn Bhd and Yayasan Kelana Ehsan. He cut his teeth at PricewaterhouseCoopers for a decade before joining New Straits Times Press as chief financial officer in 2000, where three years later he was promoted to CEO.
Shareholders: Parent company MMC is controlled by Malaysia’s eighth richest man, Syed Mokhtar Al-Bukhary, according to Forbes. As at Feb 28, 2015, MMC has a 51% controlling stake in Malakoff, 22.44% directly and 28.56% indirectly via its wholly-owned subsidiary Anglo-Oriental (Annuities) Sdn Bhd (AOA).
Two of the country’s largest funds are already substantial shareholders of Malakoff, with the Employees Provident Fund (EPF) holding a 30% stake and pension fund Kumpulan Wang Persaraan Diperbadankan (KWAP) with 10%. This automatically disqualifies them from buying any of the 1.28 billion institutional shares for sale of the total 1.52 billion.
AOA, EPF and KWAP, together with other existing shareholders Standard Chartered IL and FS Asia Infrastructure Growth Fund Company Pte Ltd (SCI Asia) with a 6.5% stake, and SEASAF Power Sdn Bhd (Seasaf) with 2.5%, will become “selling shareholders” under the IPO shares sale.
These will have their stakes in the company pared down as follows post-IPO upon the sale of 1.52 billion shares (1.75 billion shares including the greenshoe or over-allotment option):
As of last Friday, Malakoff has secured 12 cornerstone investors including Tabung Haji, CIMB-Principal Asset Management, Maybank Asset Management, Kencana Capital, Eastspring Investments and the Social Security Organisation (Socso).
These have agreed to collectively acquire approximately 533.8 million institutional shares, representing approximately 10.7% of Malakoff’s enlarged-issued and paid-up share capital.
IPO timeline: Applications for the retail offering of 242.5 million shares priced at RM1.80 each opened on April 17 and will close on April 28. Balloting for the issue shares under the retail offering will take place on April 30, followed by Malakoff’s listing on the main market of Bursa Malaysia scheduled for May 15.
Dividend policy: The group’s prospectus states that Malakoff targets a dividend payout ratio of not less than 70% of consolidated profits, noting however that the ability to do this depends on several factors, such as expected financial performance, level of cash, gearing, return on equity and earnings.
It also states that distributions to shareholders will depend on capital expenditure (capex) and working capital requirements, as well as existing and future debt obligations.
Utilisation of proceeds: Based on the IPO prospectus at an indicative price of RM1.80 per share for 1.75 billion shares, the power player can raise RM3.15 billion maximum including the over-allotment or greenshoe option, with the IPO proceeds going towards fully redeeming a RM1.8 billion sukuk.
Following Malakoff’s anticipated return to Bursa Malaysia scheduled for May 15, the company aims to increase its power generation capacity to 10,000 MW daily and water production capacity by 150% by 2020 through domestic and international expansion.
StockStalk: Despite the current slow market with IPOs of both Edra Global (a lesser IPP owned by debt-laden 1MDB) and Sime Darby Motors being delayed, the decision of MMC to list its power arm Malakoff may come as a surprise. Nevertheless, power producers are less susceptible to the ebb and flow of capital markets, provided their fundamentals are strong.
With Tanjung Bin now coming on as scheduled in March 2016, Malakoff’s return to Bursa is imminent. The question is, how powerful will it be?
Though the company was only expecting to raise RM2 billion of the RM3.15 billion (including the greenshoe option), Reuters reported that within hours of its prospectus launch last Friday morning, Malakoff’s institutional offering had already been oversubscribed two times.
Despite not being able to access EPF and KWAP funds, the company still managed to secure backing of two other funds Tabung Haji and Socso as cornerstone investors.
Though FinanceAsia notes that foreign investors are more sensitive to the weakening ringgit and threat of Malaysia’s sovereign rating downgrade, it said domestic investors will be likely attracted to Malakoff’s cash flow and prospective dividend yield of 4.6%, far above that of YTL Power at 2.8% and Tenaga Nasional at 2.2%.
Similarly, public investors should look at Malakoff’s fundamentals. Since delisting in 2007, Malakoff has seen a 113.8% spike in revenue, while earnings before interest, taxes, depreciation, and amortisation (Ebitda) grew 9.1%.
At 13 years average, Malakoff also has the longest remaining power purchase agreement lifespan amongst Malaysian IPPs. Its Malaysian power production capacity accounts for almost a quarter of the country’s total.
Though Malaysian power contracts have been given out till 2020, the company still expects local demand (currently at 16,000 MW) to grow by 5% yearly and also may look to Indonesia (37,000 MW) as the first phase of its Asean expansion. Historically, Malakoff has added a new asset to its portfolio every two to three years and will keep this up post-listing, focusing on its strengths in the Middle East and North Africa region.
Having locked in multiple decades-long purchase agreement contracts, Malakoff is in it for the long run. With Tanjung Bin adding another 1,000 MW capacity next March, investors should consider adding Malakoff at the issue price.
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Important Note and Disclaimer: This article should not be taken as a cue to either buy or sell the stock. The intention is to highlight the key factors you might want to think about before plunging in or scrambling out. While KINIBIZ makes every endeavour to ensure facts are right and opinion is fair, no liability can be assumed for anyone relying on this information. In other words let the buyer (or seller) beware – a reflection of Bursa Malaysia, we say.
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