By Khairie Hisyam
In privatisation bids, minority shareholders seem to be perpetually receiving the short end of the stick. About a year on after MISC’s failed privatisation bid, will shareholders take heart from that episode’s triumph and fight for better terms in the proposed Perak Corp delisting? And interestingly, in the ongoing Bernas privatisation bid a federal minister was made to look silly.
Last Friday MISC closed at RM6.39 per share, 11 sen lower than Thursday’s RM6.50. That is more than RM1.00 higher than the RM5.30 per share offered by Petroliam Nasional (Petronas) — subsequently revised to RM5.50 — in its failed bid to privatise MISC last year.
As KiniBiz previously noted, foiling that privatisation attempt represents a victory for the little animals in the jungle. When a predator makes its move, too often the prey resigns itself to its fate rather than fight back, and Tiger respects the kijangs that attempt this come Tiger’s mealtime.
Of course Tiger still eats them regardless of whether they resist or not, but that is beside the point.
Notably the last time MISC rose above RM6.00 was in early 2012 — the last time the price was higher than RM6.50 was in late 2011. When the offer was made MISC was trading around RM4.45, down 46% over the preceding two years.
Given the current price levels for MISC’s shares as well as its latest earnings report, MISC shareholders can certainly roar back now in vindication after having stood fast against Petronas.
Oops, MISC shareholders except Employees Provident Fund (EPF) and the others who sold to Petronas, that is. But Tiger digresses. Where were we?
Oh yes, MISC’s finances seem to be improving and Tiger has a hunch that MISC may even be doing better had Petronas not decided to deny MISC its liquefied natural gas (LNG) transportation business — which MISC had been doing for about twenty years — after its privatisation bid failed.
Despite that move by its major shareholder MISC saw its LNG revenue rise in FY13. The company’s share prices also trend at encouraging levels despite revelations of a possible bribery link to a global scandal involving MISC (which the company denied and is currently investigating).
The biggest lesson here? Sometimes it pays to stand up, say no and fight for better terms.
Did Bernas just say a federal minister lied?
Now Tiger wonders if this lesson will be heeded by those facing their own battles. Padiberas Nasional (Bernas) shareholders seem to, judging by last month’s vote against a voluntary delisting.
Of course Syed Mokhtar already has 83.7% of Bernas, so whether the minority shareholders will eventually prevail remains in question. Can they keep his inroads from here onwards below 6.3%?
Tiger hopes so. There are so many questions arising from this proposed delisting, among which is whether the offered price is fair.
“The general market feeling is that the pricing is reasonable as it is higher than the market price though it is not fair because of undervaluation,” Inter-Pacific Securities Sdn Bhd head of research Pong Teng Siew was quoted as saying on Syed Mokhtar’s offered price of RM3.70.
But the most glaring and urgent question, to Tiger, is whether Bernas intends to list again should the privatisation go through.
Minister of Agriculture and Agro-based Industry Ismail Sabri Yaakob certainly thinks so, claiming that Bernas has provided a written pledge saying the delisting is only temporary until its corporate restructuring is completed.
But last week, on Feb 11, Bernas informed Bursa Malaysia that it is “not aware of any written arrangement … (involving) any corporate restructuring that includes an impending relisting plan”.
So what is really going on here? If Tiger read that right, Bernas had just refuted what a federal minister was reported as saying to the press — by national news agency Bernama no less.
Perak Corp offer price is not fair
In any case, while the position of Bernas minority shareholders is clear, Tiger eagerly awaits whether the proposed Perak Corp privatisation will meet similar resistance.
Recall that early last month majority stakeholder Perbadanan Kemajuan Negeri Perak (PKNP) offered RM3.90 per Perak Corp share. This means PKNP will be forking out RM183.69 million in cash payments for the 47.1% of Perak Corp that it does not own.
Is that a fair price? Tiger doesn’t think so. Here’s why.
As at 3Q13 ended September 2013, Perak Corp has net cash and bank balances of RM144.51 million. The corporation actually has another RM42.84 million in cash but this amount is pledged, otherwise its total cash position is RM187.36 million.
So if PKNP privatises Perak Corp at RM183.69 million, it immediately gains access to about RM144.51 million in cash. This means the net purchase price seems to be approximately RM39.18 million.
Interestingly Perak Corp’s net profit for 9MFY13 stands at RM20.4 million from a revenue of RM35.03 million. The earnings rate implies that it may not take too long for PKNP to recoup its outlay in delisting Perak Corp, especially if the company’s proposed new ventures post-delisting gains traction (but more on that later).
Out of interest, Perak Corp’s net asset per share stood at RM5.03 as at 3Q13 compared to its closing price of RM3.66 last Friday.
Hence price-wise, the deal is great for PKNP. Is it also a great deal for the remainder 47.1%? Sadly it is not that way to Tiger.
PKNP’s rationale for the privatisation proposal is that Perak Corp is changing its business focus and risk profile in addition to facilitating the latter’s internal restructuring.
Post-delisting, PKNP intends to grow Perak Corp’s revenue base beyond property development, trading and manufacturing building materials along with port development and operations to include other property-related businesses by capitalising on Perak Corp’s sizeable landbank in Perak.
In addition to the 2012 joint venture to develop an animation theme park in Bandar Meru Raya, Ipoh which is expected to complete by early 2016, Perak Corp is also eyeing the tourism and hospitality sector using its land bank as leverage.
Now if said theme park is a taste of what is to come, Tiger would very much want to be part of Perak Corp’s new adventures — the project reportedly is RM503 million in value.
Privatisation, argued PKNP, makes sense as the gestation period for these new ventures is long — expected to exceed five years — and consequently Perak Corp would have to borrow funds and conserve its cash to finance its new ventures. Investors would then face a different risk and return profile, said PKNP.
Also, PKNP said “there is no certainty that the expected revenue contribution from these new activities will materialise”.
But surely the privatisation bid means that PKNP sees enough fundamentals in its new ventures to justify its investment, enough that despite the long gestation period it remains convinced that the effort will be worth the reward.
So why not let Perak Corp remain listed and let other shareholders ride along? If the new ventures are really as risky as they seem, would it not make sense to spread the risk?
Another question is why did PKNP decide to take on the entire risk by taking full control of Perak Corp? If the perceived risk as claimed by PKNP is so great that Perak Corp would require borrowings and conserve cash to survive, surely easier access to financing by staying listed would be a boon?
Ball in Perak Corp shareholders’ court
All these questions make Tiger wary of the privatisation attempt. There is also a questionable related party deal in December 2013 that adds to that wariness — on Dec 4, 2013 Perak Corp announced that it is paying a total of RM12.5 million for two properties from The Red Snapper (M) Sdn Bhd, an indirect 40% subsidiary of PKNP.
What caught Tiger’s eye is that first, The Red Snapper is in receivership — it needs money. Second, the purchase price was arrived at on “a willing-buyer willing-seller basis after taking into account the prevailing market value of properties surrounding the properties”.
It is strange to Tiger how the willing buyer, willing seller principle is in effect here when the arms’ length principle should take priority. In the interest of good governance, proper valuations should be carried out in any property transaction by a public-listed company, let alone a related party transaction such as this.
But Perak Corp admitted as much in its regulatory filing that there was no independent valuation of said properties. The reason behind this move begs an answer too.
Hence while the date of the extraordinary general meeting to decide whether or not PKNP’s privatisation offer should be accepted has yet to be announced, it is one date Tiger will be stalking closely. And Tiger hopes that the lesson from MISC’s botched takeover last year will give heart to all minority shareholders and bring out the Tiger in them.
As they say, a cornered Tiger fights the hardest.
GRRRRR!!!
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