By Khairie Hisyam
The Delloyd Ventures Berhad privatisation bid seems generous at RM4.80 per share, far higher than where the share had been in recent years. But is it really generous? Tiger prowls the offer to investigate why the offeror is being so charitable — seemingly.
Tiger interrupts his sacred routine of refreshment and recuperation to ponder a strange story of generosity several weeks ago — the major shareholder of Delloyd Ventures Bhd is offering RM4.80 per share to take the company private.
That figure is well above the average Delloyd investor’s entry price, unless you came in during the last month or so when its shares rallied to multiple-year highs after languishing below RM4.00 for more than a decade, even stuck below RM2.00 for some time between 2007 and 2009. In fact the last time Delloyd’s shares were above RM4.50 was on June 2, 2000, closing at RM4.60.
So who is this generous shareholder and why is he being so generous? Is he really being generous? Tiger’s prowls indicate he may really be far from generous because if you revalue Delloyd’s assets, the worth of the share could be over RM20 a share! Yes, RM20 a share.
The offer comes from 34.24% shareholder Chung & Tee Ventures Sdn Bhd, controlled by Delloyd CEO and managing director Tee Boon Kee’s family and the reason is to “give an opportunity to entitled shareholders to realise their investments” given an increasingly challenging business environment for Delloyd.
According to the offer document, Delloyd’s revenue and profit margins had declined in recent years due to increasing competitiveness in the automotive industry as well as challenges in the palm oil industry — its two main segments.
Okay, things look bleak there. With that rationale in mind, investors should jump at the offer, right?
Tiger thought that way too at first, but somewhere at the back of its sleeping mind a small thought nagged it awake: who in the corporate world can be so selfless and generous?
They can afford to be generous
Apparently the Tee clan and the other shareholders acting in concert with them can afford to be, because they’re not forking out their own money to repay other shareholders in privatising Delloyd.
Out of interest, the Tee’s clan counts a 63.58% shareholding block as persons acting in concert with them, so that leaves 36.42% that needs to decide on the offer. That comes to 35.18 million shares or thereabouts, so the offer value stands at RM168.87 million roughly.
But cleverly the Tee clan plans to pay investors this money through Delloyd’s funds, as seen in paragraph 2.6, page 4 of the letter (available here):
“It is proposed that the company will fund the cash payments under the proposed SCR by way of internal resources and financing facilities to be obtained from one or more financial institutions,” said the letter.
Based on Delloyd’s full-year figures announced two weeks ago, the company had a total of RM214 million in current assets and overall its assets come to RM584.1 million against total debt of RM128.5 million.
In terms of cash, Delloyd had RM34.2 million in cash and about RM85 million in total receivables, deposits and pre-payments. So Delloyd can certainly afford RM168.87 million especially with a little bit of financing.
Now this is a sweet deal for the Tee clan and co., pretty much no outlay needed to take the company private.
But that aside, is the offer price fair?
How much are Delloyd’s assets worth?
The answer to that question probably lies in looking at what assets the company has.
In a commentary on the offer, the Minority Shareholder Watchdog Group (MSWG) said Delloyd’s assets should be revalued.
“We are of the view that revalued assets of Delloyd could fetch higher value than its current book value due to its plantation segment which consists of bio-assets with an average 3-year oil palm trees and going to contribute significantly to the group,” said MSWG.
That set Tiger off on a prowl, stalking those assets. And there are several that caught Tiger’s eyes.
One is Delloyd’s freehold 1,448.78-hectare oil palm estate in Batang Berjuntai, Kuala Selangor called Sungai Rambai Estate. Acquired in 1999, the book value of this large land parcel was stated as RM75.23 million in Delloyd’s 2013 annual report. That translates into about 48 sen per square foot (psf) for 155.9 million sq ft.
But Tiger prowled further and turned to the National Property Information Centre (Napic), Ministry of Finance, to see if this valuation is still correct. Based on Napic’s data, in 2011 the average transacted price psf for oil palm land in Kuala Selangor was RM11.33 in 2010 and RM13.59 in 2011.
If we take just RM13 psf as the going market price for Delloyd’s Kuala Selangor land, the value comes to about a staggering RM2.02 billion compared to the book value. Less the book value of RM75.23 million, the value of this particular asset comes to about RM20 per Delloyd share.
Say we put a 25% discount to this value. The surplus is still RM15 a share, making the revalued net assets of a share quite close to RM20 a share.
To a lesser extent, Delloyd also has a freehold 4.05 ha parcel of industrial land comprising two plots of land in Klang, Selangor. Acquired in 1999, its book value stands at roughly RM15 million, which works out to RM34.40 psf.
And according to Delloyd’s annual report, this parcel at Kampung Jawa, Klang houses the company’s principal place of business.
But Napic shows an average transacted price for 2011 transactions of RM182.36 psf for industrial land in the area. That comes to roughly RM79.5 million.
Just these two properties alone are worth so much more than their book values, so what’s RM168.87 million in comparison? And Tiger had not even looked at Delloyd’s other assets, so it is possible that the share value is even higher.
For instance Delloyd has 14,422 ha of leasehold land in Belitung, Indonesia — an island with a rising tourism industry — and another question that needs asking is whether this land currently housing oil palm can be redeveloped into something else at much profit, should the leases be extended.
Timed with West Coast Expressway news?
Another curious aspect of the privatisation bid was that it was announced nine days before deputy prime minister Muhyiddin Yassin launched the long-delayed West Coast Expressway (WCE) project.
Why not launch the privatisation bid earlier in the year when Delloyd’s shares were stuck below the RM3.30 mark — cheaper? Given the recent surge in Delloyd’s shares, something seems afoot given the offer price alone does not sound sexy at all after looking at Delloyd’s assets.
Spanning 233km and worth some RM5 billion, the project will last five years and connect Banting in Selangor all the way to Taiping in Perak.
What caught Tiger’s eye here is that the WCE will pass through Kuala Selangor and Klang, among other places. And Delloyd has properties in these two places.
Any chance the WCE will pass right through Delloyd’s lands? Tiger doesn’t know for sure, but this is surely worth clarifying to shareholders before expecting them to take the RM4.80 per share offer.
And shareholders also need to know whether RM4.80 per share really reflects the true value of Delloyd or whether they’ll be letting go hidden gems in Delloyd’s stable of assets for relatively peanuts.
GRRRRR!!!
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