The below article is from The Edge of last week, based on research by RHB (December 24, 2012), the emphasis is mine:
We are disappointed that YTLP declared only 0.9375 sen per share for its first interim single-tier dividend. We had expected 1.875 sen/share, as was declared in 1Q12. Therefore, we revised our FY13 dividend per share forecast lower from 4.9 sen to 3.7 sen. Yields do not look attractive at 2.5%.
Historically, the rationale for the cut in dividends was to prepare the group for any potential M&A. As at end-Sept, YTLP is sitting on RM 10 billion in cash.
We think YTLP's start-up operating losses may have peaked given a larger WiMAX subscriber base now. WiMAX losses widened to RM 309.8 million in FY12. A languishing stock price could potentially turn YTLP into a privatisation target. We believe this will help achieve YTL Corp's goal of transforming into a dividend yield play by reducing the cash outflows to minority shareholders among its subsidiaries.
YTL Power reduces its dividends, it sits on a huge cash pile of RM 10,000,000,000.00, its stock price is languishing, which means YTL Power might be privatised so that YTL Corp can lay its hands on the full cash pile, instead of sharing it with YTL Power's minority shareholders?
Minority shareholders must hope that a company does well and generates a lot of cash. But if that happens, then it will be privatised?
This sounds rather disturbing, minority investors can share in the risk, but not in the returns? Why then did YTL Corp list YTL Power in the first place?
This graph does indeed show that the share price has been coming down, from a level of RM 2.20 to now RM 1.65.
Good postings about YTL Power can be found here and here.
Updated: and a newer one from "Market Watcher" here regarding insider buying and selling of YTL Power, shares and warrants.
Showing posts with label YTL. Show all posts
Showing posts with label YTL. Show all posts
Monday, 7 January 2013
Monday, 3 December 2012
YTL, why the hurry?
From the website of MSWG:
"MSWG completed the attendance of a few AGMs this week. Amongst them were AGMs for YTL Group of companies comprising meetings for YTL Land, YTL Power, YTL Corp and YTL E- Solution. The observations we noted was the speed with which the meetings were carried. It seems rushed how four (4) meetings were conducted on the same day, with very little breathing space both for shareholders and directors. The average interval between the commencement of each meeting was only an hour and seemingly there was an hour constraint imposed for all the businesses to be carried out at each AGM. The tendency is for shareholders to ask very few questions and the response could possibly be a hurried one which may be unsatisfactory. To us it was undoubtedly a whirlwind affair and rather compressed meetings.
Wouldn’t it have been better if the same meetings were spread out over an interval maybe a day each between each AGMs? It would give those attending more time to digest the details provided by the company with greater depth. The Board too would benefit as it would have more time to take questions thoughtfully. AGMs are only held once a year where shareholders get to see their directors and ask the pertinent questions. We do hope that the Board of YTL would consider such suggestion."
All were held on November 27th:
On November 26th, 3.30pm the AGM of YTL Cement was held. But since this company is delisted, I haven't read any information about it, they are not making announcements to Bursa Malaysia anymore.
This is not the first time that the YTL Group seems to have some CG issues. I don't think that the delisting of YTL Cement deserves a medal for good CG.
From CLSA "CG Watch 2012", "Companies that have seen CG deterioration":
Larger-cap companies with an institutional following that have seen CG declines include YTL Power, Genting Malaysia and Genting Berhad.
For many years, YTL Power had focused on regulated industries, ie, power generation and water. It has a global presence in regulated industries stretching from the UK to Australia. However it recently ventured into telecommunications, where it has no prior industry knowledge. Competition in this market is stiff and this venture has incurred large startup losses. Our scoring marks negatively for a company that diversifies into different businesses.
The key concern on Genting Malaysia has been related-party transactions. In November 2008, it purchased a 10% stake in Walker Digital for US$69m from the family that controls the Genting group. In July 2010, Genting Malaysia paid Genting Singapore RM1.7bn for Genting UK. Generating positive Ebitda for Genting UK has been an uphill battle, especially with the difficult macro environment in the UK currently. There is also an issue about independence with a chairman who is also CEO, and holding the same two positions at the listed parent. Genting Berhad, meanwhile, has one of the highest ratios of director remuneration to net profit for companies in our Malaysian coverage universe at 4%, which is a drag on its score.
"MSWG completed the attendance of a few AGMs this week. Amongst them were AGMs for YTL Group of companies comprising meetings for YTL Land, YTL Power, YTL Corp and YTL E- Solution. The observations we noted was the speed with which the meetings were carried. It seems rushed how four (4) meetings were conducted on the same day, with very little breathing space both for shareholders and directors. The average interval between the commencement of each meeting was only an hour and seemingly there was an hour constraint imposed for all the businesses to be carried out at each AGM. The tendency is for shareholders to ask very few questions and the response could possibly be a hurried one which may be unsatisfactory. To us it was undoubtedly a whirlwind affair and rather compressed meetings.
Wouldn’t it have been better if the same meetings were spread out over an interval maybe a day each between each AGMs? It would give those attending more time to digest the details provided by the company with greater depth. The Board too would benefit as it would have more time to take questions thoughtfully. AGMs are only held once a year where shareholders get to see their directors and ask the pertinent questions. We do hope that the Board of YTL would consider such suggestion."
All were held on November 27th:
- YTL Land at 11AM
- YTL E-Solutions at 12PM
- YTL Power at 2PM
- YTL Corp at 3PM
On November 26th, 3.30pm the AGM of YTL Cement was held. But since this company is delisted, I haven't read any information about it, they are not making announcements to Bursa Malaysia anymore.
This is not the first time that the YTL Group seems to have some CG issues. I don't think that the delisting of YTL Cement deserves a medal for good CG.
From CLSA "CG Watch 2012", "Companies that have seen CG deterioration":
Larger-cap companies with an institutional following that have seen CG declines include YTL Power, Genting Malaysia and Genting Berhad.
For many years, YTL Power had focused on regulated industries, ie, power generation and water. It has a global presence in regulated industries stretching from the UK to Australia. However it recently ventured into telecommunications, where it has no prior industry knowledge. Competition in this market is stiff and this venture has incurred large startup losses. Our scoring marks negatively for a company that diversifies into different businesses.
The key concern on Genting Malaysia has been related-party transactions. In November 2008, it purchased a 10% stake in Walker Digital for US$69m from the family that controls the Genting group. In July 2010, Genting Malaysia paid Genting Singapore RM1.7bn for Genting UK. Generating positive Ebitda for Genting UK has been an uphill battle, especially with the difficult macro environment in the UK currently. There is also an issue about independence with a chairman who is also CEO, and holding the same two positions at the listed parent. Genting Berhad, meanwhile, has one of the highest ratios of director remuneration to net profit for companies in our Malaysian coverage universe at 4%, which is a drag on its score.
Thursday, 2 February 2012
YTL: why so stingy? (3)
In The Edge today a good article about the take over offer of YTL Cement by YTL Corporation.
http://www.theedgemalaysia.com/in-the-financial-daily/200327-ytl-cement-minorities-stuck-between-a-rock-and-a-hard-place.html
The writer analyzes the situation that minority investors are stuck between a rock and a hard place. A situation that is unfortunately very common in Malaysia when the acquirer uses the dreaded "delisting threat". Minorities have to choose either accepting an offer that is not favourable (or sometimes even outright bad) or holding on to unlisted shares. And in the last case they still risk that their shares are mandatory acquired.
The fact that independent advisers are writing recommendations that always follow the majority shareholders ("whose bread I eat, his song I sing"), is making things much worse. The authorities (SC and BM) do have a very clear mandate to act in these cases, but they simply refuse to use it.
I was therefore rather surprised that the CG Blueprint 2011 completely ignored this very disturbing problem.
Added to this, both YTL Corp and YTL Cement are not obliged to hold an EGM, a rather surprising waiver from Bursa Malaysia.
YTL has a special section about Corporate Governance, full with beautiful sentences:
http://www.ytl.com.my/CorporateGovernance.asp
But actions speak louder than words ......
"YTL Cement minorities stuck between a rock and a hard place", written by Max Koh, 2 February 2012
It would appear that YTL Cement Bhd’s minority shareholders are stuck between a rock and a hard place when it comes to accepting YTL Corp Bhd’s offer to take the former private.
Last December, the conglomerate made a conditional share exchange offer to buy the remaining shares and outstanding irredeemable convertible unsecured loan stocks (ICULS) in YTL Cement that it does not own at RM4.50 and RM2.21 respectively.
The share exchange would be settled with the issuance of YTL Corp shares of 10 sen each at RM1.42 per share. This translates into an exchange ratio of 3.17 YTL Corp shares for every YTL Cement share, and 1.56 YTL Corp shares for every YTL Cement ICULS.
The offer, which will be closed on Feb 10, 2012, raised eyebrows as YTL Corp received a waiver from Bursa Malaysia to hold an extraordinary general meeting (EGM) to obtain YTL Corp shareholders’ approval for the share swap.
YTL Corp based this waiver on the grounds that it has obtained authorisation from its shareholders at its annual general meeting (AGM) last November to issue up to 10% of its current issued shares without the need for shareholders’ approval. YTL Cement was also not required to hold an EGM.
As such, the deal would go through without an EGM at YTL Corp and YTL Cement.
Hwang DBS Investment head of equities Gan Eng Peng said YTL Corp had provided a poor share swap for the minority shareholders of YTL Cement, adding that the minorities could not object to the offer as no EGM would be held, and the offer does not include a premium.
“Furthermore, YTL Corp’s high effective shareholding means it is very easy to delist YTL Cement, forcing the minorities to accept the poor deal,” Gan told The Edge Financial Daily.
YTL Corp already owned 47.4% of YTL Cement on Jan 9, 2012, the posting date of the offer document . As at Jan 20, it received acceptances for an additional 9.62% stake in YTL Cement which nudged up its interests to 57.02%, hence making the offer unconditional. Feb 10 will be the first closing date for the offer.
Gan said the share swap is essentially a case of Hobson’s Choice for YTL Cement’s minorities who have little to benefit from the share swap, whether they accept or reject the offer.
Gan noted that if the minorities accept the offer, they would be trading for less attractive YTL Corp shares which are more expensive and provide less dividend payout.
For FY11 ended June 30, YTL Corp and YTL Cement declared two sen and 13 sen in dividends to their shareholders respectively. The dividends represent a yield of 1.4% for YTL Corp shares at RM1.42 each, and 2.9% yield for YTL Cement shares based on the offer price of RM4.50 each.
Gan also noted that the minorities would be switching their investment to a conglomerate, which is less favourable than a pure-play stock.
The latest statements ended Sept 30, 2011 showed that YTL Cement was in a net cash position, while YTL Corp had RM28.34 billion in borrowings and RM12.97 billion in cash.
As at Sept 30, 2011, YTL Corp’s and YTL Cement’s net assets per share were RM1.20 and RM4.76 respectively, for FY11, YTL Corp posted a net profit of RM1.03 billion or 11.53 sen per share (basic) and 11.44 sen (fully diluted). YTL Cement, meanwhile, recorded RM337 million in net profit, with earnings per share of 71.53 sen (basic) and 48.44 sen (fully diluted).
At the offer price of RM4.50, YTL Cement is being valued at 0.95 times book, while the shares it will receive in YTL Corp are priced at 1.18 times book.
On a price-earnings ratio (PER) basis, YTL Cement is priced at a historical PER of 6.3 times, while the YTL Corp shares are issued at a PER of 12.3 times — almost twice that of YTL Cement shares.
On a fully diluted basis though, the PER valuation gap narrows, with YTL Cement valued at 9.3 times and YTL Corp at 12.4 times.
If the minorities were to refuse the offer, Gan said they would end up with YTL Cement shares that are less liquid as other parties would have accepted the share swap.
Note that YTL Corp already owned a 57.02% stake as at Jan 20.
In its announcement to Bursa Malaysia, YTL Corp said it does not intend to maintain the listing of YTL Cement if it does not meet the public shareholding spread of 25%.
YTL Corp and parties acting in concert (PAC) currently have a 96% stake in the ICULS. If the ICULS are fully converted, YTL Corp and PAC would own 67% of YTL Cement’s enlarged share capital.
“It would be easy for YTL Corp to increase its shareholding from 67% to 75% and force a delisting. In an EGM called for delisting, all shareholders, including PAC, can vote and there should be an exit offer of the same nature”, said Gan.
In addition, a minimum 90% acceptance level of the outstanding shares would result in a mandatory acquisition by YTL Corp of YTL Cement shares, including those that belong to the dissenting shareholders.
As such, Gan noted that the outcome is not favourable for YTL Cement’s minority shareholders, whether they accept the offer or not.
Compared with the recent privatisation offers for Proton Holdings Bhd and QSR Brands Bhd which offered a premium to the minorities, it appears that YTL Cement is left with no clear winning choice.
While the share swap is an easy deal for YTL Corp to privatise its subsidiary at a low price, observers are concerned that it would become a precedent for similar deals in the future.
http://www.theedgemalaysia.com/in-the-financial-daily/200327-ytl-cement-minorities-stuck-between-a-rock-and-a-hard-place.html
The writer analyzes the situation that minority investors are stuck between a rock and a hard place. A situation that is unfortunately very common in Malaysia when the acquirer uses the dreaded "delisting threat". Minorities have to choose either accepting an offer that is not favourable (or sometimes even outright bad) or holding on to unlisted shares. And in the last case they still risk that their shares are mandatory acquired.
The fact that independent advisers are writing recommendations that always follow the majority shareholders ("whose bread I eat, his song I sing"), is making things much worse. The authorities (SC and BM) do have a very clear mandate to act in these cases, but they simply refuse to use it.
I was therefore rather surprised that the CG Blueprint 2011 completely ignored this very disturbing problem.
Added to this, both YTL Corp and YTL Cement are not obliged to hold an EGM, a rather surprising waiver from Bursa Malaysia.
YTL has a special section about Corporate Governance, full with beautiful sentences:
http://www.ytl.com.my/CorporateGovernance.asp
But actions speak louder than words ......
"YTL Cement minorities stuck between a rock and a hard place", written by Max Koh, 2 February 2012
It would appear that YTL Cement Bhd’s minority shareholders are stuck between a rock and a hard place when it comes to accepting YTL Corp Bhd’s offer to take the former private.
Last December, the conglomerate made a conditional share exchange offer to buy the remaining shares and outstanding irredeemable convertible unsecured loan stocks (ICULS) in YTL Cement that it does not own at RM4.50 and RM2.21 respectively.
The share exchange would be settled with the issuance of YTL Corp shares of 10 sen each at RM1.42 per share. This translates into an exchange ratio of 3.17 YTL Corp shares for every YTL Cement share, and 1.56 YTL Corp shares for every YTL Cement ICULS.
The offer, which will be closed on Feb 10, 2012, raised eyebrows as YTL Corp received a waiver from Bursa Malaysia to hold an extraordinary general meeting (EGM) to obtain YTL Corp shareholders’ approval for the share swap.
YTL Corp based this waiver on the grounds that it has obtained authorisation from its shareholders at its annual general meeting (AGM) last November to issue up to 10% of its current issued shares without the need for shareholders’ approval. YTL Cement was also not required to hold an EGM.
As such, the deal would go through without an EGM at YTL Corp and YTL Cement.
Hwang DBS Investment head of equities Gan Eng Peng said YTL Corp had provided a poor share swap for the minority shareholders of YTL Cement, adding that the minorities could not object to the offer as no EGM would be held, and the offer does not include a premium.
“Furthermore, YTL Corp’s high effective shareholding means it is very easy to delist YTL Cement, forcing the minorities to accept the poor deal,” Gan told The Edge Financial Daily.
YTL Corp already owned 47.4% of YTL Cement on Jan 9, 2012, the posting date of the offer document . As at Jan 20, it received acceptances for an additional 9.62% stake in YTL Cement which nudged up its interests to 57.02%, hence making the offer unconditional. Feb 10 will be the first closing date for the offer.
Gan said the share swap is essentially a case of Hobson’s Choice for YTL Cement’s minorities who have little to benefit from the share swap, whether they accept or reject the offer.
Gan noted that if the minorities accept the offer, they would be trading for less attractive YTL Corp shares which are more expensive and provide less dividend payout.
For FY11 ended June 30, YTL Corp and YTL Cement declared two sen and 13 sen in dividends to their shareholders respectively. The dividends represent a yield of 1.4% for YTL Corp shares at RM1.42 each, and 2.9% yield for YTL Cement shares based on the offer price of RM4.50 each.
Gan also noted that the minorities would be switching their investment to a conglomerate, which is less favourable than a pure-play stock.
The latest statements ended Sept 30, 2011 showed that YTL Cement was in a net cash position, while YTL Corp had RM28.34 billion in borrowings and RM12.97 billion in cash.
As at Sept 30, 2011, YTL Corp’s and YTL Cement’s net assets per share were RM1.20 and RM4.76 respectively, for FY11, YTL Corp posted a net profit of RM1.03 billion or 11.53 sen per share (basic) and 11.44 sen (fully diluted). YTL Cement, meanwhile, recorded RM337 million in net profit, with earnings per share of 71.53 sen (basic) and 48.44 sen (fully diluted).
At the offer price of RM4.50, YTL Cement is being valued at 0.95 times book, while the shares it will receive in YTL Corp are priced at 1.18 times book.
On a price-earnings ratio (PER) basis, YTL Cement is priced at a historical PER of 6.3 times, while the YTL Corp shares are issued at a PER of 12.3 times — almost twice that of YTL Cement shares.
On a fully diluted basis though, the PER valuation gap narrows, with YTL Cement valued at 9.3 times and YTL Corp at 12.4 times.
If the minorities were to refuse the offer, Gan said they would end up with YTL Cement shares that are less liquid as other parties would have accepted the share swap.
Note that YTL Corp already owned a 57.02% stake as at Jan 20.
In its announcement to Bursa Malaysia, YTL Corp said it does not intend to maintain the listing of YTL Cement if it does not meet the public shareholding spread of 25%.
YTL Corp and parties acting in concert (PAC) currently have a 96% stake in the ICULS. If the ICULS are fully converted, YTL Corp and PAC would own 67% of YTL Cement’s enlarged share capital.
“It would be easy for YTL Corp to increase its shareholding from 67% to 75% and force a delisting. In an EGM called for delisting, all shareholders, including PAC, can vote and there should be an exit offer of the same nature”, said Gan.
In addition, a minimum 90% acceptance level of the outstanding shares would result in a mandatory acquisition by YTL Corp of YTL Cement shares, including those that belong to the dissenting shareholders.
As such, Gan noted that the outcome is not favourable for YTL Cement’s minority shareholders, whether they accept the offer or not.
Compared with the recent privatisation offers for Proton Holdings Bhd and QSR Brands Bhd which offered a premium to the minorities, it appears that YTL Cement is left with no clear winning choice.
While the share swap is an easy deal for YTL Corp to privatise its subsidiary at a low price, observers are concerned that it would become a precedent for similar deals in the future.
Sunday, 29 January 2012
YTL: why so stingy? (2)
YTL Cement announced it has received a takeover notice from YTL Corp. The takeover would not be in cash, but through an exchange of YTL Corp shares, in a ratio of 1 for 3.17.
A previous blog about this issue can be found here:
http://cgmalaysia.blogspot.com/2011/12/ytl-why-so-stingy.html
MSWG wrote about the same issue in in their newsletter January 12, 2012:
In the mean time, OSK has issued their independent advice:
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/LsvAllByID/812E0748C2233F874825798A00147DD3?OpenDocument
With the risk of repeating myself, it is not very good, I miss any critical remarks whatsoever about the issues at hand.
Those issues are:
So the question remains: why would shareholders of YTL Cement accept the offer?
Blogger "Bursa Stock Talk" attended me on his blog:
http://bursastocktalk.blogspot.com/2012/01/ytlcmt-iculs.html
"Despite the offer made is close to the 7th anniversary of the ICULS (10 November 2012) whereby the conversion price of the ICULS to mother shares will be adjusted from RM2.04 to RM1.82, shouldn't the offeror and the independent adviser take the step down conversion price into consideration as the adjustment is just few months away? Both the offer document dated 9 January 2012 and the independent advice circular appeared to be silent on this. The Board of YTLCMT confirmed that to the best of their knowledge and belief, there are no materials facts, the omission of which would make any statement in this IAC misleading. But is not the adjustment in conversion price with difference of 10.8% significant?"
I think the writer definitely has a very good point, the 7th anniversary is about nine months away and it appears rather strange if this is not mentioned in the offer document or in the independent advice.
I hope that YTL Cement shareholders do not accept the offer, thereby forcing YTL Corp to increase its offer price for the YTL Cement shares. The closing date is February 10, 2012.
A previous blog about this issue can be found here:
http://cgmalaysia.blogspot.com/2011/12/ytl-why-so-stingy.html
MSWG wrote about the same issue in in their newsletter January 12, 2012:
In the mean time, OSK has issued their independent advice:
http://announcements.bursamalaysia.com/EDMS/subweb.nsf/LsvAllByID/812E0748C2233F874825798A00147DD3?OpenDocument
With the risk of repeating myself, it is not very good, I miss any critical remarks whatsoever about the issues at hand.
Those issues are:
- YTL Corp's shares are more liquid, however, OSK fails to notice that 97% of the shareholders hold 100,000 or less shares which can easily be sold in the market (monthly turnover is on average more than 3 million shares);
- YTL Corp is a diversified conglomerate with its earnings dominated by the utilities segment, but investors of YTL Cement knew that when they bought their shares, and they still preferred them above the YTL Corp's shares;
- However, there is no cash alternative, making the offer less attractive;
- YTL Cement shareholders will end up with odd lots;
- The average market price of YTL Corp and YTL Cement over the last six months shows that there is no premium whatsoever in the offer, while from a valuation point YTL Cement clearly looks to offer somewhat better value from an earnings, dividend and assets point of view;
- If YTL Cement shareholders collectively don't accept the offer, then there is a decent chance that YTL Corp will increase the offer price.
So the question remains: why would shareholders of YTL Cement accept the offer?
Blogger "Bursa Stock Talk" attended me on his blog:
http://bursastocktalk.blogspot.com/2012/01/ytlcmt-iculs.html
"Despite the offer made is close to the 7th anniversary of the ICULS (10 November 2012) whereby the conversion price of the ICULS to mother shares will be adjusted from RM2.04 to RM1.82, shouldn't the offeror and the independent adviser take the step down conversion price into consideration as the adjustment is just few months away? Both the offer document dated 9 January 2012 and the independent advice circular appeared to be silent on this. The Board of YTLCMT confirmed that to the best of their knowledge and belief, there are no materials facts, the omission of which would make any statement in this IAC misleading. But is not the adjustment in conversion price with difference of 10.8% significant?"
I think the writer definitely has a very good point, the 7th anniversary is about nine months away and it appears rather strange if this is not mentioned in the offer document or in the independent advice.
I hope that YTL Cement shareholders do not accept the offer, thereby forcing YTL Corp to increase its offer price for the YTL Cement shares. The closing date is February 10, 2012.
Sunday, 25 December 2011
YTL: why so stingy?
(lightly edited version)
On December 19, 2011 YTL Cement was suspended due to an announcement. Would Christmas come early for its shareholders? Unfortunately not, more like a visit from Scrooge.
YTL Cement announced it has received a take over notice from YTL Corp. The take-over would not be in cash, but through an exchange of YTL Corp shares, in a ratio of 1 for 3.17.
Some links to relevant articles, by far the most interesting one is the first from The Edge Malaysia:
http://www.theedgemalaysia.com/highlights/198174-ytl-cement-to-be-taken-private.html
http://biz.thestar.com.my/news/story.asp?file=/2011/12/21/business/10133271&sec=business
http://www.btimes.com.my/articles/20111219231355/Article/
http://themalaysianreserve.com/main/index.php?option=com_content&view=article&id=1131:ytl-corp-offers-rm1b-to-take-over-its-own-subsidiary&catid=36:corporate-malaysia&Itemid=120
From The Edge Malaysia:
From The Star:
"RHB Research Institute said the offer provided no premium for YTL Cement shareholders, while the timing was less than perfect. “The offer lacks an acquisition premium above the existing share price suggests that YTL Corp is not going all-out to privatise YTL Cement. “We also find the timing of this exercise less than ideal as we have generally expected that YTL Corp would only consider privatising YTL Cement after November 2012 when the existing Iculs (97% held by YTL Corp and related parties) can be converted into YTL Cement shares at a better conversion rate compared to now,” RHB Research said."
Unfortunately, this is one of those "infamous" General Offers with delisting and mandatory acquisition threats:
Rough data per share based on the last full year results (EPS and DPS) and last quarterly (NTA):
YTL Cement
Share price: RM 4.50
NTA: RM 4.76
EPS: RM 0.47
DPS: RM 0.13
YTL Corporation
Share price: RM 1.42
NTA: RM 1.20
EPS: RM 0.12
DPS: RM 0.02
The share of YTL Cement is trading at a discount of 5% to its Net Assets Value, the Price Earnings Ratio is only 9.6 and the dividend yield is a reasonable 2.9%. Its last few years of results have been outstanding, steadily rising.
YTL Corporation however is trading at a premium of 18% to its Net Assets Value, The Price Earnings Ration is higher at 11.8 and the dividend yield is only 1.4%. Results have been steadily rising, but less so than YTL Cement.
From any valuation point of view, YTL Cement is clearly the cheaper of the two, in other words, the more favorable to own.
It comes therefore as a huge surprise that YTL Corporation is not prepared to offer any premium in this deal to YTL Cement shareholders. The only criteria in their advantage would be increased liquidity, but this looks not very important. According to the last year report of YTL Cement 97% of the shareholders own 100,000 shares or less, 88% even 10,000 shares or less. It should be relatively easy to dispose of their shares in the open market for those small shareholders, so liquidity is not an issue.
Advantage of this deal:
- More liquidity (not relevant for all small shareholders, the huge majority)
Disadvantages of this deal:
- From a valuation point of view, YTL Cement looks like a clearly better choice than YTL Corporation
- Minority Shareholders invested in YTL Cement, not in YTL Corporation, if they are forced to switch surely there should be some premium as a reward
- Minority Shareholders will end up with odd lots, due to the ratio of 3.17 YTL Corp share for each 1 YTL Cement share, disposing of them will incur extra costs and effort
- YTL Cement shareholders will receive less dividend yield from their YTL Corp shares, if they want to switch to other shares yielding a higher dividend, they will incur extra costs and effort
It therefore doesn't look like a good deal at all for Minority Investors of YTL Cement.
Unfortunately, in this kind of excercise Minority Investors hardly stand a chance to fight it.
Filing a complaint with the authorities (SC and/or BM) leads to absolutely nothing; the complaint will end up in a drawer for three years, and will then be dealt with in a very unsatisfactory and biased way. For the diehard optimists out there (to which group I also once belonged): aduan@seccom.com.my.
Contacting the MSWG watchdog@mswg.org.my is a possibility, they might be able to get some support in the newspapers, which could put some pressure on YTL Corporation to come with a better offer.
The best chance is if some larger minority shareholders are prepared to put up a fight. I don't expect anything from PNB, EPF, ValueCap etc (they had all the chances in the past to be active, vocal or to vote against deals and have blown them), but may be the Public unit trusts and a few foreign fund managers are prepared to try to get a better, more fair deal for minority investors.
I am simply baffled by the way this exercise is done, YTL claims it has excellent Corporate Governance (CG) culture on its website. But it is exactly in these exercises that good CG should show. Paying a premium of say 10-20% would be peanuts for YTL Corporation, while it would be a nice and helpful gesture towards YTL Cement shareholders, creating goodwill for all in the process.
This might be the last Malaysian corporate deal of 2011, and it is definetely not a good way to end the year.
I am hoping for some clear improvements in 2012.
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