Millions and Billions

Two interesting articles in The Edge.

Shell Malaysia gets MTO at RM1.92 per share


The offer was triggered after MHIL's conditional sale and purchase agreement for 51% of Shell Refining, signed in February 2016 with Shell Overseas Holdings Ltd, turned unconditional today, Shell Refining said in a filing on Bursa Malaysia today.


I wrote before about this matter. The acquirer wants to retain the listing status, which means this is a "friendly" offer, minority shareholders can simply accept or reject the offer, there is no pressure.

The second article:

Konsortium PetroHub to raise US$180 bil over next 5 yrs for refineries in Kedah

Konsortium Asia PetroHub (KPHUB) expects to raise US$180 billion in funds over the next five years for its oil refinery facility construction project in Kedah known as Sultan Abdul Halim Refinery Complex.

The consortium was formed by a group of companies, namely IMC London, a group of bankers and funders based in Britain who have a 50% share, as well as VR4U Technologies Sdn Bhd with a 30% share and another local based company with a 20% share.

The amount raised will be used to fund four additional refineries over the next five years. There are six refineries to be developed in total and the first two will be developed starting January 2017.


Both articles about refineries, but there is something rather "strange" going on if we compare the two articles:

• Regarding Shell, at the current share price the whole company is valued around USD 150 Million (that starts with the letter "M")
• Regarding KPHUB, it expects to raise USD 180 Billion (that starts with the letter "B")

The refinery of Shell will be quite old, and probably smaller in size, but does this explain a thousand fold valuation difference? It seems rather puzzling to me.

The article continues: "The second agreement was with QMIS World Trade International, which has close collaborations with various Chinese conglomerates and will act as a listing agent in Nasdaq US and Hong Kong Stock Exchange to raise funds for the project."

I tried to Google on "QMIS World Trade International", expected to find a company with lots of experience in this matter, having done dozens of multibillion dollar deals on many international exchanges. But I could not find anything relevant, it even looks like they have no website, a fate they seem to share with VR4U Technologies Sdn Bhd .

Lots of questions remain .......

Economy grew 5.2%, some critical comments

Malaysia's GDP grew 5.2% yoy in Q3

Malaysia's economy grew at an annualised pace of 5.2 per cent in the third quarter, the central bank said on Friday, as strong domestic demand compensated for a weak export sector.

The third-quarter growth beat economists' expectations of a 4.8 percent expansion.

"Both private and public sector investment was strongly robust during the quarter. We would envisage that this will continue," Bank Negara Governor Zeti Akhtar Aziz told a news conference.

With exports faltering, much of Malaysia's growth has been driven by strong domestic demand and government spending on infrastructure projects, such as a new mass transit system for the capital Kuala Lumpur, and Iskandar, a big industrial zone near Singapore.

Prime Minister Najib Razak must call an election by April next year and is expected to stress Malaysia's robust growth as a key part of his campaign.


Above news is from Reuters on TodayOnline's website. It can't get much better, especially with the elections around the corner, or not?

However, I would like to make some critical comments:

• GDP is corrected for inflation, if inflation is understated (which, I think, is indeed the case like most countries in the world), then GDP is overstated.
• The GDP number is for the whole country, since Malaysia's population is growing fast, per capita the effect is much less.
• Malaysia has a bad GINI score, meaning that the income is very unevenly spread. It is therefore likely that lots of people do not benefit from the growth of the economy to the same degree.
• Malaysia recently went from being an oil exporter to an oil importer, this will have a clear effect in the future since oil production will further slowdown and consumption will rise.
• Huge acreage of jungle has been logged and converted to plantation land. This will give a boost to the economy, but can only be done one-time, after that the economic output of the land fluctuates with the prices of the commodity.
• And finally the country has piled up about RM 500 billion in debt (RM 100,000 for each family of 6) in an attempt to break the world record of budget deficits in a row. Surely that must have benefitted the economy, but again, this is highly unsustainable in the future. 

It would be interesting to know how much the last three factors have contributed to the GDP growth in the last 10 and what the negative effect will be in the coming 10 years.

For those people who have a problem visualizing 1 Trillion (1,000 Billion) in RM 100 notes:

 

The national debt is not yet there, but Malaysia is about half way through and if nothing changes surely 1 Trillion will be reached in the not so far future.