EPF/Petronas, "not fair but reasonable", MBf

[1] P Gunasegaram wrote an article on KiniBiz about EPF accepting Petronas' revised offer for MISC shares under the title: "Shame on you EPF!".

I can't agree more on the article, I strongly recommend to read the full article.

The new offer from Petronas was an improvement of less than 4%, a much too low offer. Why did the EPF so hastily accept this offer that is still way below the fair valuations and below the rights issue a few years ago?

Keeping MISC listed would ensure a healthy dose of transparency, something that Petronas itself also could do with.

It looks like a typical case of "face" where both parties can claim some credit:

• EPF claims that they are actively fighting for the shareholders (I have very strong doubts about this claim), they booked a victory since the price has increased;
• Petronas can claim that they only raised the price by a small margin, in other words the first offer was also "pretty decent".

[2] Errol Oh wrote in The Star: "Mixed feelings over mixed advice".

"A lot of people are befuddled by the on-going streak of independent advisers (IAs) describing general offers and proposed deals as “not fair but reasonable” and yet recommending that shareholders accept the offers or vote for the deals."

I do like to add that there are two improvements compared to the old situation:

• The majority of the delisting offers is deemed to be "not fair but reasonable", while in the past it was almost always "fair but reasonable". At least now the minority shareholder know they are (hugely) disadvantaged.
• The quality of the independent advices has improved recently. There are still some bad examples, but these are more rare. In the past the quality was so low, that I recommended to simply do away with the independent advices, they were a waste of money and time and even worked against minority investors.

For instance, "Where Is Ze Moola" wrote about the horrific delisting of IOI Properties at RM 2.60 in 2009 while a rights issue not too long time before was done at RM 6.25. The "independent" advice from OSK Investment Bank was "fair and reasonable" and recommended the shareholders to accept the offer. This kind of advice would typically cost around RM 500,000. I don't think it was worth the paper it was written on.

"Early this week, a wire report had stated that IOI Corp was planning an initial public offering (IPO) of its property arm in the fourth quarter of 2013, speculating the total value of the listing to be in the region of RM10bil.

This would be a huge improvement in size, considering that it was only in 2009 that IOI Corp had bought back its then-listed property arm IOI Properties Bhd for a mere RM310mil in cash and shares, valuing the unit at about RM1.3bil."

In only 4 years time the value of IOI Properties would have increased by a factor 8? Do the previous minority investors of IOI Property still believe that the offer price of RM 2.60 was indeed "fair and reasonable"?

Another really bad case was the delisting and relisting of Bumi Armada, about which I have written before.


[3] Gurmeet Kaur wrote about the offer for MBF: "Happy ending for MBf minority shareholders":

"The group of minority shareholders who had, for some time now, been holding out for a higher price in the buyout of MBf Holdings Bhd have decided to throw in the towel and accept major shareholder Tan Sri Dr Ninian Mogan Lourdenadin's latest revised offer of RM1.775 per share."

I would not exactly call that a happy ending, RM 1.775 is still way below the estimated Net Assets per share between RM 2.45 and RM 3.20. Holding unlisted shares is simply not an option for most investors, and thus they were pressured to throw in the towel. Still kudos for the minority investors, they did put up a decent fight, but the odds were hugely stacked against them.


It is about time the authorities are looking into this situation: delistings at unfair (low) prices, possibly followed by relisting at inflated prices. They should make the playing field between majority and minority investors a more even one, it is long overdue.

Stating "these corporate exercises were business decisions" will simply not do.

MBF, HLCap, MRCB

I often receive requests to look into certain corporate matters. I don't have as much time as I would I had, but will make a quick round-up of three deals that are hugging the limelight:


[1] Regarding the privatisation of MBF, MSWG is organising a forum on Thursday 28th February at 11AM, at MSWG's Training Centre in KL:

"Some shareholders have raised questions whether the earlier announcement by the Board on dividend arising from the sale of MBF Cards & Services would be paid to them. The privatisation is Tan Sri Mogan Lourdenadin's third attempt to take control of MBF Holdings. In 2010 Mogan had tried to take MBF private through a proposed selective capital reduction and repayment exercise by offering 65 cents per share, but was unsuccessful after minorities rejected the offer due to the low price."


[2] There are several articles about Hong Leong Capital (HLCap), suggesting something is brewing in this privatisation exercise:

From The Star, February 19, 2013:

"Shares in Hong Leong Capital Bhd (HLCap) continued to overshoot the privatisation offer price of RM1.71 made by parent company Hong Leong Financial Group Bhd (HLFG), finishing five sen up to RM1.87 in a weak broader market.

Dealers contacted randomly by StarBiz said they were still puzzled by the broad ongoing buying despite scant indication of any price increase in the buyout offer.

Some dealers continued to speculate that parties friendly to the offeror could be continuing their buying of HLCap shares from the market presumably to ensure HLFG secures a high percentage of shares from acceptances of the general offer, which would then help make the case for the delisting of HLCap, the group's stockbroking, investment banking and asset management arm."

Another article from The Star, February 22, 2013:

"Meanwhile, a new substantial shareholder has surfaced in HLCap Datuk Dr Yu Kuan Chon, the chairman and executive director of publicly-listed and family-run YNH Property Bhd.

Yu, a low-profile former medical officer for the Government, rapidly increased his stake in HLCap to 17.24 million shares or 6.98% as at Wednesday from 14.67 million shares or 5.94% on Monday.

It is not known if Yu is a friendly party to Tan Sri Quek Leng Chan, the patriarch of the Hong Leong group, who is taking HLCap private via his flagship Hong Leong Financial Group Bhd (HLFG) for RM1.71 per share.
......

Dealers have speculated that parties friendly to the offeror could have bought HLCap shares from the open market to ensure HLFG secures a high percentage of shares from acceptances of the general offer, which would help make the case for the delisting of HLCap."


Investors should be very cautious making investment decisions based on the above, since it is mere speculation, as pointed out by The Star. But the matter at hand might have serious consequences for minorities. Parties acting in concert (PAC) should be identified, since the price to be paid by the offering party should be the highest paid by them or any PAC.

Bursa Malaysia should monitor this situation very closely and make sure that minorities are not disadvantaged, either by not receiving timely and accurate information, or in money terms, not receiving the offer price they are entitled to.


[3] MRCB announced a deal with Gapurna, this matter is rather difficult, I refer to articles on the website of KiniBiz:

MRCB-Gapurna deal raises eyebrows
EPF says good to have entrepreneur head MRCB
MRCB-Gapurna: Salim defends deal, explains role
Could the EPF have done more?

And lastly, as a stark reminder that one should not mix politics with business:

MRCB’s chequered past colours its future

"With its political clout, MRCB grew to own such choice assets such as 20.2 per cent in Commerce Asset Holdings Bhd which owned Bank of Commerce Bhd (now CIMB)—via NSTP, a chunk of power generation companies like Malakoff Bhd, Sepang Power and Port Dickson Power among a whole host of other large assets."

How many billions of ringgits would the stake of CIMB alone be worth now, if only they still owned it?

"For its financial year ended August 1999, the company suffered losses of about RM1.45 billion from RM235.39 million in revenue. As at August 1999, MRCB was saddled with short term borrowings of RM923 million while the company long term debt commitments were RM473 million. On the other side of the balance sheet MRCB had cash and bank balances amounting to RM38 million."

In the Asian crisis many dreams came crashing down to Earth.

"Eventually MRCB was acquired by EPF in an apparent rescue of the group."

And that is how the EPF became the controlling shareholder.