More privatisation could be on the cards

TheEdge Wed, Oct 14, 2020 03:00pm - 6 months ago

GLOBALLY, US$26 billion (RM108 billion) worth of privatisation transactions have been recorded so far this year, up 2,500% year on year, amid volatile markets, according to Bloomberg.

In Malaysia, so far this year, eight companies have received privatisation offers against 12 last year.

They are Amverton Bhd, TA Global Bhd, MB World Group Bhd, Yee Lee Corp Bhd, Kwantas Corp Bhd, Amanah Harta Tanah PNB and two LEAP companies — Polymer Link Holdings Bhd and JM Education Group Bhd.

It has been said that Star Media Group Bhd, Media Prima Bhd and British American Tobacco (Malaysia) Bhd (BAT Malaysia) could be candidates for privatisation.

Also, taking the cue from the proposed privatisation of Kwantas, HLIB Research says in a Sept 21 note that there could be more corporate exercises, particularly privatisation, among plantation players if crude palm oil price sustains at a high level in the near to medium term.

“Based on our observation, most privatisation targets share several similar characteristics, including low trading liquidity, low valuation and under-researched. About a third of the Bursa Malaysia Plantation Index components have these characteristics.”

They include Chin Teck Plantations Bhd, Cepatwawasan Group Bhd, Hap Seng Plantations Holdings Bhd, Kluang Rubber Co (M) Bhd, Sarawak Plantation Bhd, Ta Ann Holdings Bhd and United Malacca Bhd.

Inter-Pacific Securities head of research Victor Wan says the market could see more privatisation exercises when share prices are not reflective of the companies’ value.

“There is a correlation between the business environment and privatisation, especially when times are not so good. Certainly, there will be talk about that. Given that businesses are not doing well, with share prices being undervalued, it certainly makes more people think about it [privatisation] in this environment,” he tells The Edge.

Wan says, however, that the decision to go private rests on the management, along with its assessment of the business outlook.

“Deep-pocketed shareholders may [go for privatisation]. But if you look at AirAsia Group Bhd, even with its share price so low, it is impossible to take the company private at this stage.

“For BAT Malaysia, as it is now a trading company, it makes sense to privatise the company. But the larger question is the implication of the move — whether the major shareholder wants it to be a listed or private company,” he says.

Although current business conditions are conducive for privatisation, Wan points out that the planned listing of Mr DIY Group (M) Bhd shows otherwise.

“[Mr DIY] may not be able to get the premium that it wants because the sentiment is not there. So, the management has to decide the best time to list,” he says.

Mr DIY, touted to be one of the largest initial public offerings in the past three years, has inked an underwriting agreement for its planned listing.

The home improvement retailer will issue 941.49 million new and existing shares. Bloomberg reported that it aims to raise about US$500 million.

Areca Capital Sdn Bhd executive director and CEO Danny Wong says more companies affected by the Covid-19 pandemic may consider a privatisation.

“It is a trend and likely to involve the negatively affected industries, as the market may not value these companies now,” he says.

Meanwhile, Rakuten Trade head of research Kenny Yee says the “holding company discount” may lead to the privatisation of more holding companies. The holding company discount, also known as conglomerate discount, refers to the tendency of the market to value a diversified group of businesses and assets at less than the sum of its parts.

“For example, Boustead Holdings Bhd is still trading way below its book value. So, privatisation would be a good way to monetise the company,” he says.

The privatisation of Boustead remains uncertain, as no official takeover offer has been made after the Armed Forces Fund Board (LTAT) received the nod from Bank Negara Malaysia on Aug 27 for its proposal to privatise Boustead. LTAT owns 59.44% of Boustead.

Another government-linked investment firm, Permodalan Nasional Bhd (PNB), is undertaking a privatisation exercise for real estate investment trust (REIT) Amanah Harta Tanah PNB (AHP) for RM1 a unit. The move is intended to facilitate the restructuring and rebalancing of AHP’s property portfolio.

Worth noting is that the last REIT privatisation was Boustead’s Al-Hadharah Boustead REIT in February 2014, as its units were thinly traded and the company found it difficult to maintain dividend yields.

For property stocks and REITs, Yee says there is no strong reason for privatisation, as they still need public funds to support their business operations. He also notes that liquidity should not be an issue, as the company can address it through share placements.

“If the company is good, it is not difficult to increase liquidity,” he adds.

He says the situation does not apply to companies listed on the LEAP Market, as sophisticated investors are involved.

Two LEAP companies — Polymer Link Holdings Bhd and JM Education Group Bhd — look set to leave the local bourse.

Polymer Link’s controlling shareholders requested a delisting because its shares had been trading at a relatively low level over a prolonged period of time since its listing in April 2018.

Polymer Link is involved in the manufacturing and trading of compounded and non-compounded plastic powder, as well as the sale of industrial machinery and equipment.

JM Education, an education counselling and student placement services provider, is also looking at a delisting to allow greater flexibility for the company as an unlisted entity to streamline its business operations.

The privatisation of TA Global is still ongoing after founder Datuk Tony Tiah tried to revoke the plan. His attempt was rejected by Securities Commission Malaysia in June, which said any announcement of a firm offer should be made only after careful and responsible consideration.

Looking ahead, Star Media’s beaten-down valuation could entice its controlling shareholder to consider privatisation, according to CGS-CIMB Research in an Aug 28 note. It has an “add” call and a target price of 52 sen for the stock.

At last Wednesday’s close of 31.5 sen, Star Media’s share price is at a steep discount of 70% to its net assets per share of RM1.05 as at June 30.

Some foresee the privatisation of Media Prima Bhd by its largest shareholder, Tan Sri Syed Mokhtar Albukhary, as part of the tycoon’s restructuring and consolidation plan for his media assets. His 31.9% stake is held through Aurora Mulia Sdn Bhd.

Aside from the interest in Media Prima, he also owns TMR Media Sdn Bhd, which publishes The Malaysian Reserve, and Utusan Melayu (M) Bhd.

BAT Malaysia is seen as a potential candidate for privatisation, as its business has been dragged down by the sale of illicit cigarettes. Its six-month net profit fell 36.1% y-o-y to RM105.38 million, from RM164.87 million. Year to date, its share price has dropped 33.6% to close last Wednesday at RM10.02, giving it a market capitalisation of RM2.861 billion.



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