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Finally.. an article on Privatisation Issues!

Saturday, November 4, 2006

Saw this article posted on Star Bizweek. ( here )

Hate doing this but I am going to reproduce the artile in full.

  • EVERY time there's an announcement of a corporate proposal that will lead to the privatisation of a listed company – which seems to be occurring with greater frequency these days – someone is bound to grumble that the pool of quality stocks is shrinking.

    The thinking here is that most of the businesses that are taken private are sturdy but somehow their shares are generally under-appreciated by the market. This erodes the case for maintaining the listing status. As such, it is better for the controlling shareholders to acquire the rest of the equity and enjoy all the returns.

    Some people see the recent streak of privatisation exercises as a worrying trend. Their concern is that if more and more companies are withdrawn from the exchange, we will end up with too much money chasing too few high-grade stocks.

    This is heightened by the fact that Bursa Malaysia has some catching up to do to before it can match the size and depth of its regional peers.

    Given the situation, it is easy to believe that many of our stocks have long been trading at significant discounts to their fair values. For punters, it's a good time to scour for the next takeover target, which usually comes with the promise of gains from a general offer (GO). Often, a GO paves the way for a de-listing.

    As with most stock market-related fretting, the sentiments regarding the recent chain of privatisation schemes are exaggerated.

    To start with, the number of businesses that have been taken private in recent years is small when you consider Bursa Malaysia's present population of 1,029 listed companies. Since January 2004, the tally has increased by 123, although there have been 187 new listings.

    That means 64 companies (not counting those whose listing status were assumed by other companies) have disappeared from the stock market during this period. Of these, 31 have been removed by Bursa Malaysia because they had failed to comply with listing regulations, mainly those relating to their financial condition.

    That leaves us with just 33 companies that have been taken private voluntarily in almost three years. There are a number of proposed privatisations that have not been completed, but even if we included these, the final figure would not exceed 50.

    Furthermore, some of these companies have been taken private as a result of mergers and acquisitions, and corporate restructuring; the changes had made it inefficient or unnecessary to retain the companies' listing status.

    There will probably be several more privatisation moves a little further down the road. After all, we have not fully emerged from a bear market stupor. Just as a rise in initial public offerings (IPOs) marks a bull run, privatisations – essentially IPOs in reverse – are a sign of market weakness.


    Nevertheless, the pessimism is not expected to last much longer, and when the bulls return, it is certain the arguments for keeping a company listed will be more compelling.

    We should worry, though, if we see businesses yanked out from Bursa Malaysia and subsequently re-listed elsewhere. Or as is happening in the United States, if private equity funds, in search of superior returns, drive the buyouts of listed businesses. Neither is happening here.

    Also, there's room to argue that it's far too convenient to blame the market if the shares of a company are perceived by its management as being persistently undervalued.

    The underlying value of the shares is not the only yardstick investors rely on. They also consider liquidity, corporate governance, investor relations and growth prospects, among other things. The management needs to address these factors as well.

    It's not enough for the management to just focus on running the business and hope for the investment community to take notice. And if the management feels that it's not worthwhile to put in effort in the other areas of operating a listed company, perhaps the company is better off as a private entity.

    When investors lament the privatisation of listed companies, it's akin to single men and women complaining that all the good ones are already taken. They're being negative. It's a matter of looking hard in the right places and with the right intentions. Isn't that what's investing about?






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