Privatization puts Bursa's Relevance at Risk!

My dearest Moo Moo Cow,

I was forwarded this article which was posted on the Singapore Business Times. I would like to share it with you.

• Delistings put Bursa's relevance at risk
  
  By PAULINE NG
  KL CORRESPONDENT
  
  IT'S only mid-way into May and three listed companies have announced that their major shareholders would like to buy out minorities and exit the stock exchange. There have been five so far this year, and this is a noticeable acceleration of a trend from last year.
  
  On the positive side, it reflects the maturity of the market, say some bankers and top government officials. Although that might be undeniable, so are the longer-term consequences for the local bourse if good companies continue to be taken off it.
  
  One long-standing gripe of foreign funds is the market's lack of depth - its pool of liquid big cap stocks being too few - a point Standard & Poor's again highlighted last week when it commented on the proposal to take the country's most valuable mobile company Maxis Communications private and then to de-list it.
  
  While not entirely bad, since current merger and acquisition activities add fresh interest to the market, Maxis's eventual delisting 'does not help global investors' view that Malaysia has a dearth of large-cap issues and this may reduce the weighting of Malaysia in regional indices', S&P vice-president of equity research for Asia Lorraine Tan observed.
  
  Last year's estimated RM35 billion (S$15.8 billion) worth of M&A activity is expected to increase threefold this year, many of which are likely to involve delisting.
  
  Maxis stunner
  
  Maxis Communications has been the biggest shocker thus far, for when it exits the bourse, it will take some 4 per cent of the market capitalisation of the Kuala Lumpur Composite Index along with it. Coming on the heels of Malakoff's and PPB Oil Palms's proposed delisting, the absence of three institutional favourites from Bursa in a short space of time cannot be underestimated.
  
  Even though the exchange has over 1,000 listed entities - admittedly too many for a market its size - only a small group qualifies as sufficiently big and liquid enough for most funds. And of that lot, only a fraction has the fundamental ingredients to make them institutional favourites.
  
  The huge number of listed companies aside, only some 10 per cent are actively traded, so the recent moves by major shareholders to take less active ones private will not be missed.
  Second Finance Minister Nor Mohamed Yakcop believes that there is no need to sound the panic button yet as listings and delistings are the norm in any capital market. But he did say that the local bourse needs sufficient vibrancy and appeal so that companies, including hopefully a number of good foreign ones, would be attracted to list on it.
  
  Locally, there are fewer than a handful of large companies left that can be listed. Besides hard disk drive maker JCY Holdings, which is set to list later this year, the other government-linked companies such as Felda or Petronas's unlisted subsidiaries show little signs of going public.
  
  One engineered giant cap that is already attracting strong investor interest is Synergy Drive - the special purpose vehicle for the merger of the Sime Darby group, Golden Hope Plantations and Kumpulan Guthrie. The share prices of the companies involved in the merger have shot up since the proposed merger in November, pushing Synergy Drive's market cap to around RM48 billion - the third largest on the bourse and on par if not slightly bigger than the country's biggest banking group, Maybank.
  
  Many are already anticipating a warm reception on the bourse when it lists in October and more so if it can demonstrate the enormous savings and greater efficiencies that can be leveraged from the merger.
  
  
  Bursa challenge
  
  In the interim, Malaysia must act quickly to ensure that the local exchange continues to be relevant. The increasing number of corporate buyouts is welcome if minorities are taken out at a fair price and the exercise helps trim the number of inactive companies. Fewer companies on the bourse is not necessarily a bad thing. But fewer quality companies certainly is - especially since the original pool was not big to begin with.

As you know, I am totally against these delistings!

Here's a good blog posting by StockTube: http://stocktube.blogspot.com/2007/05/privatization-gaining-momentum-junk.html

Past blog postings here:

Posting on Bumi Armada

• http://everything27.blogspot.com/2006/09/pirates-which-siezed-armada.html
  
• http://everything27.blogspot.com/2006/09/more-on-privatisation-issue.html

Posting on Privatization issues

• http://everything27.blogspot.com/2006/08/privatisation-heathy-trend.html
  
• http://everything27.blogspot.com/2006/09/more-on-privatisation-issue.html

Posting on MetroJaya Privatization issue.

• http://everything27.blogspot.com/2006/11/muis-purchase-of-metrojaya_02.html
  
• http://everything27.blogspot.com/2006/11/muis-purchase-of-metrojaya-ii.html