Is Wrong To Fault The Privatisation Of Bumi Armada?

From the posting Do You Want Bumi Armada's IPO?

• ronnie said...
  
  ....... AK cannot be faulted for taking Bumi Armada private. The share was grossly undervalued. AK did not do anything illegal & unprincipled.
  
  This huge disparity in price & value will create tremendous opportunities for value investors & private equity funds....

I value your feedback an opinion but I would disagree.

'Cannot' be faulted? Don't fault the owner. It was not the owners fault that the stock is traded so low. It was the market. It was the disparity between value and price that caused this 'tremendous opportunity'.

Think about it for a moment.

What if .... whenever the disparity between value and price occurs in the stock market, all OWNERS decide to grab this 'tremendous opportunity' by profiting via privatisation offers?

And what if .... this is reality?

Stock goes undervalue, owner profits by privatising the stock.

And then ... when times are better, they relist back the stock but at a higher valuation?

Yes, what if this is the trend?

Stocks goes undervalue, privatise. Times are good, relist back at a higher price.

How? Isn't this what's happening in the case of Bumi Armada?

Where then is the integrity of the market place? What's the purpose of even having a market place? 
Would the market place have any investors left if all stock owners decides to be like this? Take advantage of the tremendous opportunity. Take the company private. Profit form it. Profit from it again by relisting the company later at a much higher price!

Do you want this to be norm of the market place?

I am very sorry but I strongly reject.

It's appalling and sickening to see owners taking advantage of every single opportunity to profit themselves.

And if it does happens, what's the point of having a stock market anymore?

That's wrong in my opinion. Yes, no matter how flawed my opinions are, this is simply wrong.

And who am I? I am one of the investing public and I know very well which side of the fence I am on. So whatever and whenever I write, it's clear I am very biased to the investing public point of view. I try to put myself in the shoes of the minority shareholders and in the case of privatisation of Bumi Armada or Barmada, I asked myself, are the minority shareholders compensated adequately or are they taken advantage by the owners?

Barmada or Bumi Armada, was grossly undervalued. For its fy 1998, Barmada was earning just some 28 million. By fy 2002, Barmada was earning some 63.4 million. The growth potential was incredible. It was clear. The growth was awesome.

But the company was taken private based on current earnings. Yes, the company was taken private ignoring all facts that the company possessed such an incredible growth potential.

I HAD valued the company to worth at least some rm 30.00 back in 2003.

But the company as taken private at rm 7.00.

Can I call this a fair deal for the minority shareholders?

And can I even use the phrase 'fair deal'?

Or perhaps the word ROB would have been more appropriate.

Read more...

Do You Want Bumi Armada's IPO?

 Some simple facts when Bumi Armada was TAKEN PRIVATE back in 2003. 

1. Bumi Armada had an eps of RM 1.01 per share
2. Bumi Armada had a growth rate of 25% per annum.
3. Bumi Armada was delisted at rm 7.00.
4. That's an PE multiple of 7x based on CURRENT earnings.
5. With a growth rate of 25% per annum, Bumi Armada's eps would hit RM 1.97 per share within 3 years.
6. And the EPS would double to RM 2.46 per share by the 4th year.
7. Using a price of 7.00, the stock WAS TAKEN private with a pe of 3.55x using a 3 year forward earning.

Shocking?

Yes, that was how CHEAP Bumi Armada was delisted via a privatisation exercise.

Many felt robbed!

But now Bumi Armada is GOING to be relisted on the stock exchange again.

Incredible isn't it?

Companies can easily list and delist and list again in Bursa Malaysia.

Doesn't this make a total mockery of the stock exchange?

Why our stock exchange so no class? Why allow stocks to list, delist and list again? Main masak-masak ah?

Mentioned in the blog posting: How Will Previous Shareholders Feel About Bumi Armada's Re-Listing?

• It is a US$1 billion IPO, which values the company at about 20 times price-earnings for its 2011 earnings, and 16 times for 2012," a banking source said yesterday.

Think about it.

If you are a long term investor, how?

Think about it once again. Stock moves up and down. What if, in the future,  when the stock moves down, the company decides to pull off the same stunt all over again? Not possible?

Yes, what if, in the future, the company decides to take the company private at a cheap price, as we had witnessed back in 2003?

Is that not possible?

Would you want to take such a risk?

Do you want to give the company a chance to make a fool out of your money again?

Ok. I, understand, many 'IPO investors' are merely speculators who subscribes to the IPO hoping the stock would jump on listing day.

It's an open strategy - which I would not criticise at all. It's not for me to comment on how one attempts to make money from the market.

However, recently, the past few IPOs aren't hot!

IPO investors and speculators are hit badly with plunging IPOs. For example? XOX Plunged 35% On Listing Day! And what was most annoying was that despite the stock opening significantly lower than its IPO price and continued to plunge after that. the major shareholders Of XOX were photographed laughing happily while pointing at a screen which was displaying the stock trading at a loss and of course, this triggered the usual Blame Game on the local press.

Some comments stood out.

• New listings on Bursa Malaysia are failing to gain premium in the market because their valuations are overstretched in the first place, merchant bankers who spoke on condition of anonimity said yesterday.
  
  Recent IPOs such as XOX Bhd, UOA Development Bhd, MCLean Technologies Bhd and Ideal Jacobs (Malaysia) Corp Bhd struggled to gain premiums on their debut or struggled to maintain their momentum.
  
  "For most of the initial public offers (IPOs) coming out in the market now, the valuations were done at least three or four months ago, when the appetite for risk was much greater," said a merchant banker who has worked directly on a couple of IPOs earlier in the year.

Yeah, they admitted it.

That because the demand was there or the appetite for risk, IPOs were priced at a premium with overstretched valuations.

And would this not best reflect the Bumi Armada relisting?

The company, which had a 25% per annum growth, was taken private using a CURRENT earnings valuation.

And how does the stock wants to be relisted? Let me quote again:

• It is a US$1 billion IPO, which values the company at about 20 times price-earnings for its 2011 earnings, and 16 times for 2012," a banking source said yesterday.

Won't you say that stock is priced at a premium?

Won't you?

ps: Again this reminds me of this one statement made: 'When stocks are taken private, the minority shareholders are offered the cheapest possible valuation but when stocks are listed, they WILL be sold to the prospective investors at a premium price!'

And on yesterday, the CEO made an incredible statement on Business Times:  Buoyant outlook for Bumi Armada

• We are going to the capital market to have a good dose of equity. We believe this exercise will help to grow the company further," said director and chief executive officer Hassan Basma in Singapore.
  
  
  

WOW!

That's very nice of the CEO to tell the investing public that they are going to the stock market to be listed so that they can get a good DOSE of liquidity (Money!!!!)

And Bumi Armada's preliminary prospectus is already loaded on SC website.

The following pdf file is interesting: http://www.sc.com.my/eng/html/Prospectus/pdf/Armada/Pg11_Financial_info.pdf

Page 9 of the pdf file:

• We have and will continue to have a significant amount of borrowings. As at 31 December 2010, our total borrowings stood at RM3,418.9 million (including RM1.2 million of hire purchase). Our ability to service our debts and other contractual obligations will depend on our future performance and cash flow generation, which in turn will be affected by various factors, many of which are beyond our control.
  
  
  As a result of our indebtedness, we are exposed to interest rate risk, primarily from borrowings bearing variable interest rates to the extent that our exposure to floating interest rates remains unhedged by interest rate swaps.

And isn't this great?
 
When Bumi Armada was delisted back in 2003, it was only carrying some 148 million in debts. (you can verify that fact by clicking Barmada's quarterly earnings report here - data from word file attached)
 
Now it's carrying some 3.4 BILLION in debts, it wants to get a good dose of liquidity, a good dose of money by relisting!
 
Now, isn't the stock market a great place to get money?
 
So how?
 
Do you want Bumi Armada's IPO?
 
ps: I have no idea how the stock will trade on its relisting but I certainty DO NOT want to be an investor of this company. The stock can double or triple in the next years but such opportunity is NOT an opportunity at all for me. Yes, it won't bother me a single bit if I miss out and neither would I jump for joy if the stock tanks! I am just NOT interested. :)

Read more...

How Will Previous Shareholders Feel About Bumi Armada's Re-Listing

18 June 2007: Bumi Armada Sailing Again???

See this posting The Pirates which seized the Armada

Ms. Claire Barnes of Apollo Investment Management wrote the following (here )

• To go back to the merits of the shares: in the five years since we first bought Bumi Armada, revenue has tripled. This corresponds to growth of 25% per annum, which is perhaps slightly higher than the growth in other aspects of the business, but broadly reflective. In purely qualitative terms, before thinking about valuation, this is one of the gems of the Malaysian market. It has an excellent service record, it has good relations with its customers in the offshore oil and gas sector, and apart from 1997, when it recorded unrealized FX losses on an appropriately matched loan book, it has sustained returns on equity of comfortably over 20%. It is highly cash generative, and when the Land & General stake was overhanging the market we put forward an MBO-and-buyback proposal which would have seen the debt paid down in short order while generating phenomenal growth in earnings, net assets, and cashflows per share. This opportunity was not taken, but delisting aside, the shares would remain attractive; the offer is far from generous, and clearly includes no premium for privatisation. We didn't sell at RM8.00 two years ago, and Mayban Securities on Friday published a buy recommendation valuing the shares at RM12.20, which is arguably conservative.
  
  Bumi Armada reported earnings per share of RM1.01 for 2002, with an upbeat assessment of outlook for the year ahead, so is on a current-year PE of 6-7 - perhaps half that of the market, despite better-than-average business characteristics and growth prospects, although some discount is normal for illiquidity. In its recent announcement, it has however cut back on operational background, provides no details of major contracts, and omitted any final dividend despite its earnings growth. (This last has particularly incensed some minority shareholders who are surprised 'that Ananda Krishnan should be involved in such a deal'.) This reticence is unfortunate given the conflicts of interest involved.
  
  In the event of a forced delisting, we believe that there would be a legal case against the directors and the controlling shareholders for oppression of the minorities, but costly and time-consuming legal action is a last resort for investors in any jurisdiction.
  
  We were pleased to see that Mayban remains optimistic about Bumi Armada's prospects, but admit to being surprised by the timing. Maybank, its parent, was amongst those which originally jumped at the RM7. This must be proof of their Chinese walls - or of the different thought processes of bankers and investors. We are more impressed by this than by the role of RHB Sakura, which also agreed to sell its Bumi Armada shares in August, and wonder whether it was already advising the company or the buyer: as far as we know, the invitation was extended only to Malaysian banks, and not to a single foreign bondholder. Bondholders who expressed a desire to participate immediately after the deal became public were told that it was already too late - which is presumably lawful, but was certainly discriminatory, and not the sort of thing to make foreign investors think they are on a level playing field.
  
  If an offer is mandatory, it is not necessary to have bureaucrats review the decision. In this case, the controlling shareholders have to pay RM7, but they only have to pay it much later to minorities than to the favoured few. In other cases, it might suit a cash-strapped acquirer very well to avoid a general offer altogether; again, why should officialdom help him? (To avoid any confusion, we would like to be absolutely clear: if a shareholder acquires control, there should be a general offer at the same price, but minority shareholders should be free to refuse.)
  Information flows are important, and much more troublesome than they should be in the era of electronic communications. International investors frequently cannot obtain announcements and circulars through the global custody network in time to consider them adequately; frequently they arrive too late to meet corporate action deadlines. Listed companies should be required to copy the local stock exchange and international wire services with all announcements relevant to investors - such as announcements to Euroclear. This responsibility should not be left to companies: they respond when it suits them, and forget when it doesn't.

So Bumi Armada was highly rated. Growth of over 25% per annum, excellent service record, return of equity of over 20% and great cash flow.

Then out of the blue, Barmada (Bumi Armada), as Claire described "has however cut back on operational background, provides no details of major contracts, and omitted any final dividend despite its earnings growth."

And then it decided to announce to delist with an offer of 7.00! When Mayban conservatively valued it at 12.20.

And so Bumi Armada was delisted.

Remember back in 2002, Bumi Armada had an eps of RM 1.01 per share. Yes, an eps of RM 1.01! (you can verify it here: Quarterly rpt on consolidated results for the financial period ended 31/12/2002 )

And it had growth rate of 25% per annum.

And Bumi Armada was delisted at rm 7.00.

That's an PE multiple of 7x.

Yup!

On today's newspapers:

'Bumi Armada eyeing US$1b from IPO'

Published: 2011/05/05

Bumi Armada's IPO, which will be one of the largest announced in Southeast Asia this year, was delayed several times in the past few years.

KUALA LUMPUR/SINGAPORE: Malaysian oil and gas services provider, Bumi Armada, plans to raise nearly US$1 billion (about RM3 billion) from its initial public offering (IPO), the largest offer in Malaysia since the listing of Petronas Chemicals last year, sources with direct knowledge of the deal said.

"It is a US$1 billion IPO, which values the company at about 20 times price-earnings for its 2011 earnings, and 16 times for 2012," a banking source said yesterday.

Bumi Armada's chief executive officer Hassan Basma could not be reached for comment.

The company filed a draft prospectus for its IPO with the country's securities regulator.

Bumi Armada said it plans to sell 878.6 million shares, of which 644.3 million are new shares and the rest are existing shares held by its present shareholders through the IPO.

The draft prospectus did not detail the timeline of the share offer or the composition of shares that will be made available to institutional and retail investors, as is the practice for draft filings in Malaysia.

Bumi Armada is an offshore support specialist and the only Malaysian company that owns floating production storage and offloading vessels, which carry a premium lease rate.

Bumi Armada's IPO, which will be one of the largest announced in Southeast Asia this year, was delayed several times in the past few years.

The company was privatised in 2003 by tycoon T. Ananda Krishnan, and a planned relisting in 2008 was delayed due to the global financial crisis. A subsequent relisting plan was also shelved.

One fund manager said the Malaysian market had appetite to support an IPO of Bumi Armada's size.

"I don't know whether it's the same company as it was in 2003 when it delisted, because I've been told they've injected other assets," MIDF Amanah Asset Management's chief executive officer Scott Lim said, adding that he needed more information on the company before deciding whether to invest in the stock.

The Malaysian oil and gas sector has been identified as one of the key economic areas under the government's economic transformation programme, which aims to boost investment and raise the national income level.

The country has also seen significant investment commitments from foreign companies, such as a total of US$4.9 billion (RM14.6 billion) by Exxon Mobil and Royal Dutch Shell, to develop new assets in the country, the government has said.

The joint global coordinators for the IPO are CIMB, Maybank and Credit Suisse, which are also joint bookrunners with RHB, CLSA and UBS. - Reuters

Link : here

The highlighted statement in red sticks out sorely.

The stock was delisted when the company made the privatisation offer at RM 7.00 in 2002. Bumi Armada specifically said did not want to remain as a listed entity. With the privatisation offer, they stated clearly they want to delist. They want out of KLSE.

The offer for the shares were based on an insane offer of 7 pe multiple. And it's even horrendous if one factors in the fact that Bumi Armada was enjoing a 25% annual growth.

Today the company wants to re-list

Quote: "It is a US$1 billion IPO, which values the company at about 20 times price-earnings for its 2011 earnings, and 16 times for 2012," a banking source said yesterday.

What? WHAT? WHAT?

Delisted at 7x pe. Now it wants to relist at 20x pe.

Hell yeah.

Life is apparenetly too great.

Read more...

Bursa Malaysia: Bumi Armada Relisting?

What? What? You just got to be kidding!

Are you serious that Bumi Armada is relisting?

OMIGOSH!!!!!!!!!!!!!!!!

Do say it isn't so!

How tasteless and how ludicrous could things ever get on Bursa Malaysia?

Put it into a perspective of a relationship. Let's call it Durian and Grapes (Not to offend any). Durian and Grapes are happy married. One fine day, out of the blues, Grapes cites the lack of value in this relationship, and Grapes walks out. Taking everything away except for their child, Mustard, age 9. Durian of course was heart broken. A good 7 years past, Durian recovers and is back to cheerio ways. Suddenly Durian wants to walk back in and Grapes gladly takes Durian back, as if nothing has happened. Everything is hunky dory again. But what about Mustard? How would Mustard be feeling now? Lost parent at age of 9, lost the past time of childhood and now Grapes just wants to waltz right back in, as if nothing has happened?

Well, that's the best I could think of.

Mustard is us, the investing public. Durian is the stock exchange. And Grapes is that one company who list, delist and relist its companies into the exchange.

So how do you reckon we, the investing public, would feel about all this?

Does the stock exchange feel it's a swinging door, where companies can just list and delist and relist as per its wimps and fancy? As they say 'Suka-suka list. Suka-suka privatise. Suka-suka re-list.' Like children playing with sand in the back yard?

That's how I feel when I read about Ananda Krishnan's Bumi Armada to be listed?

Felt like throwing up.

First it was Bumi Armada's privatisation back in 2003 and mind you, it was done in so bad taste. The Pirates which seized the Armada ( See also Pirates attempt to seize whole Armada: pitfalls of investing in Malaysia )

Then it was Powertek.

And then it was Maxis.

Well with the Maxis re-listing, Bursa Malaysia made it clear that companies can list and delist and relist as per its wimps and fancy.

Then you have Astro.

Now Bumi Armada wants to relist?

Gosh!

From an investing perspective, is there any logical reasoning to be an investor in this group of companies? Is there any sane reasoning?

With the option of delisting, there is the unknown time frame and price capped on the investment. Correct? What does this mean? What is the risk? Well, if you do not understand the risk issue, it means that at any time a company could be taken private and at any price too. So what if the price is below our investment cost? Look at Astro. It used to trade way above rm 5.00. Look at the privatisation price. Long term investing with such companies? Isn't this such a losing game?

If so, what's the logical thing to do?

So what can we the investing public do?

We can air our displeasure but most important there's one thing we all can do. Which is to be the smarter investor.

So if we think the game 'played' is so damn ludicrous, where companies get to list, delist and relist (some would even ask if they are taking us as fools!), we have the right to ignore this group of companies!

Just don't buy the shares at all.

Yessir me!

Just don't touch any of these shares.

Forget about so-called value (What is value when the majority shareholder has the nasty habit of listing, delisting and relisting the shares) and if the shares go up, so what?

Will we suffer?

Will we suffer so badly at one missed opportunity?

Is it even a crime to miss this one so-called opportunity?

Think about it.

And yes, Bursa, seriously, this doesn't look at all. Don't you think you are degrading the quality of the stock exchange when you allow such events to occur? Yeah, there's absolutely nothing to stop a company from going private because it's a free market. However, surely you can do something about it's relisting. Remember, the company walked away and now it just wants to waltz back in, as if nothing has ever happened? Isn't this such a mockery!

Yeah.. for some, more listing in Bursa is good. It means more business for Bursa and more business, it means more profit and at the end of the day. more pay money.

Sigh.

Yet another sad, sad day.

Read more...

Bumi Armada Sailing Again???

WOW!

What a horrific and disgusting news on a Monday morning. Bumi Armada set to sail back to Bursa

• BUMI Armada Bhd may raise funds from an initial public offering in Malaysia as it needs to spend RM1.2 billion to buy 17 ships and service the deepwater oil and gas industry.
  The firm, owned by tycoon T. Ananda Krishnan, may also borrow part of the money needed to finance the two-year initiative.

Yeah, now they need the investing public money again. So they want to seek listing!

A couple of years ago, they delisted their listing, because they felt that there is MUCH MORE money for them if Bumi Armada was privatized!

• Bumi Armada would complete its circle if it returns to Bursa. Ananda, through Objektif Bersatu Sdn Bhd, had taken the company private in 2002.

See this posting http://everything27.blogspot.com/2006/09/pirates-which-siezed-armada.html

Ms. Claire Barnes of Apollo Investment Management wrote the following (here )

• To go back to the merits of the shares: in the five years since we first bought Bumi Armada, revenue has tripled. This corresponds to growth of 25% per annum, which is perhaps slightly higher than the growth in other aspects of the business, but broadly reflective. In purely qualitative terms, before thinking about valuation, this is one of the gems of the Malaysian market. It has an excellent service record, it has good relations with its customers in the offshore oil and gas sector, and apart from 1997, when it recorded unrealized FX losses on an appropriately matched loan book, it has sustained returns on equity of comfortably over 20%. It is highly cash generative, and when the Land & General stake was overhanging the market we put forward an MBO-and-buyback proposal which would have seen the debt paid down in short order while generating phenomenal growth in earnings, net assets, and cashflows per share. This opportunity was not taken, but delisting aside, the shares would remain attractive; the offer is far from generous, and clearly includes no premium for privatisation. We didn't sell at RM8.00 two years ago, and Mayban Securities on Friday published a buy recommendation valuing the shares at RM12.20, which is arguably conservative.
  
  Bumi Armada reported earnings per share of RM1.01 for 2002, with an upbeat assessment of outlook for the year ahead, so is on a current-year PE of 6-7 - perhaps half that of the market, despite better-than-average business characteristics and growth prospects, although some discount is normal for illiquidity. In its recent announcement, it has however cut back on operational background, provides no details of major contracts, and omitted any final dividend despite its earnings growth. (This last has particularly incensed some minority shareholders who are surprised 'that Ananda Krishnan should be involved in such a deal'.) This reticence is unfortunate given the conflicts of interest involved.
  
  In the event of a forced delisting, we believe that there would be a legal case against the directors and the controlling shareholders for oppression of the minorities, but costly and time-consuming legal action is a last resort for investors in any jurisdiction.
  
  We were pleased to see that Mayban remains optimistic about Bumi Armada's prospects, but admit to being surprised by the timing. Maybank, its parent, was amongst those which originally jumped at the RM7. This must be proof of their Chinese walls - or of the different thought processes of bankers and investors. We are more impressed by this than by the role of RHB Sakura, which also agreed to sell its Bumi Armada shares in August, and wonder whether it was already advising the company or the buyer: as far as we know, the invitation was extended only to Malaysian banks, and not to a single foreign bondholder. Bondholders who expressed a desire to participate immediately after the deal became public were told that it was already too late - which is presumably lawful, but was certainly discriminatory, and not the sort of thing to make foreign investors think they are on a level playing field.
  
  If an offer is mandatory, it is not necessary to have bureaucrats review the decision. In this case, the controlling shareholders have to pay RM7, but they only have to pay it much later to minorities than to the favoured few. In other cases, it might suit a cash-strapped acquirer very well to avoid a general offer altogether; again, why should officialdom help him? (To avoid any confusion, we would like to be absolutely clear: if a shareholder acquires control, there should be a general offer at the same price, but minority shareholders should be free to refuse.)
  Information flows are important, and much more troublesome than they should be in the era of electronic communications. International investors frequently cannot obtain announcements and circulars through the global custody network in time to consider them adequately; frequently they arrive too late to meet corporate action deadlines. Listed companies should be required to copy the local stock exchange and international wire services with all announcements relevant to investors - such as announcements to Euroclear. This responsibility should not be left to companies: they respond when it suits them, and forget when it doesn't.

So Bumi Armada was highly rated. Growth of over 25% per annum, excellent service record, return of equity of over 20% and great cash flow.

Then out of the blue, Barmada (Bumi Armada), as Claire described "has however cut back on operational background, provides no details of major contracts, and omitted any final dividend despite its earnings growth."

And then it decided to announce to delist with an offer of 7.00! When Mayban conservatively valued it at 12.20.

Me? Honestly, I thought the share should have been worth at least 18.00!

And the rest of was history. Many was simply appalled at the manner Barmada was delisted.

Now let's refer back to Claire's original pirates article which was written back in 2003.
Pirates attempt to seize whole Armada: pitfalls of investing in Malaysia

Read her opening statement again.

• There are many attractions to living in Malaysia, but we cannot muster the same enthusiasm for investing here (a change from July 99, when we were defending our decision to hold; our major investment then as now was Bumi Armada). Our recent experience has been far from encouraging, and it seems timely to provide an update.

So Bumi Aramada seriously plans to list again, eh?

Well, this is another extremely sad day in the history of stock exchange.

How could foreign investors, like Claire, be enthusiastic about investing in our stocks when our corporates has utter no respect for the minority shareholders?

When there is value in the company, the seek delisting. When they need your money, they seek listing again.

Oh, life is never fair, it has been said.

How true!

However, let me add this, life is never fair if in the future, the investing public shuns our stock market due to stunts like this!

Oh and for Bumi Armada, if it lists, I would AVOID the stock like plague! How could I safely know that I would ever be fully compensated for taking the investment risk in investing their company? What if the pull the same stunt and delist at a cheap valuation again?

Oh, life is never fair!

Read more...

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

Read more...

The Pirates which seized the Armada

2003. That was when Bumi Armada went from a public listed company to a private company.

The following is a link to Ms.Claire Barnes (of Apollo Investment Management) notes.

• http://www.apolloinvestment.com/pirates.htm
  
  The problem lies in the Malaysian listing rules. If the controlling shareholders receive acceptances to take their stake up to 90%, they can proceed to compulsory acquisition: this is fairly standard, but I doubt they could get to that level, were they not threatening a delisting. If they reach 75%, they can vote to delist - and do so unless there is a 10% vote against. In Hong Kong, that would be 10% of the unconnected shareholders; the Malaysian rules are less clear, and it seems that the controlling shareholders may be allowed to vote, so that one would need 10% of the issued capital to block - but officials of the Securities Commission have apparently said verbally that the controlling shareholder would be debarred from voting, which comes to the same thing. However, according to the offer document, if the free float is less than 25% for six months the KLSE may do the dirty work for the controlling shareholders, and delist automatically. This is the crunch, and it is a policy which should be urgently reviewed. The particular reason for urgency is the vote at hand: many investors are not allowed to hold unlisted shares; many more are unwilling to do so, given the lesser liquidity and lesser protection of minorities in an unlisted company. If investors know that they will be forced out eventually, and have a choice between RM7 now and RM7 in 6-12 months' time, the only rational decision is to accept now. But it is not a fair choice, and the KLSE should not be assisting controlling shareholders to squeeze minorities

and...

• To go back to the merits of the shares: in the five years since we first bought Bumi Armada, revenue has tripled. This corresponds to growth of 25% per annum, which is perhaps slightly higher than the growth in other aspects of the business, but broadly reflective. In purely qualitative terms, before thinking about valuation, this is one of the gems of the Malaysian market. It has an excellent service record, it has good relations with its customers in the offshore oil and gas sector, and apart from 1997, when it recorded unrealized FX losses on an appropriately matched loan book, it has sustained returns on equity of comfortably over 20%. It is highly cash generative, and when the Land & General stake was overhanging the market we put forward an MBO-and-buyback proposal which would have seen the debt paid down in short order while generating phenomenal growth in earnings, net assets, and cashflows per share. This opportunity was not taken, but delisting aside, the shares would remain attractive; the offer is far from generous, and clearly includes no premium for privatisation. We didn't sell at RM8.00 two years ago, and Mayban Securities on Friday published a buy recommendation valuing the shares at RM12.20, which is arguably conservative.
  
  Bumi Armada reported earnings per share of RM1.01 for 2002, with an upbeat assessment of outlook for the year ahead, so is on a current-year PE of 6-7 - perhaps half that of the market, despite better-than-average business characteristics and growth prospects, although some discount is normal for illiquidity. In its recent announcement, it has however cut back on operational background, provides no details of major contracts, and omitted any final dividend despite its earnings growth. (This last has particularly incensed some minority shareholders who are surprised 'that Ananda Krishnan should be involved in such a deal'.) This reticence is unfortunate given the conflicts of interest involved.
  
  In the event of a forced delisting, we believe that there would be a legal case against the directors and the controlling shareholders for oppression of the minorities, but costly and time-consuming legal action is a last resort for investors in any jurisdiction.
  
  We were pleased to see that Mayban remains optimistic about Bumi Armada's prospects, but admit to being surprised by the timing. Maybank, its parent, was amongst those which originally jumped at the RM7. This must be proof of their Chinese walls - or of the different thought processes of bankers and investors. We are more impressed by this than by the role of RHB Sakura, which also agreed to sell its Bumi Armada shares in August, and wonder whether it was already advising the company or the buyer: as far as we know, the invitation was extended only to Malaysian banks, and not to a single foreign bondholder. Bondholders who expressed a desire to participate immediately after the deal became public were told that it was already too late - which is presumably lawful, but was certainly discriminatory, and not the sort of thing to make foreign investors think they are on a level playing field.
  
  If an offer is mandatory, it is not necessary to have bureaucrats review the decision. In this case, the controlling shareholders have to pay RM7, but they only have to pay it much later to minorities than to the favoured few. In other cases, it might suit a cash-strapped acquirer very well to avoid a general offer altogether; again, why should officialdom help him? (To avoid any confusion, we would like to be absolutely clear: if a shareholder acquires control, there should be a general offer at the same price, but minority shareholders should be free to refuse.)
  
  Information flows are important, and much more troublesome than they should be in the era of electronic communications. International investors frequently cannot obtain announcements and circulars through the global custody network in time to consider them adequately; frequently they arrive too late to meet corporate action deadlines. Listed companies should be required to copy the local stock exchange and international wire services with all announcements relevant to investors - such as announcements to Euroclear. This responsibility should not be left to companies: they respond when it suits them, and forget when it doesn't

And of course I was way too familiar with this incident. I was active in an old stock forum and the following is some postings made.

Here is an old posting from an old friend.

http://forum.nextstock.com/cgi-bin/advboard/advboard.pl?command=viewmsg&forumid=1931&msgid=1270

• Nomore and others, any information about this company? So quiet
  lately after the acquisition by Anandan Krishnan. Some remarks:
  
  - There will be a General Offer at RM7 per share. I have nothing
  against that. This is the same price that was offered to the L&G
  bondholders, they agreed, and I can understand that, since
  bondholders are an other breed then equity-investors, they just
  wanted (part of) their money back. By the way, the bondholders got
  their money long time ago, the longer the GO will take, the less
  attractive this offer will be, the company is making about RM1 net a
  year. As it now stands, I am not inclined to accept this offer.
  
  - Most likely, after that there will be a MANDATORY acquisition at RM
  7 per share; I find the price simply not enough, such an acquisition,
  whereby people are FORCED to hand over their shares, should be at a
  price, which is very clearly generous, relative to a lot of
  yardsticks (for instance in comparison to other listed companies). At
  a PE of around 7, having had a healthy growth, with a high ROE (30%)
  and ROA (17%), and with good future prospects (even considering their rather flattish recent results on the operational level), I find the
  offer clearly to low. Barmada's share has been quite cheap for a long
  time, but firstly a few years ago they were highly geared (so quite
  risky, interest cover is nowdays very comfortable) and secondly there
  was the potentiel overhang from the shares issued to the bondholders
  (people don't like to buy a share, when the market could be flooded
  by millions of shares).
  
  - Big dividends are normally offered at the announcement of the 3Q
  result, I expected this time 30ct TE (they can easily afford it, with
  a very healthy cash flow). Strangely enough, no announcement this
  time. Is it possible that they want to declare the dividend AFTER the
  Mandatory Offer, so that they can keep all the money for themselves,
  instead of giving part to the minority shareholders? If so, that
  would be REALLY disappointing, and, I think, not fair.
  
  What do you think?

Yup, there were many investors who were annoyed at how Bumi Armada was delisted from the exchange.

Let's look at Ms. Claire Barnes funds performance (this is their Investment philosophy ). You can see the performance of the fund here:

http://www.apolloinvestment.com/performance.htm

Now let's refer back to her original pirates article which was written back in 2003.

Pirates attempt to seize whole Armada: pitfalls of investing in Malaysia

Read her opening statemtent again.

• There are many attractions to living in Malaysia, but we cannot muster the same enthusiasm for investing here (a change from July 99, when we were defending our decision to hold; our major investment then as now was Bumi Armada). Our recent experience has been far from encouraging, and it seems timely to provide an update.

Her 'pitfalls of investing' in Malaysia.

Now look at this.. "The 2Q report has been posted."

In that report, her fund gives a report of their equity percentage per country. Look at the percentage of how much of her funds is invested in Malaysia.

See how privatisation of listed stocks is simply a no-no?

And in fact the story does not end just like this.

May 24, 2005 Corporate: AK's Bumi Armada to list again

Two words. How can?

Back then, Bumi Aramada came up with an extremely long list on why it wanted to be privatise. So if they do list again, isn't it an admission of contradiction of their earlier reason why it wanted to be privatised?

So far, there is no updates on this issue but I hope this company should not be granted listing at all.

Local saying: "Suka-suka list, suka-suka privatise. Macam-macam ada! Apa pun boleh!"

And if so.. what's left of the integrity of the stock market?

Read more...

More On Privatisation Issue

Fellow blogger, Salvatore Dali, featured my post, Privatisation, a heathy trend? on the very popular blog, Malaysia Finance Blogspot, in a posting called Privatisation / M&A In Malaysia.

I have a couple of comments on it and since it's rather longish, I thought it would be best that I made a whole new blog post. Plus this posting is not a direct reply to Sal but more mumblings on this issue frome me.

This was Sal's take.

• 4) For me, the issue is when a company is completely taken off the block. For example Worldwide, many minority shareholders buy for the long term as its NTA is anywhere from RM4.00 - RM5.00 while the market price traded usually closer to RM2.00. Naturally its a no-brainer for controlling shareholder to privatise the company especially with excellent cash flow. Merchant bankers worth their salt would be scrambling to lend money to the owners to do the buyout and get healthy advisory fees in return in an almost risk free scenario. The G.O. at RM3.50 seems rich compared to the market price for the last 12 months, does that mean minority shareholders should be appeased? The straight forward answer is NO. M.I.s invested for the long term to realise the full value of the company, even though RM3.50 is a huge premium to average market price, we do not know M.I.s entry price or investing objectives. While we cannot expect the controlling shareholder to offer RM5.00, we do expect a closer price to underlying value of the company.
• Part of the problem of growing privatisation is that the market does not value shares properly. Worldwide has been trading way below NTA for such a long time

Ah, yes there are so many different types of investors around. Some speculated but believes that they are investing and then there are some plain old investors. Investors, who would invest in a stock based on a business perspective. In Worldwide Holdings: Value or Value Trap?: Part II , I have clearly brought out the issue of value versus common business logic. The value was there always but because of the lack of management quality, how could the investor invest in such a company believing that they would be adequatly compensated for taking the risk in this company.

This was what's said then.

• Its total earnings for fy 2005 was 50.708 million versus fy 2004 total earnings of 52.632 million. Another sluggish performance. And what was Genting Sanyen Power earnings contribution to this group? 57.641 million.And again... don't you wonder what's happening in this listed company? Crudely put.. some might even question what the management is paid to do!

See the point? It's a known fact that Genting Sanyen (GS) is contributing so much money to the company. 57.641 million was what Worldwide said it contributed. But what about the rest of the business in the group? It contributed NOTHING. In fact, to be precise, it was a burden to Worldwide for total net earnings was only 50.708 million.

In Worldwide Holdings: Value or Value Trap? I drew up a table which clearly highlighted that showed from 1999 to 2003, if one discounts the GS conrtibution to the group, Worldwide would have lost money 3 years out of that 5 years. In short Worldwide has a historical record of making poor business ventures.

And in my opinion, this was why Worldwide was trading at such a low price for such a long time. There was value in the company no doubt but because of the management issue, I questioned the viability of an investment in the stock. Hence the title of the inital post, Value or Value Trap.

Anyway, let's wipe this out and assume that Worldwide is a CLEAN company without the poor management issue.

Now back to the issue of value.

How does one to value this GS stake? They, the market are insisting on RNAV. HLG Research values Worldwide's stake in GS to be worth 1.87 per share, which works out to a mere 330 million.

Can it be right when GS contributed 57.641 million in the last fiscal year? If you own such a stake, would you be willing to sell at a mere 330 million??

As mentioned in the other blog posting, Do you think privatisation is healthy? , to make an equivalent of 57.641 million, the comparison yardstick is the 4% money rate, in which one has to invest a whopping 1436.53 million to get an equivalent return, or the equivalent of 8.00.

Some would have used this as their investing objective.

And this is based on the GS stake itself, discounting Worldwide's landbank and waste management business and the piggy bank cash.

And this is why some would regard this GO of rm3.50 as shambolical.

So what can the investor do?

Is it fair?

Why shouldn't this GO, from the minority investor's perspective, be regarded as a business proposition?

The majority shareholder is making an offer to buy the shares from them.

Should the minority investor even sell at a discount?

Shouldn't the majority shareholder be buying it a premium instead?

Me? I hope they realised that they are short changed BIG TIME.

Amazing. The share market is the only place where business offers are so lopsided. I have seen it in the privatisation of Bumi Armada and I have also seen it in the case of Propel and Metro Jaya.

Anyway, I believe that there is something good to observe from this GO.

The argument is the minority shareholder is being offered a very raw deal. Short changed from getting their adequate compensation for risking their money in investing in their stocks.

Let's watch what will happens...

1. Will the authorities do something? Can the investor depend on someone, some party will come in and rescue them from being short changed?

2. If no... what's the best course of action in terms of an investor?


my answer? (let's see if I am right)

1. Fat hopes. Never rely on the 'market' to rescue you.
2. AVOID.. AVOID.. AVOID.. AVOID investing in stocks whose management/owners one cannot trust or whose integrity is questionable. (ps. big difference between investing and trading)

And in the issue of Worldwide, see why I hold my stance on it? Yeah, the speculators they made money and my congratulations to them but do look at the bigger picture. The market needs speculators just as it needs investor and I, from an investor point of view, to see such corporate exercise is shambolical to say the least. If the investor is never given a true chance to be adequately compensated for investing in the stock, the investor is better off avoiding these stocks or maybe shunning the share market totally if such unfair practices were to continue.

Oh... last but not least...

• That's because in deciding for privatisation, the deal hugely favours the controlling party already - hence someone must look out for the long-suffering small tenacious investor.

Well said Sal!!!

Imagine the market without the small tenacious investor!!!!

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