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...

MUI's purchase of MetroJaya II

Look at this statement made.

"We feel this restructuring is mutually beneficial as it allows the MUI group to consolidate and enlarge its retailing division, which also controls the Laura Ashley group," said MUI Properties Bhd's executive director George Tang in a statement.

"Under MUI, Metrojaya will be able to expand more aggressively in Malaysia as well as in the region," he added.

What's so wrong?

Well, Metrojaya WAS once a listed stock.

MetroJaya WAS once doing fine until they privatise it.

Uner MUI, can MetroJaya expand aggressively?

Perhaps a guage of MUI's earnings performace would be a GOOD indicator.

No?

MUI has lost money its last 5 fiscal years!!!

1. fy 2001 lost 18.652 million


2. fy 2002 lost 996.506 million


3. fy 2003 lost 174.043 million


4. fy 2004 lost 405.474 million


5. fy 2005 lost 419.805 million

Currently? MUI lost 334.077 million for its most recent 4 quarters.

And look at what's being said again: "We feel this restructuring is mutually beneficial as it allows the MUI group to consolidate and enlarge its retailing division, which also controls the Laura Ashley group"

Here's the trick question.

So such a restructuring, how and WHO DOES it benefit???

Read more...

MUI's purchase of MetroJaya

Saw this news clip

• MUIB to buy Metrojaya from PMI for RM273m
  Malayan United Industries, through its wholly-owned unit Libertyray (M), will purchase Metrojaya at RM2.40 per share for a 91.06 per cent stake

I had blogged on the Privatisation issue of MetroJaya before. Click here

=========================================

13th Aug 2003.

That was the date when MetroJaya announced that its parent holding company, PMI, is making a VGO to buy up the remaining shares of MetroJaya at an offer price of 1.25. (the offer price was later raised to 1.35)

See MetroJaya's VGO

The following is MetroJaya's quarterly earnings posted some 10 days after the VGO announcement: Quarterly rpt on consolidated results for the financial period ended 30/6/2003

From the earnings announcement we can see the following issues:

1. MetroJaya was in a clean slate of health. No borrowings at all.
2. Piggy bank cash totalled 100.149 million.
3. Amount due from holding company was 85.268 million.
4. MetroJaya total number of shares totals some 124.921 million.

Now consider this, if the holding company, PMI repays the moolah owed to its subsidiary, this would mean that Metrojaya's cash alone would total some 185.417 million.

This would work out to some cash per share value of 1.48 sen per share. (185.417 divided by 124.921 million)

Soooooo how does one rate the fairness of this whole deal?

A VGO offer of 1.25 when the company's cash per share is 1.48.

Fair onot?

Someone posed the following question to me before...

WHy do u think a listed company chose to be private and instead of continue to be listed? If the benefit to be privatised is NOT SUBSTANTIALLY more than being listed, no sane management would choose this path, would they?

How? Do you think that's a good point?

And now consider this also. MetroJaya embarked on a sharebuyback program a couple of months before the VGO was announced and continued doing so after the VGO announcement! (this is one of their buyback announcement: Notice of Shares Buy Back - Immediate Announcement )

And of course, not all shareholders were happy with the offer. The majority accepted the offer but there were some shareholders who were wise enough to understand that this whole offer was totally blatantly unfair to them.

The following article puts everything into perspective in my opinion: A Question Of Timing

Let's look at some of the issues mentioned.

Last Monday, Metrojaya declared an interim dividend of 34 sen per share gross or a total payout of RM42.84 million for the current financial year (FY) ending March 31, 2005, to be paid on Dec 22.

This came shortly after it paid RM18.9 million, or 15 sen per share, in interim dividends for FY2004 on June 18.

Both dividends add up to RM61.74 million (before tax), which is three times Metrojaya's accumulated profits of RM21.1 million as at Sept 30.

This drew some feedback from a friend: "First throw out the minority shareholders with a crazy low price (less than the cash per share!!!!), now they "suddenly" start to pay huge dividends. For your info, average dividend over the last 10 years or so was between 3 and 4 ct nett."

But while Metrojaya's minority shareholders (which now hold 9.33%) are finally reaping some rewards from the company's attractive cash reserves, perhaps not everyone is happy.

"Those who had accepted the VGO and sold their shares in January cannot benefit from the recent generous dividends," says a broker. He says these ex-minority shareholders had previously accounted for 25.95% of Metrojaya's shareholding.

Should Metrojaya have paid out the generous dividends before the VGO to benefit more minority shareholders?

Very well said. Those that accepted the VGO would surely not be happy!

Why did MetroJaya only decided to pay out generous dividends AFTER the VGO?

By making the generous dividends after the VGO, PMI has been able to retain more dividends from Metrojaya as it has a higher shareholding 90.67%," says a market observer.

And those minority shareholders that accepted that VGO would probably be disgusted and shattered when they read the following article in today's Star:

Capital repayment to enhance Metrojaya’s return on assets

Sooooo how just was MetroJaya's privatisation exercise?

===============================

A VGO offer of 1.25 when the company's cash per share is 1.48.

And now MUI wants to buy these shares at what price?

Here was some issues asked by a LIVERPOOL fan. (see http://sahamas.net/forum10/1147.html )

Didn't PMI make a GO to minority shareholders of Metrojaya at RM1.40 (or thereabouts) a few years ago?

Didn't the independent directors of Metrojaya advise minority shareholders that the GO price was a good price?

Didn't the merchant bankers of Metrojaya advise minority shareholders that the GO price was a good price?

Didn't Metrojaya pay some very handsome dividends since PMI achieved 91.06% stake from the GO exercise?

And now Metrojaya is worth RM2.40 per share.

HOW??????

Here is what's said in the news article.

• PROPERTY developer and retailer Malayan United Industries Bhd (MUIB) plans to buy Metrojaya Bhd from Pan Malaysia Industries Bhd (PMI) for RM273 million.
  
  MUIB, through its wholly-owned unit Libertyray (M) Sdn Bhd, will purchase Metrojaya at RM2.40 per share for a 91.06 per cent stake.
  
  Both groups are related because PMI owns 46.56 per cent in MUIB.
  
  "We feel this restructuring is mutually beneficial as it allows the MUI group to consolidate and enlarge its retailing division, which also controls the Laura Ashley group," said MUI Properties Bhd's executive director George Tang in a statement.
  
  "Under MUI, Metrojaya will be able to expand more aggressively in Malaysia as well as in the region," he added.
  
  Metrojaya has six departmental stores, one hypermarket and 70 various specialty stores under the names of East India Co, Somerset Bay, Living Quarters, Reject Shop and Cape Cod.
  
  Other house brands include Zona, Freego, Passages and Kookies.
  
  MUIB will fund the acquisition through cash and loans and hopes to complete the deal by March next year.
  
  PMI, meanwhile, will gain about RM143.43 million from the transaction. The sale proceeds will be used to reduce borrowings, which was about RM727.79 million as at June 2006.
  
  Metrojaya will contribute positively to the group, MUIB said.
  
  Analysts concurred and said Metrojaya will fit nicely under MUIB's portfolio, particularly given its experience in managing the reputable UK-based Laura Ashley group.
  
  There are plans to expand Metrojaya's department stores and push its products overseas.
  
  Metrojaya chief executive officer Robert Heng told Business Times previously that the group hopes to open at least another 10 specialty stores by the end of its March 31 2007 financial year.
  
  Metrojaya recorded pre-tax profit before exceptional items of RM24.8 million on RM347.4 million revenue for the year ended March 31 2006.
  
  MUIB will make a mandatory general offer to acquire the remaining Metrojaya shares at RM2.40 each.
  
  MUIB and PMI shares were suspended yesterday and will resume trading today.
  
  Earlier, MUIB closed at 17.5 sen while PMI closed at 4 sen.

Sigh!!!

Sometimes we ask why INVESTORS have no interest in the market.

When listed companies PLAYS SUCH FUNKY MUSIC... how lah?

Read more...

MetroJaya's Privatisation Issue

13th Aug 2003.

That was the date when MetroJaya announced that its parent holding company, PMI, is making a VGO to buy up the remaining shares of MetroJaya at an offer price of 1.25. (the offer price was later raised to 1.35)

See MetroJaya's VGO

The following is MetroJaya's quarterly earnings posted some 10 days after the VGO announcement: Quarterly rpt on consolidated results for the financial period ended 30/6/2003

From the earnings announcement we can see the following issues:

1. MetroJaya was in a clean slate of health. No borrowings at all.
2. Piggy bank cash totalled 100.149 million.
3. Amount due from holding company was 85.268 million.
4. MetroJaya total number of shares totals some 124.921 million.

Now consider this, if the holding company, PMI repays the moolah owed to its subsidiary, this would mean that Metrojaya's cash alone would total some 185.417 million.

This would work out to some cash per share value of 1.48 sen per share. (185.417 divided by 124.921 million)

Soooooo how does one rate the fairness of this whole deal?

A VGO offer of 1.25 when the company's cash per share is 1.48.

Fair onot?

Someone posed the following question to me before...

WHy do u think a listed company chose to be private and instead of continue to be listed? If the benefit to be privatised is NOT SUBSTANTIALLY more than being listed, no sane management would choose this path, would they?

How? Do you think that's a good point?

And now consider this also. MetroJaya embarked on a sharebuyback program a couple of months before the VGO was announced and continued doing so after the VGO announcement! (this is one of their buyback announcement: Notice of Shares Buy Back - Immediate Announcement )

And of course, not all shareholders were happy with the offer. The majority accepted the offer but there were some shareholders who were wise enough to understand that this whole offer was totally blatantly unfair to them.

The following article puts everything into perspective in my opinion: A Question Of Timing

Let's look at some of the issues mentioned.

Last Monday, Metrojaya declared an interim dividend of 34 sen per share gross or a total payout of RM42.84 million for the current financial year (FY) ending March 31, 2005, to be paid on Dec 22.

This came shortly after it paid RM18.9 million, or 15 sen per share, in interim dividends for FY2004 on June 18.

Both dividends add up to RM61.74 million (before tax), which is three times Metrojaya's accumulated profits of RM21.1 million as at Sept 30.

This drew some feedback from a friend: "First throw out the minority shareholders with a crazy low price (less than the cash per share!!!!), now they "suddenly" start to pay huge dividends. For your info, average dividend over the last 10 years or so was between 3 and 4 ct nett."

But while Metrojaya's minority shareholders (which now hold 9.33%) are finally reaping some rewards from the company's attractive cash reserves, perhaps not everyone is happy.

"Those who had accepted the VGO and sold their shares in January cannot benefit from the recent generous dividends," says a broker. He says these ex-minority shareholders had previously accounted for 25.95% of Metrojaya's shareholding.

Should Metrojaya have paid out the generous dividends before the VGO to benefit more minority shareholders?

Very well said. Those that accepted the VGO would surely not be happy!

Why did MetroJaya only decided to pay out generous dividends AFTER the VGO?

By making the generous dividends after the VGO, PMI has been able to retain more dividends from Metrojaya as it has a higher shareholding 90.67%," says a market observer.

And those minority shareholders that accepted that VGO would probably be disgusted and shattered when they read the following article in today's Star:

Capital repayment to enhance Metrojaya’s return on assets

Sooooo how just was MetroJaya's privatisation exercise?

Read more...