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Monday, October 14, 2019

Those humbug, crony offers for valuable Plus



A QUESTION OF BUSINESS | Like bees to a honey pot, suitors are circling Plus Malaysia Bhd, the holding company of an array of toll road concessions, indicating there is much in this company which is valued at over RM30 billion in terms of assets.
On top of that large amount of assets, there is intrigue swirling around the suitors, which has given rise to various stories and speculations. One of them is Maju Holdings’ Abu Sahid Mohamed, known to be close to the prime minister.
The other involves Hong Kong private equity firm RRJ Capital owned by the Ong brothers of Malaysia - Richard and Charles - one of whom has done deals before with the PM’s close buddy, associate, and prime advisor Daim Zainuddin, as well as with Temasek Holdings, Singapore’s sovereign wealth fund.
To assess the kind of clout that Abu Sahid has, consider this: it was reported that Dr Mahathir Mohamad was sharp on the dot at 8.30am for Abu Sahid’s Hari Raya open house in July. “Among those present were Defence Minister Mohamad Sabu, Works Minister Baru Bian, deputy ministers, several other senior politicians and a host of top-tier businessmen and bankers,” one report said.

The following month, Baru Bian described Maju Holdings' offer as attractive because it offered good reductions in the toll rate.
Baru Bian
Over at RJJ Capital, interestingly, Richard Ong is among those who purchased a stake in Langkah Bahagia, a Daim-owned company, with interests in the Alliance Financial Group, now Alliance Bank Malaysia. According to stock market filings, in April 2016, Singapore tycoon Ong Beng Seng, Ong Tiong Sin (Richard Ong) and Malaysian deal-maker Seow Lun Hoo emerged as shareholders in Langkah Bahagia after Lutfiah Ismail, a close associate of Daim who was holding the stake on Daim’s behalf, disposed of her entire stake in the company to them.
Langkah Bahagia owns 51 percent of Vertical Theme, with the remaining 49 percent owned by Duxton Investments Pte Ltd, which represents Temasek Holdings. Vertical Theme owns the largest single stake in Alliance Bank Malaysia, with 29.06 percent. Daim and Temasek were in control of the bank.
Reports put the price of Abu Sahid’s offer for Plus at RM3.5 billion. The offer from RRJ Capital is identical, according to reports after a revision upwards from RM3 billion earlier. Both apparently involve an RM1.5 billion guarantee from the government they will waive, which means the amount of cash they will fork out is about RM2 billion, for which they will get well over RM30 billion of assets.
There is one more suitor at least - the Widad Business Group, which is offering a package worth RM3 billion. It also involves an extension of the toll period.
The other thing about the offers is that there is an extension of the toll concession period - by as much as 20 years, over double the period to the expiry of the toll concessions in 2038. And further, the government guarantee on “some Plus loans” will remain.
Plus is worth well over RM30 billion and it has debts of about RM30 billion. The government’s debt exposure will not reduce because the new owners want government guarantees, same as now. It is undeniably strategic. Its valuation is done on cash flows which are quite definite, giving it a premium.
So, should owners Khazanah Nasional (51 percent) and the EPF (49 percent) - basically you and me - give up the stake to one of those buzzing buzzards... err... bees? Or should they cling to sweetness and perhaps sell only part of our stakes at a more opportune time when the markets are more favourable and valuations are better? The answer is clear as a day without haze.
If the offerors can keep the toll rates flat, as they claim, it’s because the government will double the value of the concession by increasing its time period and still guarantee the loans - what a humbug of a deal for us all who effectively own the concessions through the funds. If you and I get such a deal, we would become billionaires overnight. No kidding!
Here’s how. You pay RM2 billion, assume assets of Plus, say RM32 billion and debts of RM30 billion. But you get twice the concession period, or a further RM32 billion - okay, let’s say the discounted price is half that at RM16 billion because there will no toll increases. Net gain? RM16 billion!
Shahril Ridza Ridzuan
It is heartening to note that Khazanah CEO Shahril Ridza Ridzuan is wise to the deals and did not mince his words. In an interview with TV3 on Oct 6, he said that Khazanah had received multiple offers.
“Our reply to all of them is very simple. We are not interested in selling... what they are doing is they want to take money from us by paying us basically a substandard price and using that difference in value to offer a discount (on toll rates),” Shahril said.
“You should offer the fair market price... if you want to have a discount, then it’s up to you. It should be from your profit, not from us.”
Rather well put by Shahril but that was not enough for his chairperson at Khazanah Nasional Bhd, none other than the prime minister. Recall Pakatan Harapan’s manifesto promise of not making political appointees to the board of government companies and that Mahathir basically appointed himself to that position.
Mahathir indicated that he would like to sell if there is a suitable offer. According to a Bernama report, the prime minister said the government has adopted an open approach to any bidding and would make its decisions based on the country’s needs and suitability.
“Any bid by anyone will be reviewed by the government, if it (the bid) complies with our needs, we will entertain their request,” he told a media conference at the Parliament lobby on Oct 7, tellingly a day after Shahril made his remark.
One can only interpret that as a rebuke by the chairperson to his CEO. Mahathir is exerting his right as chairperson and as the chief representative of the only shareholder of Khazanah Malaysia, the government of Malaysia.
Is that correct behaviour? Does it satisfy even the minimal standards of governance and does it put enough independence between the chairperson and the CEO, where the CEO exercises executive prerogatives and the chairperson, governance matters?
Khazanah, which has evaluated and executed billions upon billions of ringgit worth of deals, has more expertise and experience for valuing deals under its roof than almost any other organisation in the country. If that’s not enough, they can appoint independent, and I mean independent, advisors.
This is not a prime ministerial decision. It is a decision for qualified professionals to make without political interference and cronyism. Making the PM the chairperson of Khazanah highlights exactly the kind of conflict which arises and the dangers of ignoring that part of the Harapan manifesto, something which became manifestly evident during the 1MDB fiasco.
And then there is the EPF - the 49 percent shareholder. How will it react? It’s interesting to note its CEO Tunku Ali Zakri Alias’ reaction to Mahathir’s statement on the afternoon of the same day.
Tunku Ali Zakri said if there is any sensible takeover offer which would benefit its members in terms of returns and dividends, the fund will definitely study and consider the offer. “At this juncture, Plus is an asset that is very positive, it gives really strong returns and it is a well-run organisation.”
When he was asked about what Mahathir had said, he replied that the comment could have been made on behalf of Khazanah. That must indicate that he is prepared to make his own decision as far EPF is concerned.
Bravo to both Shahril and Tunku Ali Zakri for exercising their right to voice their opinions - they are the CEOs of their respective organisations. It’s good that they are clearly indicating that they will neither be bamboozled nor forced into making dubious arrangements which will cost the two funds dearly.
It's good to know too that there are good men out there who will protect the rakyat’s interests against those who connive to get assets cheaply from government and public-owned funds and companies.

P GUNASEGARAM, editor-in-chief of Focus Malaysia, does not know of a prime minister who is also an expert in valuation. - Mkini

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