Will Malaysia’s minority shareholders triumph in seeking higher value? Major insititutions have opportunity to challenge recent privatisation deals

Updated: Wednesday January 22, 2014 MYT 10:13:58 AM

Will minority shareholders triumph in seeking higher value?

BY GURMEET KAUR

Major insititutions have opportunity to challenge recent privatisation deals

TWO major local institutions now have the opportunity to challenge recent privatisation deals involving Bursa Malaysia-listed firms which are seemingly unfair to minority shareholders.The institutions are Permodalan Nasional Bhd (PNB), which owns 12.18% inTriumphal Associates Bhd, and Sime Darby Property Bhd, which controls a 6.13% block in Perak Corp Bhd. The major shareholders of both companies have announced plans to privatise the companies via selective capital reduction (SCR). Such an exercise requires the approval of at least 75% in the value of votes, excluding the offerer, and no more than 10% of votes belonging to non-interested shareholders cast against such a resolution at an EGM.

In the case of Triumphal, the offerer – Golden Power Holdings Sdn Bhd – along with persons acting in concert already hold about 69.4% in the company, clearly putting PNB in the position of kingmaker with the 11 million shares that it owns, which accounts for half of the non-interested shares based on Bloomberg data. Shareholders will vote on the resolution at the company’s EGM on Feb 12.

As for Perak Corp, its controlling shareholder Perbadanan Kemajuan Negeri Perak(PKNP) already owns 52.9% in the company. With this, PKNP needs at least 35.32% of the remaining 47.1% stake to get its SCR resolution passed in an EGM.

Besides Sime Darby Property, Perak Corp has other institutional investors as minorities in the likes of KAF Seagroatt & Campbell Bhd and the Horizon Group. These two institutions are said to collectively hold some 7.5% in the state-owned entity.

It has been reported that a group of individual shareholders who own a combined 4.4% stake in Perak Corp have deemed the RM3.90 per share offer by Perak Corp as “ too low”. This is taking into account the fact that the company’s underlying assets, which have not been revalued in a long time, have appreciated. Perak Corp is the owner of Lumut Port via listed Integrax Bhd – an asset that has huge income-generating potential. Its two major property assets, meanwhile, are the 256.8ha in Bandar Meru Raya and 186ha in Behrang.

The minorities estimate that Perak Corp’s revalued net asset value (NAV) is more than RM12. The company’s NAV per share as at Sept 30, 2013 was RM5.03, while it is sitting on RM180mil in cash.

In Triumphal’s case, the offer of RM1 is at a 65% discount to the company’s NAV per share of RM2.84 as at Sept 30 last year. It has been pointed out by analysts that the company has strong asset backing and was in a net cash position of RM17.81mil as at Sept 30 last year.

Netresearch-Asia Sdn Bhd, for instance, reckons that Triumphal has the financial resources and capability to ride out its recent poor financial performance, which was affected by the slower global economic growth, competitive pricing of trading products and increased competition.

Triumphal is a manufacturer and distributor of heavy machinery spare parts worldwide. Netresearch-Asia noted the company’s third-quarter financial year 2013 earnings showed signs of improvement, with trading revenue remaining stable quarter-on-quarter, while manufacturing revenue continued to show growth.

Worth noting is that Triumphal was listed in 1995 on the-then second board at an initial public offering price of RM4. The stock made its debut at RM6.50 and went on to hit a high of RM6.97 in 1997. But after March 2000, the stock’s share price started its downhill trend.

PNB is believed to be a long-term shareholder of Triumphal.

Of interest is the fact that Triumphal had injected a total of US$25mil (RM83mil) between 2007 and 2013 into its subsidiary in China, a move that suggests the company is doing well in China.

Triumphal’s major shareholder, on the other hand, is of the view that the market price of the stock had been consistently trading below the RM1 par value and being thinly traded. It also said the company had not been able to comply with the public shareholding spread requirement since 2008.

In the past, privatisation exercises at seemingly unfair values had gone through, as minority shareholders were scattered and disunited, and more often than not, chose the path of least resistance when accepting an offer while relying on independent advice. But here are two institutions with deep pockets.

Taking a company private is within the prerogative of a major shareholder, as long as it provides a fair exit to minorities. So, why should the two funds miss out on the opportunity to use their voting power to seek a higher value?

Deputy news editor Gurmeet Kaur is happy to note that there is now more awareness and activism among individual minority shareholders.