By BILQIS BAHARIPublished: 2012/11/29Share
REBUILDING EFFORT: Analysts tell Khazanah that it is better than bankrolling RM3.1 billion cash call
KHAZANAH Nasional Bhd should take Malaysia Airline System Bhd (MAS) private instead of opting to help bankroll a RM3.1 billion cash call, analysts say.
News that the national carrier plans a rights issue, its second in as many years, saw investors selling the stock yesterday.
In 2009, MAS did a one-for-one rights issue of 1.67 billion shares at RM1.60 each to help fund its acquisition of wide-body aircraft, as well as for working capital (including pre-delivery payments for new aircraft ordered) and repayment of bank borrowings.
Investors shunned the latest rights issue plan by selling MAS shares in droves. The stock slumped 17 sen to close at 84 sen on Bursa Malaysia yesterday. It had hit an intraday low of 80 sen a share as sellers swamped buyers.
As a result of the selling pressure, MAS' market capitalisation slumped by as much as RM600 million to close the trading day at RM2.8 billion. A day earlier, the airline had a market capitalisation of RM3.4 billion.
RHB Capital Bhd said in a research note that the corporate exercise is a step in the right direction for MAS but the market is not in the mood for a massive cash call.
"We remain cautious on MAS given the extent of its structural and operational problems that are not adequately addressed ... with a turnaround plan that we find shallow," the research firm said.
Script exercises such as a rights issue are normally seen as a negative signal to the stock market as it involves shareholders forking out more money to subscribe for the issue.
Shareholders who do not participate in the cash call will see their holding diluted, hence there is a tendency for early cash out of shares by those who do not intend to participate.
An analyst from Maybank Investment Bank Bhd opines that the vendors of MAS should opt to take the airline private, restructure the balance sheet, and then list some of its subsidiaries with potential such as Firefly Sdn Bhd and MASkargo Sdn Bhd.
"I think that is a fantastic idea if Khazanah were to privatise MAS... They should have done this years ago. But somehow they are looking at all the options except privatisation," he told Business Times.
The call for MAS to be taken private does hold water as at current prices, it will only cost Khazanah some RM2.8 billion to delist MAS against RM3.1 billion it will have to fork out if no other shareholder were to subscribe for the rights issue.
Analysts argue that MAS could raise as much as RM1.5 billion if it were to list Firefly, considering that its turboprop operation generates a profit of more than RM100 million on a yearly basis.
On Tuesday, MAS announced that it plans to undertake a RM3.1 billion cash call and a RM8 billion capital reduction exercise to help clean its balance sheet and wipe off its accumulated losses.
Major shareholder Khazanah has given MAS its irrevocable and unconditional undertaking to subscribe for its full entitlement under the proposed rights issue.
MAS has said that proceeds from the proposed rights issue are to finance capital expenditure and working capital requirements and to reduce borrowings.
A nice and meaningful piece of news to ponder when the anoucement of coming election getting close!
Strong insider buying of AirAsia, Sunway REIT, FGVH and Gamuda shares
By CHOONG EN HAN 27/11/2012
PETALING JAYA: Blue chips are back on the radar with the management of some of these companies buying up their own shares.
In a market strategy report by Credit Suisse, analyst Tan Ting Min said there were some fresh insider buying in Gamuda Bhd, AirAsia Bhd, Sunway Real Estate Investment Trust, Felda Global Ventures Holdings Bhd (FGVH) and Wilmar International Ltd. “Strong insider buying is usually perceived as a buy' signal for these stocks. Among our coverage, we would highlight Gamuda and AirAsia as undervalued, ” she said.
She noted that despite Gamuda's growing orderbook, its stock price had been hampered by election fears. She said managing director Datuk Lin Yun Ling accumulated 32.9 million Gamuda shares at an average price of RM3.54 (against current price of RM3.66), doubling the stake in the company from 1.7% to 3.3%.
She said since early September, Tan Sri Tony Fernandes and Datuk Kamarudin Meranun together have accumulated 51.8 million shares in AirAsia at an average price of RM2.93 (against current price of RM2.86) while its director Conor McCarthy bought 500,000 shares at RM2.94.
“Following Lion Corp's announcement that it will set up operations in Malaysia (via Malindo Air), AirAsia's stock price fell by 13%,” she said.
Another analyst said although this might be a signal to buy, one have to bear in mind that these insiders have a much lower cost of investment over the years, despite them buying up substantial volume of shares at this point.
“Some of these stocks have dropped to a certain level that offers value, and these insiders might see it as a comfortable entry point to increase their stake.
“One must remember they are strategic shareholders of the company, and they are in it for the long term of maybe five to 10 years,” he said. In the same Credit Suisse report, Tan said Felda bought an additional 3.15 million shares in FGV on Oct 8, adding that its current share price of RM4.66 was barely above its initial public offering price of RM4.55 and 15% below its peak of RM5.50 on July 11.
“We rate FGV an underperform due to its rich valuations and old age profile,” Tan said.
Sunway Real Estate Investment Trust (REIT) has also drawn its chairman Tan Sri Jeffrey Cheah's buying interest as well. She said Cheah bought 20.4 million shares of Sunway REIT on Nov 1 and Nov 2 at an average price of RM1.53 while the current price was RM1.47.
PUTRAJAYA: The public only has to dial 03-8000 8000 for information, to lodge complaints or make suggestions to various government agencies from today.
The number, under the 1Malaysia One Call Centre (1MOCC) initiative, makes it easier for the public to communicate with the agencies under the single point contact concept.
It will be launched by Prime Minister Datuk Seri Najib Tun Razak here today.
Malaysian Administrative Modernisation and Management Planning Unit (Mampu) said with this single number, Malaysians would no longer have to remember or get hold of various contact numbers for their dealings with different agencies.
“Twenty-one agencies have been included under the first phase of the initiative,” it said in a statement yesterday.
“Among these are the Prime Minister's Department and its agencies, Immigration Department, Road Transport Department and National Registration Department,” it added. All other departments and agencies in Putrajaya will be included under the second phase.
“The third phase will cover the entire government department and agencies,” the statement added.
The 1MOCC, a project under the National Blue Ocean Strategy, provides five communication channels telephone, short messaging system, facsimile, e-mail and social media.
Mampu is spearheading the initiative, which also involves the Finance Ministry, Public Services Department, Putrajaya Corporation and Telekom Malaysia.
KUALA LUMPUR: “I will resign.” This is the ultimatum Tan Teng Boo has given to shareholders of iCapital.biz Bhd if even one of the three people he considers as part of a hostile party gets elected to the board.
Capital Dynamics had on Monday couriered a letter to shareholders stating that the asset house would quit as the fund manager and investment advisor to iCapital.biz should either Andrew Pegge, Lo Kok Kee or Low Nyap Heng obtain a board seat at its AGM on Saturday.
They would only require a simple majority to be voted through, Tan told a briefing
Two weeks ago, a shareholder by the name of Evelyn Ho Lai Ming with 50,000 shares nominated the three people for board positions, triggering talk of a hostile takeover at Malaysia's only listed closed-end fund and driving up its shares to RM2.56 yesterday from a low of RM2.29 last Wednesday, with trading volumes rising in tandem.
Lo and Low were aligned to Pegge, who is the founder and a director of Isle of Man-incorporated hedge fund Laxey Partners, StarBiz reported yesterday.
Pegge has been embroiled in bitter shareholder disputes in the past. He has been described as a shareholder activist and manages funds that look to take advantage of “discount volatility” in investment trusts.
Laxey has a track record of targeting listed funds that trade below their net asset values (NAV).
Together with Lo, Pegge had embarked on a similar move in Singapore last year, taking a position in Singapore Exchange-listed closed-end fund United International Securities and seeking board representation on the basis of championing a narrowing of the gap between the latter's market price and its NAV.
Laxey has been a shareholder in iCapital.biz since 2010 but recently upped its stake to under 6.9%, making it the company's single-largest shareholder.
Another substantial shareholder with a 6.5% interest is City of London Investment Group, a fund that specialises in investing in closed-end funds which offer exposure to emerging markets.
Combined, they own 13% of iCapital.biz, but it is not known if Laxey and City of London Investment are acting in concert.
However, these events could trip up plans by Tan, a seasoned and respected investor, to launch the world's first dual-listed closed-end fund, a project he has been developing for the past three years.
“Our shareholders asked us in 2009 to work on something that would allow them to invest globally. We have since then been working to structure a global fund. It has cost us RM1.5mil so far, not a sen of which we have charged to the fund,” he said.
Tan added that Capital Dynamics had received the approval of the Securities Commission to submit an application for the fund, which would be listed on Bursa Malaysia and another stock exchange in the region.
He declined to reveal more details as the process is not complete.
“Pegge does not realise he has found gold. We welcome him as a shareholder but not as a director.
“Should you focus on the discount to NAV? Yes. As a value investor, you should always buy undervalued stocks. But don't focus on it negatively, you should see it as an opportunity. Why buy during a sale? Because it is undervalued,” he pointed out.
In a document dated June 26, Laxey had sent iCapital.biz a requisition notice seeking the appointment of Pegge as a non-independent and non-executive director and also to bring forward proposals “designed to substantially narrow or eliminate the discount” the shares of the company were trading at a relative to its NAV.
“Since Sept 21, 2008, the shares of the company have been trading at a substantial discount to their NAV,” it read, adding that the discount rose to 24.8% on May 30 this year.
Laxey had also sent yesterday a strongly-worded letter to the shareholders of iCapital.biz saying it had “lost confidence” in the ability of the present board to close the NAV-share price gap.
Among others, the firm urged shareholders to vote against the reappointment of all the directors save for Pegge, Lo and Low.
According to its calculations, the comparative total return of iCapital.biz shares for the latest financial year was a negative 4.5%, underperforming the benchmark FTSE Bursa Malaysia KL Composite Index by 10.1% after adjusting for dividend yield.
“Laxey has spoken to the company to take action on the discount to no apparent effect. Laxey had earlier proposed a resolution to be tabled at this AGM requesting the board to address the persistent discount problem, but this was rejected by them.
“In our view, one of the main reasons for the discount in iCapital.biz to exist at such an unreasonable level is the lack of a defined policy to deal with the persistent and widening discount.
“The global closed-end fund industry has over the past decade realised that a substantial discount is not in the interest of its owners the shareholders. Incumbent boards globally have addressed the issue by instigating a series of measures which have collectively reduced both the absolute discount and discount volatility,” it said in the letter.