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No News Is Bad News
How Malaysians with connections are laughing all their way to banks
KUALA LUMPUR, Dec 20, 2024: In Malaysia, those with high connections can almost always laugh all their way to banks.
All they need to do is to identify profitable Government assets and businesses and buy them at below market prices.
For the Government, those that perform below par, chalking up continuous losses, like Malaysia Airlines (MAS), no problem. The Government can bail out such businesses with cash cows like Khazanah Nasional Berhad, a Sovereign Wealth Fund (SWF).
No News Is Bad News reproduces below a news report on how profit-making Malaysia Airports (MAHB) is being sold at RM11 per share when the market’s actual price is between RM14 and RM24 per share:
News
'Fire sale' of profit-making MAHB puts airport operator back in the spotlight
Critics say the government's offer to a consortium is a gross undervaluation of Malaysia Airports at the expense of taxpayers.
December 20, 2024 11:21AM
Critics question the need for MAHB's privatisation, pointing to its profits in recent years since the end of the Covid-19 pandemic.
A storm over the proposed sale of Malaysia Airports Holdings Berhad (MAHB) threatens to thrust the national airport operator into the spotlight once again, even as protest rages over the government's sale of a significant stake to a company tainted by its military dealings with the Israeli regime.
The proposed sale of MAHB to Gateway Development Alliance (GDA), a consortium led by state fund Khazanah Nasional, has sparked concern among industry observers over the company's undervaluation, with critics pointing to potential consequences for the company, which has 39 domestic and international airports under its profile.
The consortium, comprising Employees Provident Fund (EPF), Abu Dhabi Investment Authority and BlackRock-owned Global Infrastructure Partners, has offered to acquire MAHB at RM11 per share for the remaining 1.12 billion MAHB shares.
The privatisation efforts depend on the acceptance of at least 90% of the shares held by the consortium. Permodalan Nasional Berhad (PNB) owns about 5% of MAHB, while pensions fund Kumpulan Wang Persaraan (KWAP) owns about 7%.
Critics say the price offered grossly undervalues MAHB, adding that the company's actual value is much higher than RM11 per share.
"Based on discounted cash flow analysis, the share price should range between RM14 and RM24, depending on the discount rate used," an industry source told MalaysiaNow.
"This does not even take into account the potential revenue from property development and other non-passenger sources," he added.
Documents seen by MalaysiaNow reveal even higher valuations.
Cash flow projections suggest MAHB’s share price could be between RM28 and RM38 in two different scenarios at weighted average cost of capital (WACC) of 8% and 12% respectively.
Lower WACC values usually indicate that a company is able to attract investment at a lower cost, while higher WACC values imply greater risk for investors.
At RM11 per share, the proposed sale price is significantly lower than the two projected valuations, even under the more conservative WACC scenario of 12.
MAHB was thrust into the centre of controversy after Prime Minister Anwar Ibrahim, who is also finance minister, refused to back down from his decision to sell its shares to GIP, a company owned by BlackRock, the US investment giant which is facing allegations of complicity in Israeli war crimes.
Pro-Palestinian groups and opposition leaders have repeatedly warned Anwar against the deal, saying it contradicts his various statements condemning Israeli atrocities in Gaza, which have so far claimed at least 50,000 lives.
Khazanah stated that it would increase its stake in MAHB from 33.2% to 40% and in EPF from 7.9% to 30% upon completion of the transaction. Khazanah further explained that Malaysian investors would own 70% of MAHB, while ADIA and GIP would hold the remaining 30%.
Mazli Noor from the Institute of Corporate Directors Malaysia questioned whether GDA’s valuation adequately reflected MAHB’s future earnings potential.
"What valuation model was used by GDA and did it take into account this forward earning potential?
"In addition, MAHB signed new operating and land lease agreements with the Malaysian government in March 2024, extending its concession to operate 39 airports in the country until February 2069. Was this also taken into account in the valuation?" he asked.
Critics, including former prime minister Dr Mahathir Mohamad, have questioned the need for MAHB's privatisation, pointing to the profits the company has made in recent years since the end of the Covid-19 pandemic.
On Nov 29, the group reported revenue of RM4.26 billion for the first nine months of 2024, up 20.3% from the same period last year.
Earnings before interest, taxes, depreciation and amortisation (EBITDA) rose from RM1.58 billion a year ago to RM2.06 billion.
"Given the excellent financial returns, strong passenger growth and increasing international recognition, I struggle – as a taxpayer – to see what value can be created through its privatisation that isn’t already being achieved or set in place by its shareholders today," Mazli added.
He called on the government to be transparent with the due process in deriving the final value.
Mazli added that MAHB is only an operator of airports and that the valuation should really be based on sustainability of earnings and visibility.
"Therefore, the valuation must be based on potential income and earning, which suggests valuation models such as discounted cash flow (DCF) or EBITDA Multiple, as opposed to other asset-based models such as net tangible asset (NTA) or capital expenditure," he said.
Perikatan Nasional MP Wan Ahmad Fayhsal Wan Ahmad Kamal recently claimed that selling MAHB shares at RM11 per share could result in losses of RM4.9 billion of taxpayers’ money, adding that this represents a significant undervaluation of a critical national asset.
Wan Fayhsal, among opposition leaders who vociferously oppose the entry of BlackRock-owned GIP into MAHB, compared it to the bungled deal involving e-commerce platform FashionValet, which received massive investment from Khazanah despite posting losses for five consecutive years.
"If FashionValet can be scrutinised for relatively small losses, imagine the massive losses we are exposing ourselves to if the government continues to force PNB and KWAP to sell their shares in MAHB at such a low price," he said. - MALAYSIANOW
News
MAHB independent directors reject 'unfair' takeover offer
This comes after Hong Leong Investment Bank concluded that the RM11 per share offer is 'not fair'
December 20, 2024 8:42 PM
An airplane taking off at the Kuala Lumpur International Airport (KLIA), one of 39 airports managed by MAHB.
Non-interested directors of Malaysia Airports Holdings Berhad (MAHB) are not happy with the proposed takeover of the airport operator at RM11 per share, amid widespread criticism that the company is grossly undervalued.
Meanwhile, Hong Leong Investment Bank (HLIB), appointed as independent adviser for the deal, said the RM11 per share offer by Gateway Development Alliance Sdn Bhd (GDA) was "not fair" but "reasonable" and recommended that shareholders accept the offer.
GDA, a consortium comprising Employees Provident Fund (EPF), Abu Dhabi Investment Authority and BlackRock-owned Global Infrastructure Partners (GIP) has offered to acquire MAHB for the remaining 1.12 billion MAHB shares at RM11 per share.
MAHB’s independent directors, however, strongly opposed the offer, saying it undervalues the company’s assets and growth potential, especially given the company's critical role in the Malaysian aviation sector and its extensive airport network, including Istanbul Sabiha Gökçen International Airport in Turkey.
"As such, all of the non-interested directors are of the opinion that the offer is not fair and not reasonable and they recommend the Holders to reject the offer," reads an independent advice circular published today.
The non-interested directors of MAHB include independent non-executive directors Mohamad Husin, Ramanathan Sathiamutty, Cheryl Khor Hui Peng, Koe Peng Kang and Chris Chia Woon Liat.
They say the RM11 per share represents a discount of RM1.61 and RM2.71 or about 12.77% to 19.77% to HLIB's estimated value per MAHB share of between RM12.61 and RM13.71.
In August, they appointed global financial adviser UBS AG Singapore (UBS) to assess the value of MAHB shares.
UBS shared the directors' view that the offer price is unfair.
The bid, facilitated by AmInvestment Bank Berhad, involves GDA, Pantai Panorama Sdn Bhd, Kwasa Aktif Sdn Bhd and GIP Aurea Pte Ltd, collectively referred to as the joint offerors.
The joint offerors claim that the acquisition is aimed at modernising MAHB’s operations, improving connectivity and enhancing passenger experience.
They have also agreed not to lay off staff or undertake any significant restructuring of MAHB’s workforce.
The proposed acquisition seeks to privatise MAHB, which manages 39 airports in Malaysia and one in Turkey, including Kuala Lumpur International Airport (KLIA).
MAHB was thrust into political controversy after Prime Minister Anwar Ibrahim, who is also finance minister, refused to back down from his decision to sell its shares to GIP, a company owned by BlackRock, the US investment giant which is facing allegations of complicity in Israeli war crimes.
Pro-Palestinian groups and opposition leaders have repeatedly warned Anwar against the deal, saying it contradicts his various statements condemning Israeli atrocities in Gaza, which have so far claimed at least 50,000 lives.
Sovereign fund Khazanah Nasional stated that it would increase its stake in MAHB from 33.2% to 40% and in EPF from 7.9% to 30% upon completion of the transaction. Khazanah further explained that Malaysian investors would own 70% of MAHB, while ADIA and GIP would hold the remaining 30%. -
Consortium stands firm on RM11 per share offer for MAHB
-21 Dec 2024, 03:27 PM
Gateway Development Alliance says its offer is a premium of 49.5% year-to-date relative to MAHB’s closing price of RM7.36 on Dec 29, 2023.
Yesterday, five MAHB independent directors said Gateway Development Alliance’s offer was unfair and unreasonable and recommended that shareholders reject the offer. (Bernama pic)
KUALA LUMPUR: Gateway Development Alliance Sdn Bhd (GDA), the consortium proposing to privatise Malaysia Airports Holdings Bhd (MAHB), remains steadfast on its RM11 per share offer price, despite recommendations from independent directors for shareholders to reject it.
GDA comprises EPF, Khazanah Nasional Bhd-backed UEM Group Bhd, Abu Dhabi Investment Authority and BlackRock-owned Global Infrastructure Partners.
In a statement yesterday, the consortium said it remained firm that its offer price of RM11 per share is an attractive offer to MAHB shareholders, as it represents a premium of 49.5% year-to-date relative to MAHB’s closing price of RM7.36 on Dec 29, 2023.
“Compared with the 10% YTD performance of the Bursa Malaysia KLCI benchmark index, the offer price premium is five times the KLCI’s performance,” it said.
Yesterday, five MAHB independent or non-interested directors said in an independent advice circular filed with Bursa Malaysia that the offer is unfair and unreasonable and recommended that shareholders reject it.
They said the offer price of RM11 represents a material discount of RM1.61 and RM2.71, or about 12.77% to 19.77%, of the value of MAHB shares between RM12.61 and RM13.71, as estimated by Hong Leong Investment Bank.
GDA said while MAHB’s most recent performance indicates positive momentum, the consortium views that the prospects represented by the non-interested directors are optimistic and unlikely to materialise without significant additional capital investment and an infusion of technical know-how.
“MAHB’s prolonged underperformance, both operationally and financially relative to peers, suggests execution of its plans will remain a challenge, and MAHB does not have a credible track record of delivery on its promises,” it said.
GDA also gave an example of the suspension of the aerotrain, saying that MAHB has been working on a replacement project from as far back as 2017 after several service failures, but the contract for the project was only awarded in December 2021 and the service has been fully suspended since March 2023.
It said prolonged underinvestment had also resulted in MAHB’s network of airports suffering in both the maintenance of core assets and systems, as well as in new projects to expand capacity.
“MAHB has also been losing significant ground in the Asean aviation market, with its market share falling from 20% to 16% from 2013 to 2023,” it said.
GDA said MAHB’s market capitalisation grew only by 12.2% while its peers in the Asia-Pacific region increased by 216.8% over the past 10 years.
“MAHB’s importance as a strategic Malaysian asset is reflected by an increase in the combined ownership in the company by UEM Group and EPF from the current 41.1% to a target of 70%, while the government continues to retain its golden share.
“The consortium looks forward to working closely with the aspiring talent at MAHB and is committed to restoring its competitive edge by ensuring talent is properly rewarded in alignment with contributions and achievements,” it said.
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