Here are TMR’s top picks that define Malaysia’s corporate scene this year
By PRIYA VASU / Pic By MUHD AMIN NAHARUL
2019 will be remembered as a year of deals hitting a brick wall, major shares sold from national oil and gas company, ongoing biddings to purchase the largest highway concessionaire in the country and the resuscitation of mega projects marred with money scandal.
Here are The Malaysian Reserve’s (TMR) top 5 picks of corporate news that defined Malaysia’s corporate scene this year.
1.Axiata-Telenor Merger Flirt Fizzles Out
Axiata Group Bhd and Norway’s Telenor ASA’s proposed merger talks were called off over a noncash combination disagreement.
In May 2019, Axiata and Telenor — the major shareholder of DiGi.Com Bhd — proposed to merge their businesses in Asia and to eventually rise as a Pan-Asia telecommunication behemoth in the region.
The alliance would have commanded a subscriber base of more than 300 million and generated a pro forma revenue of RM50 billion. The proposed transaction could have delivered up to RM20 billion in incremental value through asset consolidation and economies of scale.
The merger was intended to be “merger of equals” to form a single new company, but faltered on the grounds of disagreement in its noncash combination.
Unlike cash deals where the agreement is clear-cut between the buyer and seller through the exchange of money, a non-cash combination adds layers of complexity to the deal.
TMR reported that Telenor was expected to own 56.5% of the enlarged merged entity, while sovereign wealth fund Khazanah Nasional Bhd, which controls a majority stake in Axiata, would hold a 43.5% stake.
Concerns were raised about displacement that would result from the proposed merger. The deal fell through in September 2019 and wiped off a staggering RM9.2 billion in market capitalisation of the listed units on the local exchange.
2. PLUS Up for Sale?
PLUS Malaysia Bhd has attracted four bidders to date. The highest bid made so far is from Tan Sri Halim Saad and his partner Datuk Wong Gian Kui who have tabled a fresh RM6.8 billion offer, a third more from the RM5.2 billion bid earlier as rivals sweeten their offers as well for the highway concessionaire.
Halim has also proposed a 25% discount on toll rates and for the concession period to end as per December 2038. The former executive vice chairman of Sumatec Resources Bhd is seeking to buy Khazanah’s stake in PLUS, based on the offer letter to the government.
Wong sits on the boards of Insas Bhd, Inari Amertron Bhd, Ho Hup Construction Co Bhd, SYF Resources Bhd and Yi-Lai Bhd.
Maju Holdings Sdn Bhd has offered to reduce toll rates by 25% to 36% in its revised bid for the toll road concessionaire and bear the toll reduction in full. The government currently owes PLUS RM2.7 billion and Maju Holdings stated that it will not seek financial compensation for the debt. Maju Holdings has offered RM3.5 billion for the highway operator.
Widad Business Group Sdn Bhd’s revised offer for PLUS of RM5.3 billion includes compensation waiver of RM3.04 billion and debt assumption of RM30 billion. The offer includes a waiver of RM11 billion sukuk guarantee by the government and an option for the government to re-purchase PLUS after 10 years.
A Hong Kong-based private equity group RRJ Capital has offered to buy the 772km North- South Expressway for RM3.5 billion and assume all the debts. It wants a 20-year extension to the concession period and the government to continue to guarantee some portion of PLUS’ debts.
Khazanah owns 51% of PLUS and the rest by the Employees Provident Fund. Both owners do not want to sell the company to private buyers, unless it’s convinced there is no profit-making motives from the highway business. This sets the template for a possible take-over by another government- owned entity. The Ministry of Finance (MoF) is believed to be eyeing PLUS and according to a source, the proposed acquisition will be brought to the Cabinet for deliberation soon.
3. Petronas Sells Stakes in
Listed Downstream Companies Petroliam Nasional Bhd (Petronas) sold shares in three of its listed subsidiaries — MISC Bhd, Petronas Dagangan Bhd (PetDag) and Petronas Gas Bhd (PetGas) as part of its portfolio management strategy.
The national oil company raised some RM6 billion in capital from the sale in early December to fund its future expansion and exploration activities. Petronas retains its controlling stake in MISC, PetDag and PetGas which are its downstream businesses and are essential entities in its integrated business value chain.
4. ECRL and Bandar Malaysia Take Off
The East Coast Rail Link (ECRL) project, which was suspended for its bloated cost, resumes after the cost of the project was scaled down to RM44 billion from RM65.5 billion.
China’s willingness to renegotiate the cost was viewed favourably by Prime Minister Tun Dr Mahathir Mohamad and had strengthened China’s Belt and Road Initiative in the country. The new ECRL alignment was shortened from 688km to 648km, and tunnels through the Titiwangsa mountain range that borders Selangor and Pahang were cancelled.
The rail link starts from Kota Baru in Kelantan and runs south through Mentakab, Jelebu, Kuala Kelawang, Bangi/Kajang and Putrajaya before ending at Port Klang.
The revised Bandar Malaysia project will see greater role for local contractors and resources, as well as a greater number of affordable homes at the location. The project was put on hold by Putrajaya as part of its “detoxification exercise” to resolve billions in debts related to the stateowned 1Malaysia Development Bhd.
The Bandar Malaysia Development Advisory Committee under the MoF has renegotiated improved terms that ensure the project will truly benefit the country, said Finance Minister Lim Guan Eng.
5. Khazanah’s Asset Disposals
Khazanah made headlines in 2019 for its asset disposals to repay its maturing debts and for new investments.
It sold 335.7 million shares in CIMB Group Holdings Bhd for about RM1.75 billion in July.
According to CIMB’s exchange filing, the disposal reduced Khazanah’s stake in CIMB to 23.54% and the sovereign wealth fund remains the largest stakeholder.
Khazanah scaled down its exposure in the healthcare sector by selling a 16% stake in IHH Healthcare Bhd to Japan’s Mitsui Co & Ltd for RM8.42 billion cash. This was followed by its 100% stake divestment in Prince Court Medical Sdn Bhd for RM1.02 billion cash to IHH.
Under its revised mandate and strategic asset disposal since the Pakatan Harapan government took over the country, its stake in national carrier Malaysia Airlines Bhd (MAB) has also come under scrutiny. It is actively eyeing proposals for MAB.
The national carrier continues to haemorrhage losses due to challenges in the local and global aviation sectors.
Khazanah divested overseas assets which include its entire stake in an Indonesian toll road operator for some RM2.1 billion. It also monetised its interest in a luxury hotel component in Singapore for RM1.44 billion to Hoi Hup Realty Pte Ltd.