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Monday February 2, 2009

MPHB a fairly high dividend yield stock

Revamp well under way

MULTI-PURPOSE Holdings Bhd (MPHB) managing director Datuk Surin Upatkoon is unruffled by scepticism about the manner in which a sizeable portion of Magnum Corp Bhd’s non-core assets will be sold to a group executive.

He is contented that plans for the privatised Magnum to dispose of its non-gaming assets are progressing, and that in the eight years since he came to MPHB, it has worked off RM2.4bil of borrowings and become a company with net cash.

Indeed, MPHB has even become a stock with a fairly high dividend yield compared with the many earlier years when it could not offer any dividends. It paid a total dividend of 11 sen a share in its 2007 financial year (FY), a historical yield of 10% on a recent price of RM1.07.

It paid an interim dividend of five sen for FY08, and it is not clear if it will maintain the FY07 dividend or will cut it, given the difficult times.

Datuk Surin Upatkoon

MPHB’s income stream from 51%-owned Magnum, however, should be recession-resilient compared with businesses in other sectors. Resilient cashflow is, after all, probably the reason private equity firm CVC Asia Pacific Ltd was willing to make a leveraged investment of 49% in Magnum.

In that exercise with CVC, MPHB retained its stake of about 51% in Magnum at the same time it was issued with RM875mil of redeemable unsecured loan stocks-A (RULS-A) by Magnum. As the holder of the RULS-A, MPHB has the right of first refusal to acquire any of the non-gaming assets of Magnum.

At the end of the exercise, RM875mil of non-gaming assets would have flowed up from Magnum to MPHB. That would be a significant pay-off for undertaking the privatisation of Magnum.

Now, MPHB has cherry-picked RM550mil worth of non-gaming assets from Magnum which entails a redemption-in-kind or cancellation of an equal amount of RULS-A the former holds.

As to cynicism that another array of assets valued at RM127mil will be sold to Magnum CEO Lawrence Lim, Surin said: “You try and sell it for me. The assets are mainly properties and shares that we don’t want. In this environment, it is very difficult to find buyers for land.”

In the arrangement with Lim, he will undertake payment of RM127mil for the assets within six months. During that period, Lim’s exposure will be RM6mil – payment to MPHB of RM3mil and advances of RM3mil by him as working capital for the assets.

As MPHB holds RM875mil of RULS-A, there are still close to RM200mil of non-gaming assets in Magnum even after its cherry-picking and the sale to Lim. That balance will take longer to dispose of.

“We just want to get the RM875mil of assets. We don’t mind if we don’t make a profit from that. We just want the assets quickly,” he told StarBiz recently.

While it is not possible to convert all the Magnum RULS-A into cash now, MPHB will redeem some of that for the former’s non-gaming assets. “The property market is slow; we will use the time now to plan the projects,” he said.

The assets that MPHB picked include the Mimaland resort in Selangor as well as land in Rawang, Selangor, and near the second Penang bridge and Universiti Sains Malaysia in Penang. All these have potential for property development.

In the Philippines, the assets include a stake in Philippine Racing Club Inc which owns land next to the high-end Makati district of Manila. The race course has moved out and the land is available for re-development.

MPHB’s balance sheet still shows a huge level of debt of RM2.2bil but that’s all in Magnum, a subsidiary. As for repayment of that, Surin said: “The debt can be in Magnum forever.”

As to the possibility of a re-listing of Magnum in the future as an exit strategy for CVC, Surin said that could happen but if it did, “it makes no difference to us (in MPHB).”

There appears to be more corporate exercises in store for MPHB although most of the work has been done.

 
MPHB :  [Stock Watch]  [News]

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