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Friday November 12, 2010

Are investors willing to pay more for GLC stakes?

Khazanah's divestment comes when the FBM KLCI has reached new highs

PETALING JAYA: Khazanah Nasional Bhd's divestment of another stake in Malaysia Airports Holdings Bhd (MAHB), its second this year, raises the question of whether institutional investors are willing to pay ever higher prices for stakes in government-linked companies.

According to a Bloomberg report yesterday, the sovereign wealth fund was selling a 6% stake in MAHB for RM396mil, or RM6 per share.

The airport operator's shares closed at RM6.11 yesterday and is up over 65% from a year ago.

In March, Khazanah sold a 7.7% stake for RM400mil, or RM4.70 a share, via a private placement exercise, while in September 2009, the sovereign wealth fund divested a 5% stake in the company.

Khazanah's divestment in Pos Malaysia, which is expected to be concluded by year-end, will likely be in the limelight again following the MAHB stake divestment

Liquidity and brighter prospects for the region aside, questions would arise about whether investors could stomach higher prices at a time when the outlook is less bright due to external headwinds.

The divestment also comes at a time when the FTSE Bursa Malaysia Kuala Lumpur Composite Index has reached historical highs not seen since January 2008, when the world was on the brink of a financial crisis.

Another divestment, Khazanah's 32.2% stake in Pos Malaysia Bhd, which is expected to be concluded by year-end, would likely be in the limelight again following the MAHB stake divestment.

According to earlier reports, the deadline for the pre-qualification of bidders for the entire stake was in mid-August. Khazanah's managing director Tan Sri Azman Mokhtar had earlier said foreign postal service firms were welcome as shareholders if they were part of a Malaysian-led group.

When the divestment was first announced by Prime Minister Datuk Seri Najib Tun Razak, the company's share price was around RM2.00. Now it is up nearly 53% and closed at RM3.16 yesterday.

Share price aside, analysts told StarBiz that Khazanah's divestment in Pos Malaysia would not be as easy as the piecemeal divestments that have taken place in other GLCs.

An analyst with a local investment bank said it would not be as straight forward because it involved the amendment of the Postal Land Act, which was subject to parliamentary approval.

Pos Malaysia, which has 1,013 plots of land as well as land in KL Sentral worth RM200mil, is limited to the provision of postal services on these properties, therefore an amendment to the act would be needed to unlock value.

"Even the company's management has no idea of whether the amendment will go through. I expected an announcement on this in Budget 2011 but I believe the decision may be extended all the way to next year," he said.

The analyst said bidders would also need an assurance that the act would be amended as the business model for postal services was no longer lucrative.

"There must be at least some flexibility in the Act and until it is amended, I don't think it will be a valuable proposition for the bidders," he said.

Another analyst with a foreign investment bank said the tariff increase from 75% to 100% for postal rates, which became effective from July 1, might not be enough.

"The increase should not be one-off, there should be a more vigorous or better plan to look at the rates otherwise in five to eight years, the company may ask for another tariff hike as operating costs rise," he said.

However, he said any hike in postal rates was a sensitive issue as the postal system remained an important conduit for communication in rural areas.

For now, he said the mid-year tariff hike did provide good upside but it was difficult to ascertain by just how much since it was unclear how volume would be affected.

 
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