PETALING JAYA: After months of speculation, it is now confirmed there is an offer on the table from Employees Provident Fund (EPF) to buy Utama Banking Group Bhd's (UBG) stake in Rashid Hussain Bhd (RHB).
UBG announced to Bursa Malaysia yesterday that it “received a written conditional offer” from EPF to acquire all the shares and irredeemable convertible unsecured loan stock A and B (RHB ICULS) in RHB held by UBG as at April 14, 2006.
Directors of UBG are “considering the offer, and will be applying to Bank Negara for approval to enter into discussions with EPF relating to the offer,” UBG said in a brief two-paragraph statement.
It is not clear from the statement if the “conditional offer” carried a price for the RHB stocks or it was an offer to negotiate.
An offer from EPF could amount to a total of RM845mil based on RHB's share price yesterday and the RHB ICULS based on their value in UBG's annual report, and as much as RM1.08bil based on UBG's book value of its RHB shares and ICULS.
UBG owns a 32.8%stake in RHB and that carried a value of only about RM260mil based on RHB's share price of RM1.09, traded unchanged, yesterday.
When UBG bought a 15% stake in RHB from Malaysian Resources Corp Bhd in December 2002 and a 17% stake from Tan Sri Abdul Rashid Hussain in January 2003, it paid a total of RM1.24bil for the combined 32% stake. That was an average cost of RM5.44 a share in RHB, AmResearch Sdn Bhd said in a report last week.
UBG's cost of that stake had, however, been reduced to RM496.9mil at end-2005, having written down part of the investment value in RHB between 2003 and 2005. This reduced UBG's average cost in RHB to RM2.09, AmResearch added.
There is still a big gap between that book value and RHB's price of RM1.09 yesterday. EPF's offer could be somewhere between these two prices as the size of UBG's stake is arguably worth a premium. UBG's stocks in RHB form a controlling stake, especially if its ICULS are taken into consideration.
While the current combined stakes of EPF and Kumpulan Wang Simpanan Pencen or KWAP in RHB exceed that of UBG's, EPF may need UBG's stake as, otherwise, UBG can block any major restructuring exercise in RHB, or vice-versa.
In April, a proposal by RHB for a US$190mil exchangeable bond issue was deferred after it was said that two directors – Datuk Azlan Mohd Zainol and Johari Abdul Muid – were not involved in the final determination of the proposal and they could not therefore recommend it to shareholders. Azlan is EPF's CEO and Johari is EPF's chief investment officer.
AmResearch executive director Gan Kim Khoon said: “An offer for RHB is the easiest way to control the whole group. Through RHB, they can control RHB Capital and RHB Bank.”
EPF would need 75% of the votes that could be cast at an RHB EGM to carry any special resolutions, although only a simple majority was needed for ordinary resolutions, he told StarBiz yesterday.
UBG held RHB ICULS A worth RM357.1mil at fair value in its latest annual report and RHB ICULS B worth RM227.9mil.
The ICULS, which are convertible into RHB shares at RM1.00 each and maturing in 2012, could carry a higher cost than the RHB shares in EPF's offer.
EPF's stake in RHB will immediately increase to 63.7% if UBG accepts its offer and, eventually, to an even higher level upon conversion of the ICULS. That will not occur if EPF sells the ICULS at some point in time.
RHB needs to restructure its capital and debts as it had borrowings of RM3.4bil at end-March, and dividend flow from subsidiary RHB Capital is sufficient to repay that.
Gan pointed out that some of the borrowings could be refinanced. While RHB has a negative value in its net tangible assets, the current value of its stake in RHB Capital is about RM3.2bil and that can be re-pledged in a refinancing exercise.