Looking beyond Maika malaise


THE curtains are being raised on the crumbling house of cards in the most protracted prickly issue among the Malaysian Indian community. For over two decades, Maika Holdings Bhd, MIC’s investment arm, initially touted as the “all Indian dream”, has been riddled with deep distrust, intense suspicion and weakened by scandal.

So, it was not surprising that when Westports Malaysia Sdn Bhd executive chairman Tan Sri G. Gnanalingam first revealed his plans to takeover Maika in a rushed press conference in late April, instead of stemming the voracious speculation which was his original intent, he had re-ignited the long pent-up suspicion.

Questions aplenty flowed on steady stream: Is this rescue a political play? Is it a brokered settlement with the MIC leadership? How many layers of agenda are there in this exercise? What’s in it for Gnanalingam? Are the poor Indians, who have long endured this debacle, getting a raw deal?

It didn’t help at all that the takeover plan was revealed by politicians just days before the Hulu Selangor by-election, which was perceived by many as an attempt to woo voters.

Truth is, as CIMB Group chief executive Datuk Seri Nazir Razak put it: “It’s a very simple deal.” (CIMB is adviser and financier of the special purpose vehicle G Team Resources & Holding Sdn Bhd formed to undertake the exercise. G Team is equally owned by Gnanalingam and Datuk S.Kunasingam).

At a press conference to announce the conditional takeover offer on Wednesday, Nazir started out his speech this way. “I’m intrigued that when I announce billion dollar deals, the room (venue of the press briefing) is only half full but today, it’s very full. There must be a lot of interest.” An understatement, indeed.

If you strip out the past, the highly-strung sentiments and the politics from the deal, Gnanalingam’s plan – to wrest control of Maika, pay back shareholders their original investments, manage the debts, flog off its two valuable assets (an agricultural land in Sepang and a 74.1% stake in Oriental Capital Assurance Bhd), the excess proceeds of which will be channelled into a fund for the community and finally close the chapter on the scandal-ridden company – is a solution which gets most people thinking – “Why couldn’t this have been done much earlier?”.

Unfazed by critics and quite confident he will be able to garner over 50% of Maika shares, a condition for the offer, Gnanalingam, who is also co-chairman of the Cabinet sub-committee on Indian affairs, remarks: “A thousand opinions are not better than one action plan.”

“If we can’t solve this first problem, it’s no use being on the committee. That’s why I’m doing this.”

A simple deal, indeed

G Team has proposed to acquire all 125 million shares in Maika at 80 sen per share or RM100mil cash (the 25 million shares arose from a four-for-one bonus issue in 1996). The offer is conditional upon G Team receiving more than 50% of the voting shares of Maika. Once the offer becomes unconditional, it will also trigger a general offer for OCA shares (see also page 21).

On Friday, in what is the first sign that the deal has moved one step forward, Maika’s board of directors confirmed that they had received a takeover offer, further stating that they were not seeking an alternative person to make a takeover offer of the company’s shares other than G Team.

Maika shareholders are expected to receive the offer document within 21 days and the offer will remain open for at least 21 days with an option to further extend.

G Team has been given a time-frame of one year by the central bank to dispose of its stake in OCA. As for the encumbered land, once its title and valuation have been verified, a committee would be set up to determine the best way to realise the value of the land.

Should the exercise result in a financial gain, the monies will be donated to an established charity for the benefit of the Malaysian Indian community while any loss will be borne by G Team. G Team does not plan to continue the operations of Maika.

“It is our intention to close the chapter (of Maika),” said Gnanalingam.

And this – “There’s no political involvement in this exercise. I feel Indians should resolve the issues themselves and as quickly as possible.”

The big question – is it a fair offer?

The offer price has drawn mixed response.

“He (Gnanalingam) is a businessman. He is only talking of giving shareholders their original investment value. If he’s willing to pay RM1 for 125 million shares, then it’s reasonable. What happens to those who bought the bonus shares at RM1? After waiting for 26 years, not many people are going to be happy with the offer,” says Datuk S. Subramaniam, president of Nesa Cooperative. (Nesa Cooperative filed and won a court order to stop the sale of OCA back in 2007)).

Gnanalingam, a former tobacco and advertising executive and now port owner since 1996, was ranked the 13th wealthiest man in the country with a net worth of some RM800mil by the widely followed rich index by Forbes last year. With that in mind, there are many who ask “Why couldn’t he pay more?”

Here’s why.

Maika’s latest net tangible asset stood at 23 sen per share; at the offer price of 80 sen per share, the offer translates to 3.5 times book. In addition, it has liabilities of some RM60mil. (Maika’s 2006 accounts show that it has two debts – RM34mil owing to Danaharta Managers and RM18.3mil owing to CIMB, which total RM52mil.)

In fact, according to a source, one of Maika’s creditors, Danaharta Managers, had earlier agreed to take a haircut on the outstanding debt. In a letter to shareholders dated August 2007, Maika’s then chairman Tan Sri Abdul Rashid Manaff alluded to that. He said the board was hopeful of obtaining a substantial waiver of the accumulated interest of nearly RM20mil owing to Danaharta Managers. If this is still the case, then the debts ought to be lower than estimates.

But sources close to the offeror reveal that since news of a potential takeover has surfaced, the creditors have been less amenable to providing the haircut.

Back to the valuation. The Tumbuk Estate in Sepang is worth RM10mil while based on its latest available book value as at 2008, OCA is said to have a net tangible asset of RM102mil.

Based on 1.5 times book value, Maika’s stake in OCA is worth some RM113.4mil. If you total the value of OCA with that of the land and minus the debt, it comes up to some RM63mil, as opposed to the total purchase price of RM100mil.

It is believed that in FY2009, OCA returned to the black after a three-year loss streak. A company source said the insurer’s latest NTA stood at RM120mil as at end-December 2009. Based on those figures, Maika’s stake in OCA at 1.5 times book comes up to RM133.4mil which, after including the land and debt, totals RM83.4mil.

“However you skin it, it’s going to be pretty tough to get it to RM100mil,” says Nazir, adding that it is an offer at fair value based on what is available at this point. “It’s fairly offered to everyone and we hope majority will accept.”

But there may be one stumbling block to the sale of OCA which has been there since 2007 – Nesa Cooperative’s court order to freeze the sale of OCA.

“I have repeatedly said that at any time when an offer is made and the price is reasonable, we will apply to lift the injunction. We know there were offers in the past which valued the company at RM130mil and RM149mil. So, as far as the insurance company is concerned, these are the parameters. If the price is reasonable, there’s no problem,” says Subramaniam, who owns some 8,000-10,000 shares

Disgruntled shareholders

Many shareholders appear only too relieved that the latest takeover offer would finally mean closure to the painful Maika saga, especially so for those who have written off the possibility of ever getting their monies back.

In fact, along the years, many shareholders were said to have sold their shares at 50-80 sen to interested parties. “These people were poor and desperate to raise any cash they could,” says an observer.

And there are others who believe they should hold out for a better price. One of them is S. Nadarajah, a management consultant.

“We welcome the move. But what’s important is the price, which I feel is ridiculously low. It looks more like foreclosure value than real market value. OCA has considerable value that can be unlocked. It’s a much sought after business,” he says.

That may be perception more than reality. Sources close to the insurer says a lot need to be done to bolster OCA’s waning status. “Yes, it (OCA) is a valuable asset but it is nowhere near to what some Maika shareholders think. The person who buys the company needs to pump in at least RM20mil to revamp the operations, recruit people and get things back on strong footing. A lot need to be done. Some are saying it ought to be sold for RM200mil. I think that’s a pipedream,” says the source.

“Coming in and out for Gnanalingam makes sense as he can make almost dollar for dollar return on what he paid for Maika. The downside could be limited unless of course, they take too long to flip it. The longer they take, the less value they will get,” adds the source.

Ultimately, whether the offer price is fair would be judged by how much the asset is finally disposed of, which has been promised will be an open and transparent process.

“There’s clearly no intention to short-change anyone here. We have to start from somewhere. The key thing is to look forward,” says Nazir.

Moving on

Gnanalingam is clearly anxious to separate his takeover plan from the past. Why not? He’s not responsible for the controversies that have long dogged the group. “I don’t want to go into what happened in the past 26 years. It’s irrelevant,” said Gnanalingam.

Unfortunately, that may be easier for them to do than the tens of thousands of Maika shareholders, who over the years have had to suffer the crushing realisation that their investments in Maika have painfully diminished.

That could mean another thing – that while the cleanup may not take too long, the repair could take much longer.

“Maika is a commercial entity that has been bogged down by political dogma. That’s the main reason for its downfall,” says a corporate observer.

Back in the 80s, RM100mil in the coffers was an eye-popping load of money. “If the company had invested most of its money in equities then and sat pretty up until now, it would have billions in its coffers today,” says the observer. The colossal loss of opportunity, indeed, is hard to stomach.

“Political parties need to have their own ways of doing things in the business world. But they can’t run away from the simple fact that just being granted access, is no guarantee to making returns. It does not mean, you don’t have to manage it. Execution is still the issue whether you are the investment arm of Umno, MCA or MIC,” says the astute observer.

There are many issues about the company that are puzzling. Maika has not conducted an annual general meeting for the past three years.

The last annual accounts received by members was for financial year 2006. It currently only has a two-member board – Datuk C. Vijaya Kumar, chairman and Vell Paari, the CEO. Paari is also the son of Datuk Seri S. Samy Vellu, MIC president and the architect of Maika.

(StarBizWeek reached Vijaya Kumar and Paari but failed to get any comments for this article).

Given that there are adequate safeguards and checks and balances in the law, it is deeply distressing that the regulators have not appeared to act in a meaningful way.

At this point, what we do know for sure is that Maika, once trumpeted as the Indian community’s answer to uplifting their flagging socio-economic status, is a dismal flop.

But what we do not really know is – how exactly did it reach this point?

Once the chapter is closed, will we ever?

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