The short position


  • Corporate News
  • Saturday, 12 Jul 2014

Why the penchant to reclaim land?

There is intense lobbying taking place even before the request for proposal (RFP) for Penang’s integrated transportation masterplan for the island is out.

Part of the plan entails the building of a light rail transit (LRT) system from Komtar to the Bayan Lepas airport.

The intense lobbying is understandable given the cost of implementing the project is estimated to be RM27bil.

But what’s troubling is that the state government may be considering a proposal to finance the project by allowing the company that undertakes the job to reclaim land, running into hundreds of acres.

There are two issues here.

Firstly, does Penang Island need a RM27bil integrated tranportation plan? And secondly, can it be financed by alternative means?

Penang Island needs better transport services. A public rail system connecting Penang Island and Seberang Prai would be hugely popular.

But is the LRT a solution? What about trams or a monorail which are cheaper options?

The RFP is only expected to be out next month to invite proposals to be the Project Delivery Partner (PDP) in the Penang Transport Master Plan strategy. So far, Gamuda Bhd is said to be the frontrunner.

Other interested parties include IJM Corp Bhd, MMC Corp Bhd, the Scomi Group and WCT Holdings Bhd.

Even the Federal Government-owned public transport operator, Syarikat Prasarana Negara Bhd wants to be a part of it. It was invited by the state six months ago to give its input.

Prasarana is an experienced player. It is the asset-owner and operator of the Klang Valley’s key public transport providers, namely, the Ampang and Kelana Jaya LRT Lines (formerly Star and Putra LRT), KL Monorail and RapidKL bus service, which was established after the takeover of Intrakota and Park May buses and asset.

Prasarana also operates bus services in Penang and a cable car service in Langkawi through its subsidiaries RapidPenang and Panorama Langkawi, respectively.

In total Prasarana is already operating 450 stage buses on the island and has a working relationship with the state.

With so many parties keen to be a part of this massive development, the state should keep its options open to solutions that involve minimal land reclamation works.

Long-haul  low-cost in vogue

Now, even Lufthansa is considering going into the no-frills low-cost segment of the aviation industry.

The leading airline from Germany is looking at starting a long-haul low-cost carrier (LCC) to destinations that are price-sensitive or where the non-business oriented passengers tend to frequent. For instance, tourist destinations would fall into this category.

Lufthansa in the past benefited from Frankfurt Airport being the hub for travel around Europe. It had the lion’s share of the airline seats flying out or into the airport.

But competition from the Middle East carriers and LCCs such as EasyJet and RyanAir in Europe is eating into its market share rapidly.

Also Lufthansa has a high operating cost due to its strong unions.

Does this ring a bell?

Yes, nearer home, we have Malaysia Airlines that is in a similar predicament.

It is facing competition from the Middle East carriers and LCCs such as AirAsia and its sister company AirAsia X.

AirAsia has the lion’s share of the market for travel within four hours while AirAsia X is slowly but surely eating into MAS’ share of the long-haul flight segment that is less than eight hours of flying time.

So where does this leave MAS?

Perhaps it should also take a leaf out of what Lufthansa is exploring, which is a long-haul low-cost service to destinations that attract less business-oriented traffic.

It is hard to see MAS embracing some elements of a low-cost model. But probably that is the panacea for its ills, apart from cutting down on its 20,000-employee strength.

The downside  of exclusivity

When CIMB Group Holdings Bhd first made an attempt to take over RHB Capital Bhd (RHB Cap) in 2011, Malayan Banking Bhd (Maybank) also entered the fray.

It was natural for Maybank to make a counter-offer as there is an unwritten desire within the Permodalan Nasional Bhd-owned bank that it remains as the country’s largest financial institution.

The deal ultimately collapsed because none of the bidders were willing to offer what RHB Cap’s substantial shareholder Aabar Investments PJSC wanted in terms of pricing for its block.

When CIMB, RHB Cap and Malaysia Building Society Bhd (MBSB) on Thursday announced that they have entered into a exclusivity agreement to finalise the merger between the entities to create the country’s largest bank, it was one way of dealing with one facet of the takeover; stemming the entry of a rival bid that can complicate matters.

This deal was no beauty parade, no bidding war or auction for the stake of RHB Cap. What the Employees Provident Fund (EPF) wants is to continue owning a big stake in a bank and having a majority stake in the country’s largest bank is a lucrative carrot.

But what about the minority shareholders of RHB Cap? By entering into an exclusivity agreement, doesn’t it preclude the possibility that there might very well be a better offer on the table once other banks see the possibility of a merger?

Whether it is a merger or a sale, directors on the boards of RHB Cap and MBSB would need to justify how they are getting the best deal possible for the company and shareholders.

Is the offer from CIMB for a merger the best possible deal it can get and is that sufficient to rule out a competing offer of a merger?

When looking at what the merger aims to create, the offer from CIMB surely ticks a lot of boxes. It will create the country’s largest bank, create a mega-Islamic bank, and address the weaknesses in RHB Cap’s regional presence.

It is a sweet proposition for shareholders of RHB Cap who want to continue owning a slice of a bigger bank.

Nevertheless, considering an exclusivity agreement has been inked, the valuations would demand a higher degree of justifcation, should a deal be signed.

No one must be left feeling that a better deal could have been obtained.

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