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  • Corporate News
  • Saturday, 12 Dec 2015

MWE’s short-lived euphoria

SOMETHING must have happened in the past two weeks that has forced the major shareholders of MWE Holdings Bhd to change their minds twice.

On Nov 30, the major shareholder of MWE, Pinjaya Sdn Bhd that has 30.8% in the company, made an offer to take over the business through the purchase of all assets and liabilities.

The offer was for RM1.70 per MWE share and under the scheme, Pinjaya and its owner Tan Sri Surin Upatkoon would opt not to accept their portion of the entitlement.

It seemed like a straightforward offer for a company that is in a slew of businesses ranging from the waning textile industry to investments in gaming and highway companies. Among the stakes held by MWE are in Magnum Bhd and Kumpulan Europlus Bhd that is undertaking the West Coast Expressway (pic).

But on Wednesday, which is nine days after the offer was made, the board sought an extension to consider the offer. A day later, Surin’s Pinjaya declined to give the extension and considered the deal as having lapsed.

That was the end of a 12-day euphoria for the normally mundane MWE, a company that started its fortunes in Penang in the textile industry. Yesterday, it closed 14 sen lower at RM1.41 in tandem with the aborted deal.

There could be many reasons for Surin not wanting to go through with the offer. But certainly, the lack of cash could not have been one of them because the tycoon has other companies under his belt such as Magnum and MPHB Capital Bhd that have much bigger businesses than MWE.

The obvious reason is probably Surin seeing opposition from some shareholders or the board to his offer to take over the company’s businesses. So, instead of going into a protracted corporate battle, a smart corporate guy would pull back and weigh his options.

With sentiment on the stock market poor, valuations are coming down gradually. If the situation persists, who knows? Surin could be lucky if he makes the offer six months later.

Felda’s new approach for Eagle High

Reports that the Felda group is looking at using its investment arm – Felda Investment Corp or FIC – to acquire a stake in Indonesia’s PT Eagle High Plantations Tbk from the Rajawali Group are interesting to say the least.

A wire report on Friday quoted Rajawali’s managing director as saying that Felda Global Ventures Holdings Bhd (FGV) may take less than 10% in Eagle High, with the remaining stake to be bought by FIC.

Recall that the planned acquisition of a 37% stake in Eagle High was first announced by FGV almost six months ago. Following delays in completing this deal, FGV had said early this month that it was looking into “a possible different mode of investment” into Eagle High.

The wire report now indicates that it will be FIC that could make the acquisition or at least be the larger buyer of the block, with FGV taking a smaller share.

Such a structure would take away certain risks from the listed FGV, including not needing it to raise the full amount of some US$680mil.

Then again, such a move would be at odds with an earlier plan within the Felda group. Felda’s top officials had said last year that FGV and FIC would take on different investment strategies: FGV was to invest in all areas related to plantations, while the-then newly formed FIC would focus on all other investments for Felda so as to ensure that there would be little overlap between their activities. FIC was to have three areas of focus, namely, hospitality, real estate and oil and gas.

Clearly, there must be a change in strategy within Felda for FIC to now take on a plantation-related acquisition. But what would the rationale of that be? Also, how beneficial would it be for FGV to take on a smaller portion of the 37% stake in Eagle High?

Is more protection the solution?

The steel industry is suffering. Looking at the accounts of nearly all listed steel players and traders, one will get the impression that all is not well within the industry.

The main grouse of the industry has been cheap imports. It is well-documented that the industry feels imports are circumventing tariffs by various ways to escape hefty duties placed on them.

Nonetheless, it does not come as a surprise to learn that the main player in hot rolled coils (HRC), Megasteel Sdn Bhd, has proposed a special-purpose vehicle to handle the importation of HRC.

Megasteel has for years been bleeding for one reason or the other. The steel producer, which has enjoyed high levels of protection in the past, has reportedly asked the Government to impose higher safeguard tariffs on HRC.

One industry association - the Malaysian Iron and Steel Industry Federation or Misif - is against such a move. It listed down its many reasons in a media release objecting any move to raise protective tariffs for Megasteel.

The issue is complicated, as without some additional safety nets, Megasteel will find itself in bigger trouble than it already is in right now. It has been reported that the Corporate Debt Restructuring Committee has been resurrected because of Megasteel.

In September, Megasteel announced a default of its facilities. In 2015, it extended its losses to RM615.92mil on lower revenue of RM1.907bil. Its total liabilities stood at RM4.318bil, while total assets were at RM2.772bil.

The industry has given its reasons as to why it opposes more protection for Megasteel. But the case of Megasteel is just one chapter in the book of competition. Competing fairly is paramount, but the reality is that businesses all over the world will find ways to earn a profit or stay alive.

The slump in commodity prices, including steel, has hit many producers all around the world. The question is whether those companies requesting for more safety nets are indeed taking steps to improve their efficiency and productivity.

If they are and can prove why they are hurt by unfair practices, then there is a case to be made in their favour. Then the question is the impact of higher tariffs on the supply chain of the steel industry and the economic welfare on the rest of the economy.


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