Limited buyers for a minority stake in Perodua

Jewel in the crown: The highly-popular new Myvi model. Perodua is one of the two home-bred auto manufacturers and it is the market leader with a 36 share based on sales.

ON paper, Med-Bumikar Mara Sdn Bhd controls a valuable block in Perusahaan Otomobil Kedua Sdn Bhd (Perodua), which is Malaysia’s dominant automotive group.

However, in reality, it would be difficult for the privately owned Med-Bumikar Mara to realise its investments in Perodua.

This is because of the towering presence of UMW Holdings Bhd and its parent company, Permodalan Nasional Bhd (PNB), in Perodua. Both companies have direct interests in Perodua, as well as indirect influence through their Japanese partner, Toyota Motor Corp.

UMW has a direct 38% in Perodua, while PNB through its unit PNB Equity Resources Corp Sdn Bhd has 10%. Cumulatively, PNB controls 48% of Perodua.

Perodua’s Japanese partner is Daihatsu Motor Co Ltd and its associate companies. They control close to 29.5% of the company. However, Daihatsu Motor Co Ltd is owned by Toyota.

Hence, effectively, UMW together with the interest of its Japanese partner, Toyota, has close to 78% in Perodua. UMW and Toyota are strong shareholders with ample financial resources and a strategic hold in the automotive business in the country. They are looking at building up a presence in the Asean region.

Considering the situation, it would be difficult for another automotive group to even consider Med-Bumikar Mara’s stake in Perodua.

There is also the issue of a clause, supposedly in the shareholding agreement of Perodua whereby the existing shareholders have the first right of refusal if any of the shareholders prefer to exit.

If it is true that there is such as clause, which is quite common, then UMW and Daihatsu would have the first shot at the 20% stake held by Med-Bumikar Mara.

Assuming Med-Bumikar Mara gets a higher price from an external party or automotive group, there are other complications. This is because if another automotive group takes up the 20% block in Perodua, there is a possibility of it having to remain as a passive partner.

Why would UMW and Toyota allow it to have a say in the operations of Perodua? The new shareholder may not even get a board seat.

That does not leave many buyers out there who would be prepared to pay some RM800mil for a 20% stake in Perodua.

Private equity (PE) firms would love to have a stake in companies such as Perodua, which is growing and has a 35.5% share of the Malaysian passenger car market. However, PE firms would want to have some say in how the operations are managed. They would want board representation and tend to micro-manage the cost of operations to keep it low.

PE funds would also want to see Perodua get listed, which may not be amenable to UMW.

Considering the intricacies, while Med-Bumikar Mara has a valuable stake in Perodua, there are limited buyers. Large automotive groups would tend to stay away, while PE firms would want a stake but not remain as shareholders.

Large local funds such as the Employees Provident Fund or Retirement Fund Inc may offer a higher valuation for Med-Bumikar Mara’s 20% stake in Perodua. However, there is a lot of convincing that needs to be done, and it will take a long time, which some shareholders in Med-Bumikar Mara may not like.