Should MAA’s selective capital reduction be priced higher?

  • Business
  • Saturday, 13 Apr 2019

WHEN it was announced that MAA Group Bhd’s major shareholders were looking to take the company private, investors were, understandably, very enthusiastic.

This was evident from the company’s share price, which surged, hitting limit-up before closing at a multi-year high of 90 sen on the very next day.

During the slightly over six-week period since the proposal was announced on Feb 27, 2019, MAA’s share price has shot up by over 73% before closing at RM1.04 yesterday.

Such enthusiasm is to be expected, given that the proposed selective capital reduction (SCR) and repayment exercise was priced at RM1.10 per share, which was a notable 83.3% or 50 sen higher than the company’s closing share price on the last trading day prior to the announcement.

The company has sold off its major assets in recent years, shrinking its business and leaving it with investment holding, education services provided by Kasturi Academia Sdn Bhd (formerly known as Pusat Tuisyen Kasturi Sdn Bhd), a general insurance business via MAA General Assurance Philippines, Inc. and a retail mortgage lending business in Australia via Columbus Capital Pty Ltd, among others.

With the disposal of its 75% stake in MAA Takaful Bhd (now known as Zurich Takaful Malaysia Bhd) in June 2016, MAA exited the local financial services sector regulated by Bank Negara.

Also, with MAA remaining a Practice Note 17 (PN17) company since 2011, and the fact that is now loss-making, investors are bound see the SCR, especially at an 83.3% price premium, as an attractive outcome to their investments in the company.

It is definitely a good deal – if based purely on the company’s share price, its current circumstances in relation to its listing status, and also the fact that it is currently a loss-making company.

Some quarters, however, feel that the SCR could actually be priced higher.

This is given that the company’s net asset per share stands at RM1.94 – which is 84 sen higher than the SCR price – even after all its asset sales over the past years.

MAA is a cash-rich company, which also has no borrowings.

According to its recent financial report, the group had RM251.1mil in cash as at Dec 31, 2018. Based on this figure, without taking into account all other assets, MAA’s cash per share already amounts to 90.8 sen.

As at Dec 31, 2018, the value of the company’s total assets stood at an impressive RM757.2mil.

Based on its annual report, this figure comprised mainly of its investments in financial assets, trade and other receivables, and also its cash and cash equivalents.

The company’s cash pile has grown over the years, following the divestment of its businesses, including the RM393.7mil it received from the 2016 sale of its takaful business.

So the question is, is the price, at RM1.10 fair, when these factors are taken into consideration?

On the flip side, one cannot deny that MAA is a loss-making company, and is facing the possibility of being delisted.

For the fourth quarter ended Dec 31, 2018, MAA posted a net loss of RM11mil, and for the full year period, a net loss of RM27.5mil.

On its listing status, the company has been given several extensions by the stock exchange to adhere to its regulations, and needs to submit a regularisation plan to Bursa Securities for approval, by the end of this month.

MAA fell into PN17 status after company sold its conventional insurance arm – Malaysian Assurance Alliance Bhd to Zurich Insurance in 2011.

Since then, the group faced difficulty trying to get out of the PN17 category, due to the restrictions it faced under the Islamic Financial Services Act 2013 (IFSA).

MAA, at the time, was bound by the IFSA because it owned a Takaful business.

The company was classified as a PN17 by virtue of having disposed of its major business, and under the central bank’s regulations, MAA could only go on to acquire businesses that were related to financial services.

To make things worse, valuations of assets in the financial services industry were high at the time.

Over the next few years, the company explored various proposals to boost its earnings, but nothing seemed to work out.

In 2016, following the sale of its takaful insurance business, MAA was no longer restricted by the IFSA, and was free to acquire assets in other sectors.

Since then, there have been many speculations about what the future holds for MAA, including the possibility of a rights issue, injection of assets into its business, the entry of a joint venture partner or that it could become a target for a reverse takeover.

When the company started buying back shares a few years ago, there was talk that it would eventually be taken private by its executive chairman Tunku Yaacob Khyra.

Two months ago, this rumour was proven to be true.

On Feb 27, MAA announced that its major shareholder, the Melewar group, had proposed that the company undertake the SCR and repayment at RM1.10 a share.

The group said the board, with the exception of Yaacob and Tunku Yahaya@Yahya Abdullah who were deemed to be interested parties, would decide on the company’s next course of action.

Melewar Acquisitions Ltd and Melewar Equities (BVI) Ltd collectively own a 38.67% stake in MAA.

Yaacob and his brother Yayaya are directors of both companies.

The Melewar Group, in the letter of proposal to MAA, noted that none of the company’s proposals to turnaround the business in recent years had materialised, and that the SCR provided the best avenue for shareholders to “realise their investments in the company in an expeditious manner”.

On March 29, the company announced that the board had accepted the proposal, and that an EGM would be convened for shareholders to vote on the matter.

MAA, a relatively low-profile company, rarely makes the news other than during the several occasions when it sold its assets in recent years.

The company’s name surfaced in news reports when its Group CEO and MD Datuk Muhamad Umar Swift resigned last December after being selected to head Bursa Malaysia Bhd.

Now, with the possibility of it being taken private, and the share price shooting up significantly over the past weeks, the company has come under the spotlight.

Moving forward, investors will await the report by the appointed independent adviser, which will share its opinions and recommendations, before they make their final decision during the upcoming EGM.

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