BURSA Malaysia’s target of getting 40 new listings next year is commendable. While the local bourse is perceived to be lagging behind its counterparts in countries like Singapore and Hong Kong, there are some facts about Bursa which are impressive.
As its chief executive officer Datuk Muhamad Umar Swift recently pointed out, the local stock exchange ranked second in Asean for equity funds raised, market capitalisation and number of initial public offerings (IPOs) as at September 2019.
The number of listings for the year, up to that point, had risen to 28 versus a total of 21 in 2018.
However, what is notable is that the companies listed this year were mostly small ones, with the exception of Leong Hup International Bhd. And even then, Leong Hup is deemed to be a “recycled” listing, in the sense that it used to be listed before.
To be sure, the company had gone through many changes since it was privatised and so the entity coming back to list was significantly bigger and more attractive.
Still, the fact remains that there is a dearth of new large companies in Malaysia. Other recent large IPOs on Bursa were also relistings.
Malaysia may have a structural problem in not creating enough new large companies. One reason is the lack of high-technology companies. Here, we don’t mean just Internet-based ones but also companies which have invested heavily in research and development.
There are other challenges in the market. Not all IPOs have done well. Some have dropped below their IPO price post-listing. That could be due to mispricing, but many IPO investors are also seen to be selling out of their companies too quickly. Could this be the new norm as investors remain jittery in the current market conditions?
BTM jumps into LPG
HOW do you get from running a loss-making downstream timber business in Malaysia to becoming a player in the liquefied petroleum gas (LPG) scene, all the way in Kazakhstan? That’s the ambitious plan announced by BTM Resources Bhd.
In a filing with the stock exchange, BTM Resources said it is partnering Markmore Energy (Labuan) Ltd (MELL) – a company controlled by Tan Sri Halim Saad – to participate in the proposed production of LPG using natural gas supplied from the Rakushechnoye oil and gas (O&G) field in Kazakhstan.
The company says the proposed venture will give it an opportunity to diversify and expand its source of income, as it has been hit by higher production cost and lower profit margins of wood products in recent years.
MELL owns CaspiOilGas LLP (COG), which holds a 25-year concession that expires in August 2025 for subsoil use of the Rakushechnoye O&G field.
Halim is the largest shareholder of SUMATEC RESOURCES BHD, which had entered into the agreement with MELL and COG for the Rakushechnoye oil field project in 2012.
However, the inability to raise new funding to develop the oilfield and various litigation issues arising from the legacy shipping debts had impacted Sumatec’s financials.
Sumatec, in an Oct 7 stock exchange filing, said that it has received notice from COG terminating a joint-investment agreement for the Rakushechnoye oil field project in Kazakhstan.
COG cited the constraints faced under the current financial and legal predicaments of financially-distressed Sumatec as a reason for the termination.
That said, the proposed deal between BTM and MELL is only at a heads of agreement stage. A due diligence on MELL will be undertaken in the next two months.
So, is investor euphoria on BTM a little premature?
Since the proposed deal was announced on Wednesday, shares in BTM have risen close to 70% and have doubled in just a week.
It also remains to be seen whether BTM, which has been struggling to run a profitable saw-mill business, can turn this new idea into a profitable venture if the deal does formalise.
What’s with MAA?
WHEN companies are left with excess cash and no core business, the right and only thing to do is return the money to shareholders. That is what most companies do.
MAA Group Bhd is cash-rich after having disposed of its domestic insurance business for RM364.4mil in 2016. The last tranche of the remaining sum, amounting to RM88.6mil, came into the coffers of the company in July this year.
The company has been paying dividends but it sure can afford to pay out more instead of acquiring stakes in companies that undertake business outside its core area of expertise.
The latest acquisition is an additional 2.42% in Altech Chemical Ltd, a mineral and chemical processing company that is listed on the Australian Stock Exchange. With the latest purchase that cost AU$2mil (RM5.84mil), MAA Group now holds 6.78% in the enlarged capital of Altech.
Altech is in the business of developing high-purity alumina (HPA) and has aluminous clay resources in western Australia. The HPA market is estimated to be worth US$1.1bil and it is used in the manufacture of semiconductors, LED lighting, lithium ion batteries and various other lighting equipment.
However, Altech is a loss-making entity. Hence, with a stake of less than 7%, what is MAA’s plans for the company?
In September, MAA acquired two companies that are in the business of providing private education for RM27mil. MAA contended that the purchase would allow the company to penetrate the private education and tuition business.
The private education space is booming, and hence, there is some logic in MAA’s move into that area.
However, the mineral business is volatile and risky. Why is MAA shoring up its position in Altech?
Based on announcements, as of June this year, MAA still had slightly more than RM300mil in its kitty from the sale of the takaful insurance arm.
The company should perhaps consider being more aggressive in returning money to shareholders instead of going into risky mining investments.
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