Short Position - Siletrra, AirAsia, ESG

Ongoing sale: The SilTerra Malaysia plant in Kulim Hi-Tech Park in Kedah. The asset’s majority ownership ought to be kept local, the thinking goes, so as to ensure some level of national development is ensured.

Transparency needed in decision on Silterra sale

TOUGH negotiations must be ongoing in the bidding process for the sale of semiconductor fabricating company SilTerra Malaysia Sdn Bhd. This is a sale process that began last year and which reportedly saw the entry of some big foreign names previously.

However, the foreign parties were later believed to be excluded from the bidding, as SilTerra was a government-funded national project to move Malaysia higher up the semiconductor value chain.

The asset’s majority ownership ought to be kept local, the thinking goes, so as to ensure some level of national development is ensured.

Again, all this is speculation as the vendor of the asset, namely, Khazanah Nasional Bhd has not said anything formally.

It is well understood that as the seller of the asset, Khazanah itself is in a position to ensure strict confidentiality about the process involved.

Moving forward, though, and once a decision has been made on who the asset is being sold to, Khazanah ought to disclose the relevant information and be transparent about how it came to its decision.

This ought to be done in the best interest of openness and transparency and with the concept of environmental, social, and governance (ESG) being such a big part of the corporate world today.

For starters, all sellers tend to like the highest price being offered by the bidder and Khazanah should not doubt that as a very crucial criteria in its decision.

However, clearly there will be other considerations such as the total value the offerer is bringing to SilTerra and the country. Think job creation, technology transfer and foreign direct investment.

The last thing needed is that a decision is made based on other intangible factors that do not carry as much weight as the above, considering also that this is an asset in which all tax-payers have funded over the years.

A placement of hope

AirAsia Group Bhd’s proposed private placement to raise funds to serve its short-term needs underlines the difficulties that the low-cost carrier (LCC) is facing to secure long-term loans.

It is no secret that the LCC, which is easily among the best in Asia, has been talking to banks to secure long-term loans to the tune of RM2bil to help it tide over since the collapse of air travel due to the pandemic.

Towards this end, AirAsia is looking at tapping a scheme for corporates where the government will provide 80% guarantee on loans provided the company is able to get banks to handle the risk on the remaining 20%. Based on AirAsia’s decision to undertake a private placement, obviously it is not so easy for companies such as the LCC to take advantage of the scheme.

The private placement of 20% of shares will help AirAsia raise some RM454.4mil which it would utilise within six months. Clearly, the amount would not be sufficient to meet its long-term, cash-flow requirements and the company has stated the fact clearly.

While the outlook for long-term financing looks bleak for AirAsia at the moment, sentiment on the stock can change overnight if some good names take up the private placement.

In 2008, Warren Buffett took up a US$5bil preference share issuance in Goldman Sachs. Overnight, sentiment on banking stocks in the US, which was going through a liquidity crisis, changed. Buffett, who is among the savviest investors in the world, made a pile from taking up the stake in Goldman.

A private placement at the worst of times is not necessarily a bad idea. It’s the quality of investors who take up the shares that matters. AirAsia has rightly made it clear that the private placement at 68 sen per share would not be allocated to the existing major shareholders or any party connected to them. It’s good governance. But for the airline to have a better chance of securing long-term financing, it needs to secure some quality investors to take up the shares.

Taking stock of what is important

THE world is changing, largely on how the pandemic is changing the norms of the past to evolve industry and consumption patterns to new ways of conducting business and transactions.

That is being recognised by how well tech stocks have been doing, even as much of the world enters strict lockdown rules as vaccine rollouts are hopefully putting an end to the the spread of the pandemic.

An eventual return to normalcy will ensue but what will likely accelerate is the embrace of industries to not only the changing patterns of now, but what was happening prior to the explosion of the pandemic globally.

Environmental, social and governance (ESG) issues will shape alongside the forces that will lead the world out of the pandemic. The rise in the share price of Tesla, where it is now more valuable than all other major auto companies combined, is a prelude of how investors are rewarding companies that are not only leading changing consumption patterns, but also embracing the new consciousness among investors.

Old oil too is aware that it too will need to change and there is great thought on how oil companies and countries are looking at the future. Dubai wants to be a global player in the hydrogen business as an energy source, a move that some feel will be the energy choice of the future, given its suitability to the distribution network of energy many are used to today.

Companies closer to home have also seen how not paying attention to ESG issues has hurt their stock price. Top Glove Corp Bhd has been hurt by such concerns and its share price has been affected despite the huge profit it is making. The company has vowed to improve on its ESG practices.

Corporate Malaysia will need to see how it can further improve on adherence to ESG issues, as old and new money are looking at equitable and socially-correct ways of investing and have to figure out how it can work alongside those modern-day needs to deliver higher shareholder value in the future.

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Sileterra , AirAsia , Tesla , economy , transparency ,


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