Are MAHB minority shareholders being blindsided?

THERE was a clarion call for minority shareholders of Malaysia Airports Holdings Bhd (MAHB) to accept the RM12.32bil deal to take the airport operator private.

But although MAHB provided its rationale for the proposed deal, it is still not clear why there is a need to take it private when it can remain as a public listed company while still fulfilling its obligations, which are part and parcel of its role as an airport operator.

Khair Mirza, head of airport and industry research firm Modalis Infrastructure Partners, tells StarBizWeek that this could be due to attempts by the government to ensure the airport operator is being run professionally.

“The big question here is whether decisions will be made in the best interests of airport efficiency (capital and operational) or whether continuing stakeholders continue to be over-indulgent,” he says.

In a filing with Bursa Malaysia on May 15, MAHB said it had received a takeover offer from a group of investors through a consortium led by Khazanah Nasional Bhd, via the latter’s wholly owned subsidiary UEM Group Bhd, and the Employees Provident Fund (EPF) to purchase all the remaining 1.12 billion shares in MAHB, representing 67.01% of the total issued MAHB shares.

Khazanah and the EPF are teaming up with New York-based Global Infrastructure Partners (GIP) and Abu Dhabi Investment Authority (ADIA) to form the consortium, Gateway Development Alliance Sdn Bhd, to take MAHB private. GIP is one of the world’s premier infrastructure investors and an experienced airport owner and manager.

Upon full completion of the offer, Khazanah will increase its ownership in MAHB from 33.2% to 40% and EPF from 7.9% to 30%. Collectively, Khazanah and the EPF’s combined interest in MAHB will increase to 70%. ADIA and GIP will hold the remaining 30%.

The government of Malaysia will retain special share rights in MAHB. The chairman and chief executive officer will continue to be Malaysian citizens, a joint statement by the offerors stated.

The takeover of MAHB is aimed at upgrading and modernising the company’s operations, enhancing passenger service, improving airline connectivity and stimulating traffic growth.

MAHB says the country’s long-haul air connectivity underperforms regional peers, adversely impacting the nation’s ability to attract leisure and business travel as well as foreign investment.

The joint offerers say they had identified several priority initiatives to be undertaken upon completion of the exercise. This includes supporting MAHB to deliver high-priority capital projects including the aerotrain and the baggage handling system at Kuala Lumpur International Airport.

They also plan to enhance passenger experience by alleviating congestion, improving passenger flows and terminal ambience, as well as expanding the retail and food and beverage offering at MAHB’s airports.

The consortium will also work closely to support existing airlines and strengthen management resources to attract new airline customers to MAHB, particularly in the long-haul segment.

These objectives laid out are crucial. However, shouldn’t it be the responsibility of the airport to ensure the growth of the airport business as well as enhance its services and safety, whether it is a public-listed or private company?

“This is a business that has cycled through five CEOs or MDs in the last six years. It begs the question as to how things can change if the larger stakeholders are not changing in this privatisation proposal. If anything, both continuing stakeholders are increasing their stakes,” Khair adds.

Clearly, investors are not happy with the deal, which is deemed the largest acquisition in Malaysia in nearly three years.

The counter fell 3.46% to close at RM10.04 on May 16, the next trading day after the announcement was made.

This is despite the offer price being at a 15.2% premium to the prevailing three-month volume-weighted average price of RM9.55 per share.

The offer price also implies a 49.5% year-to-date increase based on the stock’s closing price of RM7.36 per share at end-2023.

More value to be extracted

Granted that the expansion of airport business is capital intensive and has a long gestation period, which can be a drag for most investors.

But the EPF is in the business of ensuring its investments are value-accretive. The fact that the EPF is upping its stakes in MAHB post-acquisition is an indication that there will be more value to be extracted from the airport operator.

As it is, airport operations are seen as a booming business, especially for MAHB, given its monopoly in the country that will benefit from the expected increase in passenger traffic.

In addition, there are other huge values to be harnessed by MAHB.

According to HLIB Research, the airport operator has a huge 2,731ha of land bank in Sepang to be turned into KLIA Aeropolis, which has been given a 99-year lease starting from November 2022.

“There is also the Subang Airport Regeneration Plan, which will provide further valuation upside, given the establishment of a new terminal to expand the airport’s capacities with commercial activities, new maintenance, repair and overhaul (MRO) services, and the resumption of single-aisle aircraft operations (for instance, A320s and B737s).

“Other major airport developments such as Penang International Airport (currently ongoing) and potentially Kota Kinabalu International Airport will also provide valuation upside to MAHB.

“There is also the possibility of MAHB realising its investment in Istanbul Sabiha Gokçen Airport (ISGA) in Turkiye (which has been largely ignored by the market) and MAHB to engage the Turkish government to further extend the concession period of the ISGA,” the research house says.

However, it notes that while there is strong upside potential to its current target price of RM10.25, there is a potential long gestation period for shareholders to realise and extract this value.

As such, HLIB Research advises shareholders wishing to cash-in their current investments in MAHB to accept the offer of RM11.

On whether there will be plans to sell MAHB’s stakes in the ISGA after the privatisation exercise, Khair believes it is possible.

“It is possible, though it is not as critical as the current question over who should be helming the reins over MAHB.

“An American firm owned by BlackRock? A Middle Eastern fund out of Abu Dhabi? Or the two continuing stakeholders who, while diluting the direct influence of the Finance Ministry and Transport Ministry, will now be the two controlling shareholders directly.

“Theoretically, this proposal does not necessarily constrain MAHB from transacting any partial sale at the Istanbul airport level. However, it can be assumed that bidding parties may see more value in the said Istanbul asset than a builder in Turkiye,” he explains.

At the end of the day, it is unfortunate for the local bourse to lose a counter like MAHB should it successfully be taken private.

Hopefully, the privatisation will elevate the airport to be on par with its regional counterparts.