Frankly Speaking

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Second time lucky for DRB?DRB-Hicom Bhd didn’t get to privatise Edaran Otomobil Nasional Bhd (EON) in late 2007 when it launched a general offer at RM2.10 a share. That was a 37% discount to EON’s net asset per share of RM3.34 then, which was backed by net cash of RM1.20 a share.

The offer wasn’t very well received, with DRB only managing to increase its holdings in EON from 49.4% to 79.09%. EON’s other shareholders, including its 12.1% owner Kualapura Sdn Bhd (a vehicle of Rin Kei Mei and Mitsubishi Corp), rejected DRB’s offer and its proposal to delist EON.

However, while EON was not delisted, it has been suspended from trading since March 2008 as the stock failed to meet the public spread requirement.

Last week, DRB again proposed to privatise EON through a selective capital reduction and repayment exercise, which would give RM1.55 cash a share to the remaining shareholders to forgo their stake. This represents a similar 39.5% discount to EON’s current net assets of RM2.56 per share.

If the minorities approve the exercise, they stand to receive more than what was offered by DRB two years ago. On top of the RM1.55 offer, the minorities had actually pocketed at least another RM1.10 per share in terms of special dividend paid out during 2008/2009, after the first GO. Thus, this would be RM2.65 versus RM2.10 for holding their non-tradable shares for two-years.

EON  in essence is not much different from a privately held outfit. In this instance, an offer should ideally be close to EON’s current net asset of RM2.56 per share, given that it has substantial cash (net cash of about 42.5 sen per share) and property assets in good locations.

It would  be interesting to see if Kualapura and other shareholders, whose approvals are required via a special resolution at an extraordinary general meeting, are happy with RM1.55.

What is really happening in Vastalux?

Vastalux Energy Bhd, more often than not, has been in the news for the wrong reasons.

The latest is news of the suspension of its Petronas licence. The oil and gas support services provider has stressed that all its existing Petronas projects will not be affected. However, the suspension probably means no more future contracts from the national oil company, on which Vastalux has been dependent for jobs.

This could be a big blow to the company’s earnings. In response to a query from Bursa Malaysia, the management mentions that earnings for FY2009 ended Dec 31 will not be affected. But since the suspension will affect future earnings, Vastalux did not really provide any clarity on the matter.

Its share price plunged further after news of the licence suspension. The stock has been in the doldrums since it was listed in September 2008.

Share disposals by former vice-chairman Mohd Nor Abdul Rashid, who is now executive director, and former CEO-cum-managing director Nor Sabri Hamzah, who has been redesignated vice-chairman, have added pressure on the share price, which has fallen to 18 sen from its peak of 75 sen when it made its debut.

Abdul Rashid has trimmed his shareholding to 11.6% from 32.8% while Sabri has reduced his stake to 18.6% from 22.6% previously. The two are founders of Vastalux.

The company sank into losses for the nine months ended Sept 30, 2009. It incurred a net loss of RM16.6 million or 8.06 sen per share.  It remains to be seen if Vastalux’s poor performance was due to the recession, and whether it can ride out the storm.

Major shareholders are selling down their stakes, the company is making losses and its Petronas licence has been suspended for non performance. What is really happening?  Mulpha’s puzzling moveLast Wednesday, Mulpha International Bhd said it had written to Bank Negara Malaysia for permission to start talks to acquire a stake in banking outfit EON Capital Bhd. In its announcement, Mulpha said that it is seeking to diversify from its property business and gain exposure in the Malaysian financial services sector.

While the company says that its plans are preliminary, there are several issues at hand, which makes its attempt puzzling.     Mulpha is a loss-making entity, and its balance sheet may not be able to withstand such an acquisition, which could go into the billions. When Hong Leong Bank proposed to buy EONCap at RM7.10 a share, it would have to fork out RM4.9 billion. The issue here is, to win the deal, Mulpha would have to offer more. 

Furthermore,  Mulpha’s history may get in the way of its plans, given the fact that Bank Negara Malaysia is very stringent in its  approval for bank ownership. Mulpha’s controlling shareholder and executive chairman is Lee Seng Huang, who took over the reins from his father Lee Ming Tee. The Lees have about 32% equity interest in Mulpha, which has property businesses in Australia and Malaysia, among others. However, although the company is now run by Seng Huang, Lee senior had previously pleaded guilty to fraud charges relating to a share placement worth HK$673 million and was sentenced to two one-year jail terms in 2004.

So, it raises eyebrows when Mulpha suddenly wants to buy a bank, which has little synergy with its current core business.  Mulpha’s trading volume has risen since news of its plans came out. Last week, its share price rosefive sen or 10% to hit a high of 51 sen on Thursday but tapered off to 49.5 sen on Friday. Bursa’s FBM KLCI  fell about 40 points during the week, in tandem with the global markets.

This article appeared in Corporate page of The Edge Malaysia, Issue 791, Feb 1-7, 2010.