Khazanah's offer a good exit oppoturnity: Analyst
Published on: Thursday, August 14, 2014
PETALING JAYA: Khazanah Nasional Bhd's bid to buy up shares in troubled national carrier Malaysian Airline System Bhd (MAS) it does not already own for 27 sen a piece represents a good exit opportunity for minority shareholders, analysts said.Major shareholder Khazanah last Friday, announced that it plans to take MAS private in a bid to restructure the company away from the public eye. It had said that the de-listing is the first part of a detailed restructuring plan likely to be finalised by the end of the month.Kenanga Investment Bank Bhd research analyst Adrian Ng said Khazanah, which owns 69.37pc of MAS, is highly likely to be successful with the proposed selective capital reduction and repayment exercise (SCR).ADVERTISEMENT "If the minority shareholders reject (the offer), they won't get anything better than this and they might even end up with nothing. They should just accept it," he said, adding that for many investors who had gone in at the 22 sen apiece range, the offer gives them some upside.Ng added that the offer itself is 22pc higher than the fair value consensus by alaysts, which is no higher than22 sen."It (the privatisation) is much expected this quarter because the losses that MAS registered couldn't last them until next year. If this exercise is to be pushed to year-end, you're closer to next year to complete everything, which leaves you with no value technicallyÉ no more book value if MAS is to be kept listed until next year."ADVERTISEMENT "No one is going to pump in any more money in terms of equity until next year and sooner or later if they don't privatise, MAS can go bankrupt," said Ng, adding that MAS is expected to suffer losses of RM1.9 billion or more for FY14.AllianceDBS Research Sdn Bhd analyst Tan Kee Hoong views the SCR as a timely exit opportunity for minority investors, particularly as earnings momentum remains negative with an imminent cash call expected.
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"As part of the restructuring, we expect MAS to realign or downsize its network and withdraw from unprofitable routes. This would remove the excess capacity within the industry, and bring yields to more sustainable levels, while benefiting the other domestic Airlines. Conversely, Malaysia Airports Holdings Bhd and Brahim's Holdings Bhd could see near-term earnings slow, if MAS is to downsize its network," said Tan in a note.Another analyst said it is easier for Khazanah to do a thorough restructuring exercise of MAS when it is taken private and "off the radar"."They're likely to spin off the non-core business division and reshuffle the management. It will also involve fresh capital injection because the MH370 and MH17 tragedies had depleted cash faster than what had been expected earlier. Overall, it will be less scrutiny on MAS when fresh capital is pumped in," the analyst said.He added that 27 sen is a good exit opportunity for minority shareholders, considering that MAS share price in the last six months had been less than 27 sen.The proposed SCR by Khazanah must be approved by at least 50pc in number at an EGM to be convened and 75pc in value of the disinterested shares and the value of the votes cast against the proposed SCR must not be over 10pc.In a statement released on Friday, Khazanah said private ownership will accord greater flexibility to execute a restructuring plan for MAS and put in place an appropriate capital structure for MAS in view of the company's substantial funding requirements for the next few years to sustain its operations and address its current high level of gearing."We reiterate that the proposed restructuring will critically require all parties to work closely together to undertake what will be a complete overhaul of the national carrier on all relevant aspects of, inter alia, the airline's operations, business model, finances, human capital and regulatory environment. Nothing less will be required in order to revive our national airline to be profitable as a commercial entity and to serve its function as a critical national development entity," Khazanah said in a statement.MAS's board, save for MAS chairman and Khazanah director Tan Sri Md Nor Md Yusof and MAS director Mohd Shahazwan Mohd, will put forward the proposal to shareholders at an EGM to be called soon.Stay up-to-date by following Daily Express’s Telegram channel.
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"Barring any unforeseen circumstances and subject to obtaining the necessary approvals and consent from the relevant authorities/parties as disclosed, the proposed SCR is expected to be completed in the fourth quarter of 2014," MAS said.MAS is expected to incur a cost of RM2 million for the SCR.