Feb 2, 2013

Malaysia - Petronas takes MISC private in US$2.8b deal

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In a move that has caught the market by surprise, Petroliam Nasional Bhd (Petronas) is offering 5.30 ringgit (US$1.7) per share to buy out minority shareholdings in MISC Bhd, with the intention of taking the latter private.

The buyout, if successful, will remove the close to 20 billion ringgit ($6.4 billion) company in market capitalisation from Bursa Malaysia, making it one of the largest privatisation deals in recent times.

Petronas, which owns 62.67 per cent or 2.797 billion shares of MISC, would be forking out around 8.83 billion ringgit ($2.8 billion) to buy back the shares it does not own.

The 5.30 ringgit offer price works out to a premium of 18.04 per cent or 81 sen above MISC's closing price of 4.49 ringgit on Wednesday.

In the takeover notice issued to MISC, Petronas said it did not plan to maintain MISC's listing status.

Petronas said the offer was conditional on having received valid acceptances, which would result in Petronas holding 90 per cent or more of the total MISC shares.

MISC's other substantial shareholders are the Employees Provident Fund at 9.66 per cent and Skim Amanah Saham Bumiputra at 6.35 per cent.

The takeover notice did not state the rationale for the privatisation of MISC. However, in a statement issued by Petronas, it said that MISC was an important part of its integrated business and that the prevailing industry backdrop and uncertain global economy had made efforts to sustain and transform the business of MISC challenging.

“The offer represents a significant step by Petronas to take MISC private and obtain full control of it.”

The national oil corporation said this would provide it with greater flexibility in deciding MISC's strategic direction. MISC is one of the largest shipping companies in the world and also operates shipping-related services.

Petronas said that it had no plans to dismiss or make redundant the employees of MISC after the privatisation. It also said that it had “no intention of making a separate takeover offer for MISC's listed subsidiary Malaysia Marine and Heavy Engineering Holdings Bhd (MMHE). MISC owns 66.5 per cent of MMHE.

However, the proposed buyout has surprised many analysts, as it came at a time when the shipping giant was turning around after several quarters of losses. It was also coming close on the recent C$5.2 billion takeover of Canadian-listed Progress Energy Resources Corp by Petronas.

Zulkifli Hamzah, head of research at MIDF Amanah Investment Bank, said: “We are caught by surprise by the privatisation of MISC, especially as it had gone through a kitchen-sinking exercise in late 2011 or early 2012 and would have, therefore, been in a much better financial shape.”

He added that while the petroleum tanker division was still suffering from high supply in the sector, recovery should be due in the near future.

“Nevertheless, the decision to delist MISC reflects the stance of the controlling shareholder that the market is not doing justice to the valuation of the company. Taking the company private could be a precursor to more corporate actions involving MISC.”

MISC's share price has remained lacklustre in recent years. It had hit a high of 9.94 ringgit on Dec 6, 2007 and a nine-year low of 3.87 ringgit on June 5 last year. Yesterday, the stock closed at 4.45 ringgit before trading was suspended.

Another analyst said: “I think Petronas just feels that MISC's valuation is at a rock bottom, and it can add a lot more value by restructuring the business away from the public eye.”

He, however, thought that the offer price could be higher.

“Our sum-of-parts calculation for MISC is 6.20 ringgit, so 5.30 ringgit is not fair'.”

MISC's bottomline has been volatile in the recent past due to the challenging shipping business. But it was turning the corner following the sale of its liner business in December 2011.

*US$21= 3.1 ringgit

Gurmeet Kaur and Liz Lee

The Star

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