The saga of taking Boustead Plantations Bhd (BPlant) private in 2023 is still fresh in my mind.
It would not be wrong to say that Lembaga Tabung Angkatan Tentera (LTAT) succeeded in taking BPlant private.
Without LTAT’s takeover offer, the minority shareholders would not have been able to enjoy such handsome returns of RM1.55 per share, considering the plantation stock had never climbed above RM1 since it was listed in 2014.
It was challenging for LTAT to undertake such an exercise within a year of taking Boustead Holdings Bhd private, especially on its own.
The government extended a financial guarantee of RM2 billion to support the takeover bid.
Wouldn’t this be considered a happy ending?
Even the politicians who initially opposed the takeover bid by Kuala Lumpur Kepong Bhd (KLK) and LTAT would likely agree.
But was the ultimate goal achieved, as LTAT and the ailing Boustead Holdings are still carrying the burden — underperforming estates that need money for replanting?
Had LTAT stuck to the original plan, it would have received RM1.15 billion by selling a 33 per cent BPlant stake to KLK.
Meanwhile, another government-linked company, Malaysia Airports Holdings Bhd (MAHB), is currently being privatised.
FAIRNESS AND REASONABLENESS
The deadline for the RM11 per share takeover offer, originally set for today, has been extended to Jan 17 at 5 pm.
At the offer price of RM11 per share, MAHB is valued at approximately RM18.3 billion in market capitalisation and RM21 billion in total enterprise value (EV).
Based on its adjusted interest, tax, depreciation, and amortisation (Ebitda) of RM1.51 billion for 2023, the deal is valued at 13.9 times EV/Ebitda.
Historically, MAHB has never traded above the offer price of RM11 per share.
Its price from 2008 to 2023 was consistently between RM2.21 and RM9.
However, there was a steady climb from RM7.49 on Jan 1, 2024, to around RM10 in April, ahead of the announcement of the proposed privatisation in May.
Only recently, MAHB shares closed at RM10.58.
The independent adviser concluded that the offer price of RM11 was unfair, deeming it low, as it represented a discount of 12.77 per cent to 19.77 per cent compared to the estimated value of RM12.61 to RM13.71, derived using the sum-of-parts valuation methodology.
Despite this, RM11 reflects a premium of RM6.11, or 124.95 per cent, to the latest unaudited net asset value per share of RM4.89 as of Sept 30, 2024.
Using my back-of-the-envelope calculations in the proposal, the offer was reasonable, providing a premium of 3.57 per cent to 37.78 per cent over the last traded market price.
The non-interested directors engaged the UBS AG Singapore Branch to assess the fair value of MAHB shares.
UBS placed the equity value between RM10.95 and RM13.15, using various valuation methodologies, including discounted cash flow (DCF) analysis and trading comparable analysis.
The difference in valuation range by UBS, my team, and the independent adviser stems primarily from different valuation methodologies and sensitivity analyses applied in arriving at the fair value range.
NO TO BLACKROCK?
After what transpired with KLK and LTAT, no one will rule out the possibility that the deal might fall through.
The privatisation deal also ignited parliamentary debate, and the backlash is probably stronger compared to the BPlant deal.
The contention is that a member of the consortium that made the takeover bid, Global Infrastructure Partners (GIP), is a unit of BlackRock Inc.
Larry Fink, one of the founders of BlackRock, is alleged to hold pro-Zionist views.
Adding to the scrutiny is the presence of a former Goldman Sachs director on BlackRock’s board and global executive committee.
The issue was amplified against the backdrop of escalating military tensions in Gaza at the time.
Again, the straightforward corporate exercise was being evaluated from a different perspective, not just in dollars and cents.
MAHB’s share price slid to a low of RM9.60 after the news of the privatisation, reflecting the scepticism in the market, partly due to the fate of the BPlant deal.
To recap, Khazanah Nasional Bhd has formed a four-member consortium to make a voluntary takeover offer to buy out the 67.01 per cent stake in MAHB that it does not own, at a price that MAHB had never achieved before the offer.
Should the deal succeed, the consortium, called Gateway Development Alliance Sdn Bhd (GDA), will wholly own MAHB.
Khazanah will be the single largest shareholder in the consortium with a 40 per cent stake, while the Employees Provident Fund (EPF) and GIP Aurea Pte Ltd (a joint venture between GIP and Abu Dhabi Investment Authority [ADIA]) will each hold a 30 per cent stake.
GIP will have a 25 per cent effective stake in MAHB via its 83.3 per cent stake in the JV with ADIA, while ADIA will have a 5 per cent stake.
The takeover of MAHB is aimed at upgrading and modernising the company’s operations, enhancing passenger service, improving airline connectivity, and stimulating traffic growth.
Critics, including politicians, have questioned the rationale behind selling a stake to GIP, arguing that if MAHB needed expertise in technical matters to improve operations, the company could rely on local expertise or appoint high-paid consultants instead of undertaking a stake sale.
There will be endless debate if one chooses to believe that a stakeholder who has invested in the company would not be able to create better value compared to a highly paid consultant with no skin in the game.
A possible supporting argument is that MAHB can keep paying a premium for consultants until the airport operator gets it right.
While it is not known how often MAHB has hired consultants in the past, one thing is for sure: The company has been a revolving door for directors, CEOs, and managing directors.
Since 2014, it has had five managing directors or group CEOs, the latest being Datuk Mohd Izani Ghani, who took office in August 2024, replacing Datuk Iskandar Mizal Mahmood, who left after the breakdown of the aerotrain at Kuala Lumpur International Airport (KLIA).
(This figure does not include Mohamed Rastam Shahrom, who served as acting group CEO from October 2023 to August 2024.)
The longest-serving managing director since 2014 was Datuk Mohd Badlisham Ghazali, who was appointed in June 2014 for a four-year stint.
MAHB also had five non-executive chairmen, and more than 20 directors have joined and resigned over the decade.
To be fair, the high turnover of management and board members could be linked to changes in the political scene in recent years.
Current independent directors have voiced opposition to the privatisation proposal, stating that the offer price does not reflect MAHB’s full potential.
They insisted that, with improving financial performance, MAHB stands to benefit from its untapped potential.
Notably, it had always been in an advantageous position in the past; still, its performance has not been impressive.
Being the dominant player in the country, MAHB’s passenger volume is to a large extent guaranteed, as all residents in the country have to use the airports it operates for air travel.
Simply put, there is no reason for MAHB’s financials not to improve given the global recovery in air travel.
From a broader perspective, MAHB has lost its ASEAN aviation market share, from 20 per cent in 2013 to just 16 per cent in 2023.
It could be at risk of losing more market share as Singapore and Thailand have invested heavily in new capacity.
This means that MAHB has not been able to attract international airlines to use its facilities as a stopover hub, let alone have an extensive network of connectivity.
FUTURE CAPITAL INVESTMENTS AND PLANS
MAHB has been underinvested compared to its regional peers.
All 39 of its airport facilities are ageing, leading to increasing operational failures.
The suspended aerotrain, which MAHB has been trying to replace since 2017, is the prime example of neglect.
Over the last five years, MAHB has invested only RM1.3 billion in capital expenditure, a stark contrast compared to Changi Airport’s RM18.9 billion, Indonesia’s Angkasapura I and II at RM8.1 billion, and Airports of Thailand at RM6.8 billion.
The Malaysian government has estimated that MAHB requires about RM10 billion in investments over the next five years to remain competitive.
For comparison, Changi Airport Group recently announced a S$3 billion investment over the next six years to improve services at Terminals 1 to 4, further illustrating the scale of funding required to maintain top-notch airport standards.
Clearly, MAHB’s capital investments are long overdue.
If MAHB management deserves a second chance, as some argue, don’t Malaysians also deserve better-run airports, having given MAHB many years to prove itself?
GIP, as an infrastructure investor, will need to unlock its investment value some years down the road.
If the consortium is given a free hand, without any political interference, to do the right and necessary things to propel MAHB to become the leading player in the region, the investing public will still have a second chance to ride the growth potential when GIP looks to exit.
Medecci Lineil has over a decade of experience leading a niche-focused team within Goldman Sachs’ investment banking division (IBD). His expertise extends beyond the bank, having been instrumental in establishing consultancy firms in Kuala Lumpur and Singapore, where he serves as a founding board member.
