UEM, EPF offer RM23b for PLUS

The deal could be Malaysia's largest merger and acquisition since Sime Darby's RM31.4 billion mega-merger in late 2007.



TWO state-owned companies, UEM Group Bhd and pension fund Employees Provident Fund (EPF), announced a RM23 billion takeover offer for highway operator PLUS Expressways Bhd (5052) late yesterday.

The deal, which works out to RM4.60 a share, could be the country's largest merger and acquisition since Sime Darby Bhd's RM31.4 billion mega-merger in late 2007.

The offer was made for PLUS' asset and liabilities, UEM and the EPF said in a joint statement.

The announcement came after Prime Minister Datuk Seri Najib Razak disclosed in his Budget 2011 speech yesterday that there would be no toll rate hikes on four highways owned by PLUS for the next five years.
The four highways are the NSE, Elite, Linkedua and Butterworth-Kulim Expressway.

Analysts said the offer price is fair and believe that minority shareholders will go for it.

"It's actually quite fair and close to our fair value price of RM4.70. We don't think there'll be any strong objection from minority shareholders," said Wong Chew Hann, an analyst that tracks PLUS' shares at Maybank Investment Bank Research.

PLUS is the concessionaire for most of the highways in the country, including the heavily-used North-South Expressway (NSE) and the North Klang Valley Expressway.

A co-investment vehicle will be set up to take over PLUS' business, with UEM holding a 51 per cent stake in it and EPF, the remaining 49 per cent.

After the buyout, a special dividend will be paid out to minority shareholders and PLUS will be delisted.

PLUS, in a statement to the stock exchange, said its board would appoint relevant advisers and decide on the next course of action.

Other parties that had been vying for PLUS included privately-owned Asas Serba Sdn Bhd. MMC Corp Bhd, owned by tycoon Tan Sri Syed Mokhtar Al-Bukhary, had also put in a proposal for UEM Group.

The deal yesterday is seen to be motivated by the government's need to balance "a reduction in toll subsidies against public dissent on toll rate hikes", said an analyst from ECM Libra Investment Research.

"We believe an exercise to acquire PLUS would involve more manageable toll rates post-takeover," the analyst wrote in a report yesterday.

Under the present concession agreement, toll operators are allowed scheduled rate hikes. If the government decides against a rate hike whenever one is scheduled in a particular year, it has to compensate the toll operator.

UEM and EPF said their takeover offer is subject to a successful restructuring of the concession agreement.

UEM Group managing director Datuk Izzaddin Idris said if the bid is successful, PLUS would continue to be run by the same group of professionals.

Meanwhile, the EPF deputy chief executive officer for investments Shahril Ridza Ridzuan said ownership by EPF and UEM will allow PLUS to improve its financial performance.


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Govt-linked funds selling shares, locking in gains

KUALA LUMPUR: With the sharp rise in share prices of big-cap companies on Bursa Malaysia and the benchmark FBM KLCI nearing the 1,500-point mark, government-linked investment funds appear to be paring down their stakes and taking profit on their equity investments.

Some investment analysts observed that government funds were rejigging their portfolios and broadening their net to other stocks besides the big-caps, which had performed well in recent months.

According to statistics from Bursa Malaysia, a number of government investment funds including the Employees Provident Fund (EPF), Lembaga Angkatan Tentera (LTAT), Kumpulan Wang Persaraan (KWAP) and Skim Amanah Saham Bumiputera have been trimming their shareholding in various equities (see table below).

Analysts cited profit taking as one of the main reasons for the divestments.

“We believe that a number of local institutions had been taking profit on the market as it rallied from its low in May. Some of this selling could be related to having to pay dividends based on a June 30 close, or linked to efforts by local institutions to diversify their portfolio outside Malaysia,” said OSK Research head Chris Eng.

“The government funds have been taking advantage of the upturn in the market to lock in their gains. It is a normal pattern for these government funds to take profit and reinvest at a later date when the market is more stable,” he added.

As at end-June, the EPF’s largest stake was in Malaysia Building Society Bhd, with 67.33%, according to its website, while its second-largest holding was in RHB Capital Bhd.

The provident fund had made known that it wanted to reduce its stake in RHB Cap to some 40% over the next year. According to the latest filings with Bursa, the EPF now holds 54.52% in RHB Cap, down slightly from 54.93% at end-June.

In the case of the EPF, according to analysts, the trimming of its holdings in Malaysian equities is part of its plan to diversify its holdings overseas.

“Although the recent selling is due to profit taking, the EPF has also announced that it intends to increase its level of overseas investments, possibly investing in property,” said an analyst.

Other funds have been trading actively on the market in an effort to tweak their collective portfolios.

“An example is Permodalan Nasional Bhd, which has also been actively trading in the stocks in its portfolio, selling and buying at opportune times,” said a local trader.

LTAT, meanwhile, has also trimmed its stakes in smaller companies like Hiap Teck Venture Bhd and Pelangi Publishing Group Bhd. It has ceased to be a substantial shareholder of the latter, according to latest filings.

Among the companies that saw government funds trimming their holdings are government-linked companies (GLCs) such as Axiata Group Bhd and Malayan Banking Bhd. Other stocks that the funds have been selling include Kinsteel Bhd, DiGi.Com Bhd, KPJ Healthcare Bhd and Kencana Petroleum Bhd.

Going forward, analysts expect the profit taking to continue although there will also be some reinvesting once the market stabilises, which is expected in the coming months.

“Although the government funds will continue to invest in GLCs, it can be seen that they are broadening their net and are looking at the broader market as well,” said an analyst.

This is in line with OSK’s October strategy report which recommends a switch to laggard small-cap companies, stating that defensive companies like KPJ and QL Resources Bhd would prove ideal picks.

Its top picks among the GLCs include Petronas Gas Bhd and MISC Bhd, although the caveat for both stocks is their low level of liquidity, according to analysts.


This article appeared in The Edge Financial Daily, October 6, 2010.