Business

Monday February 23, 2009

Valued less than cash


AS stock markets continue to plummet, share prices have reached levels that investors had not expected.

The unexpected low prices have ensured the trend of taking companies private continues.

The latest of these involved Halim Mazmin Bhd last week when it was announced major shareholders Tan Sri Halim Mohammad and Puan Sri Mazmin Noordin propose to privatise the company.

As shipping group Halim Mazmin sailed into unchartered waters of deep value, taking it private brings exceptional value for Halim, who is executive chairman, and his wife Mazmin, an executive director.

They propose an offer of 60 sen cash each to be paid to minority shareholders by Halim Mazmin following which, all the shares of minority shareholders would be cancelled.

That would involve payment of about RM74mil cash to minority shareholders as they collectively own 122.9 million shares.

That’s well within the means of Halim Mazmin. The company had cash of RM263mil and borrowings of RM107mil, which translated into net cash of RM156mil at the end of last year.

Hence, after paying off minority shareholders, the company would still have RM82mil cash.

Besides that cash, Halim Mazmin had about RM106mil in fixed assets, principally a few cargo ships. That’s a rich company to wholly own.

There’s this huge embedded value because Halim Mazmin traded at just around 40 sen before the offer, and that gave it a total market value of just RM125mil.

On that market value, the stake of Halim and Mazmin in the company was worth RM76mil. That is less than the cash in the company (RM82mil) after minority shareholders are paid off.

In owning the company privately, they would have all the fixed assets, namely the vessels, that had a book value of RM106mil.

As for minority shareholders, the offer enables them to exit at 60 sen a share. If they reject the offer, the price would probably drop back to 40 sen.

Of course, they would prefer a liquidation of the company in which case, they may get the net tangible asset value of 83 sen, but that’s not on the table. Further, it’s not possible to sell vessels at this time at book value in view of the depressed market.

It’s up to minority shareholders. For the exercise to proceed, it requires the approval of at least 75% of the shareholders, present and voting, at an EGM. Halim and Mazmin would abstain from voting at the EGM, the company said. It is believed they can’t vote, being the offerors.

Over in Hong Kong, a sizeable company owned by the Malaysian Hong Leong group is similarly trading below cash too, and well below cash and liquid assets.

Guoco Group Ltd still has a a lot of cash from its sale of Dao Heng Bank to Singapore’s DBS group in 2001. In a report last week, JP Morgan estimated Guoco would have about HK$16.6bil or RM7.7bil net cash this year. This would be about the same level at company level last year. Most of the borrowings at group level are in its subsidiaries, not the holding company.

Its net cash reserves exceeded its total market value of RM7bil on Friday.

On paper, the rest of Guoco’s assets were accorded zero value. These assets include a 25.4% stake in Hong Leong Financial Group Bhd, 64.1% stake in GuocoLand Ltd (previously known as First Capital Corp Ltd) and 59.3% stake in GuocoLeisure Ltd (previously known as BIL International Ltd), with the latter two listed in Singapore.

Guoco Group executive chairman is Tan Sri Quek Leng Chan who also heads the Hong Leong group of Malaysia. Guoco is the next interesting candidate to be taken private.


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