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Tuesday March 15, 2011

Pos should not be loaded with debt

Raison D'etre - Risen Jayaseelan


THE successful candidate to buy Khazanah Nasional Bhd's 32.21% stake in Pos Malaysia Bhd should not eventually load the postal company with huge debts or influence it to pay unreasonably high dividends.

Buyers' of companies have a tendency to do this in order to repay themselves back the money they used (typically borrowed money) to buy into the target company in the first place.

Strictly speaking, a buyer who does this, isn't necessarily breaking any law. But it certainly isn't the best thing for the company's long-term longevity.

Ideally, the party looking to buy Khazanah's 32.21% stake, that has a market value of close to RM550mil, should be able to raise that amount of money on its own, without having to rely on Pos' balance sheet.

The new shareholder should in fact, be looking to invest Pos' cashflows into the latter's growth plans. In other words, the buyer has to have a clear long-term, value-creation approach to Pos.

To be noted is the fact that Pos has a healthy balance sheet, being in a net cash position and owning a lot of real estate.

In the corporate world, there was a time when leveraged buy-outs by private-equity players were in vogue and typically, had the side effect of the buyers' loading troubling levels of debt on their target companies.

Even in Malaysia, there is at least one distinct instance where a buyer of a government's stake in a government-linked company (GLC) had gone on to extract value for itself (the buyer) with the end result of increasing the debt levels at the target company.

To be sure, this funding issue may be one of the first ones being looked at by Khazanah and its advisors in the Pos divestment.

So far Khazanah has said that bidders will be considered based on their strategy and business plan, followed by the offer price.

The government investment fund had also said that an independent evaluation panel comprising five professionals from the public and private sector “with extensive postal and corporate experience” would evaluate all bidders' proposal on an anonymous basis.

It added that contrary to speculation, there is neither a leading nor lagging bidder at the current stage of the bid process.

What is also clear is that increasingly, the bidders for Khazanah's stake in Pos are comforted with the seemingly open and fair process they are being taken through.

Today is the last day that all bidders have to refine their bids, after having been provided with more information about Pos, including meetings with Pos' key management, in which bidders were allowed to pose questions.

In fact, it does seem that any one of the bidders, no matter how “unseeded,” could emerge as the winner, if their proposal makes the most sense.

If that happens, it would be proof-positive that due process is being adhered to in corporate Malaysia.

  • Deputy news editor Risen Jayaseelan thinks that Khazanah should be given the job to sell the valuable 700Mhz telecommunications spectrum to unlock the best value from it for the Government.

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