February 22, 2013
Super Syed Mokhtar eyes Malaysia Airlines (MAS)
by Jose Barrock@www.kinbiz.com
Businessman Syed Mokhtar Albukhary is proposing to the Federal Government to take over national investment arm, Khazanah Nasional Bhd’s 6.3 percent equity interest in ailing Malaysia Airlines, sources said.
While details of the businessman’s proposed takeover are not known, part of the deal may involve a long-term fuel subsidy by the government for as many as 60 years, they added. However, one source close to Syed Mokhtar denied such a proposal to take over MAS. “We are strongly denying it….This is all just election play,” he said.
However two separate sources confirmed that such a deal is being contemplated at the moment although details are sketchy because it is still early yet. Khazanah did not respond to questions sent. At present, Syed Mokhtar’s airline related assets include the Sultan Ismail Airport in Johor, which is owned by Senai Airport Terminal Services Sdn Bhd. This was acquired from Malaysia Airport Holdings Bhd, another Khazanah controlled entity, for RM80 million in 2003.
He also controls two ports, Port of Tanjung Pelepas Sdn Bhd and Johor Port Bhd, both under his flagship MMC Corp Bhd. He is also understood to be close to buying Penang Port Sdn Bhd. MMC is also doing a due diligence of Keretapi Tanah Melayu, the state controlled train operator.
Syed Mokhtar controlled DRB-Hicom Bhd last year took over auto maker Proton Holdings Bhd, and postal services operator Pos Malaysia Bhd. This adds on to DRB-Hicom’s existing banking, property and automobile distribution and assembly business. The businessman’s current thrusts seem to be hinged on entering into all the key transportation and logistic areas in Malaysia. But his reach extends far beyond that.
Many choice assets under Syed Mokhtar
Syed Mokhtar’s flagship company is MMC in which he has a 51.76 percent equity interest. MMC’s interests include power generation via Malakoff Bhd, the two ports and engineering and water distribution among a whole host of others assets.
Recently Puncak Semangat Sdn Bhd, a company believed to be linked to the businessman was awarded the lion’s share of the 2.6 GHz spectrum for 4G-LTE (long term evolution). Puncak Semangat bagged 40 MHz, while the other seven were only awarded 20 MHz.
Recent news reports have speculated that Syed Mokhtar is looking to take over NCB Holdings Bhd’s port operation arm Northport (M) Bhd, after he bid for Penang Port Sdn Bhd. Other than MMC and DRB his other vehicle is Tradewinds (M), which has plantations, sugar distribution and a monopoly of rice distribution via Padiberas Nasional Bhd.
The businessman had also attempted to buy PLUS Expressways Bhd from Khazanah, but that attempt was thwarted by Khazanah owned UEM Group Bhd and the Employees Provident Fund (EPF).
Many market watchers are questioning why so many choice assets are being sold to Syed Mokhtar. Hs aides defend the moves. “But to his credit, he takes control of the assets via bidding higher than other players.
For example about 10 years ago, Syed Mokhtar’s private company Restu Jernih (Sdn Bhd) bought 32 percent of Pernas (International Holdings Bhd which has since morphed into Tradewinds) for close to RM500 million (RM497 million) or about RM2.10 a Pernas share and 64 sen per Pernas warrant from Perbadanan Nasional Bhd. ….it was not a sweetheart deal, he paid much more than the market price for the company,” an aide of Syed Mokhtar says.
At that time he forked out more than a 200 per cent premium for the shares and warrants of Pernas. Pernas was set up in 1969 to promote Malay capital ownership, but the lumbering giant corporation failed in its agenda, and bled losses for the longest time.
As such the deal was viewed by many as a bailout. Some bankers view Syed Mokhtar as a systemic risk, with his ballooning debts. While debt levels are high, his businesses are sustaining and performing well. For instance, his flagship MMC, as at end September 2012, had RM17.72 billion in long term borrowings, while the company’s short term debt commitments stood at RM4.04 billion. Much of this debt level comes from 51 percent in power generation unit Malakoff Bhd.
DRB-Hicom meanwhile as at end September had non-current liabilities of RM4.07 billion and short term debt of RM2.27 billion. Tradewinds (M) had long-term liabilities of RM2.04 billion and short term borrowings amounting to RM1.74 billion.
For the nine months ended September last year, Malaysia Airlines suffered a pre-tax loss of RM477.96 million from RM9.89 billion in sales, a loss per share of 14.48 sen. However Malaysia Airlines in its notes which accompany its financials said that it recorded an operating profit of RM4 million for the third quarter ended Sept 30, 2012, compared to RM191.8 million in operating losses, for the quarter ended Sept 30, 2011. An analyst from a bank backed research outfit said that Malaysia Airlines in the past, had several problems, such as aging airplanes, and legacy issues, such as flying to many unprofitable destinations.
He says that things however are picking up, and he highlights the break even in operating profit in September last year. “The management is doing something right obviously,” he said. The analyst added that he expects the airline to post “convincing profits” in the final quarter of FY2012.
Tajuddin Ramli MAS’ story is a sad one riddled with cases of mismanagement. Last year former controlling shareholder and executive chairman of MAS, Tajudin Ramli settled out of court three lawsuits the national carrier had against him.
Tajuddin who was closely linked to former Finance Minister Daim Zainuddin was the poster boy for Malay entrepreneurs, and was the airlines Executive Chairman from 1994 to 2001. His entry into MAS in 1994 came about when the Government sold 32 percent of MAS to his vehicle Naluri for RM1.79 billion.
Then in 2000, the Government acquired Naluri’s 29 percent stake in MAS for RM8 per share, which was double its market price then. After much legal wrangling, a High Court decision in December 2009 ordered MAS’ Chief to pay Danaharta, the state asset management manager, RM589.14 million plus two per cent interest per year over the base lending rate backdated to January 1, 2006. But eventually Tajuddin settled out of court, for an undisclosed sum. Tajuddin meanwhile has claimed that his purchase was forced “national service”.