Privatisation deal draws scrutiny

This comes as company director continues to sell his Tanah Makmur shares

THE proposed privatisation of Tanah Makmur Bhd has come under scrutiny after one of the parties acting in concert for the deal continued to sell his shares in the company in the open market.

Tanah Makmur’s non-executive director, Datuk Seri Tengku Uzir Tengku Ubaidillah, had sold around 9.16 million shares in the company since the major shareholder announced a deal to take the company private on April 25, reducing his stake from 3.6% to 1.783% as at June 21.

That is when the Tengku Mahkota Pahang Tengku Abdullah Sultan Ahmad Shah ( pic), and parties acting in concert (PAC), who collectively have 69.9%, proposed a privatisation exercise via a selective capital reduction (SCR) to buy out the remainder stake they own at RM1.80 a share.

Tengku Uzir also has equity interest in Tastu Bina Sdn Bhd, which in turn holds 27.06 million shares, or 6.796% interest in Tanah Makmur.

It has been reported that Tengku Uzir had been seeking to exit Tanah Makmur and is redeploying his capital to WZ Satu Bhd. He emerged as a major shareholder of WZ Satu in August 2013. He has been increasing his stake to 25.308% as at June 20 in WZ Satu from 23.26% last December.

This raises the question: If Uzir is part of the parties acting in concert to take Tanah Makmur private, why is he selling his stake?

It is believed that some minority shareholders are not keen to sell out of this Pahang-based company, considering that it offers a nice yield investment and in these times, yield plays are much sough after.

While its share price has moved up since the announcement of the privatisation, Tanah Makmur offers a relatively good yield.

The offer price works out to a premium of 22% to the closing price of RM1.47 per share on April 22, the day prior to the suspension of the stock to make way for the takeover announcement.

Tanah Makmur, a palm oil player with exposure to property development and bauxite mining, has paid out a total of 18 sen in dividends since it was listed, giving it a dividend yield of about 7.2%.

Even at RM1.80, the company offer a relatively decent dividend yield of 6.6%.

The offer price of RM1.80 per share values Tanah Makmur at 13.4 times for price-toearnings ratio, which is higher than the 9.3 times when it was listed at RM1.25 per share.

Still, the privatisation offer of RM1.80 per share or RM285.13mil offers a decent premium compared with its share price hovering around RM1.30 to RM1.40 in the past few months.

The company had net cash of RM424.3mil as at Dec 31, 2015,which works out to 6.1 sen per share.

In April 2016, Tengku Abdullah, the major shareholder of Tanah Makmur, had proposed to privatise the company by way of a SCR and repayment exercise.

Tanah Makmur said its board received the letter of request from Tengku Abdullah, who owns a 12.77% stake in the company.

In the letter, Tengku Abdullah said he and parties acting in concert with him - including Pahang State Agricultural Development Corp (20% stake) - held 69.9% of the company’s issued and paid-up capital as at April 22.

Under the proposed SCR, Tanah Makmur will reduce the par value of its shares from 50 sen to 25 sen, thus creating additional share premium reserve.

A bonus issue is also proposed, as the number of Tanah Makmur shares to be cancelled is higher than the existing issued and paid-up capital.

On completion of the proposed SCR, all Tanah Makmur shares held by the entitled shareholders would be cancelled and they would receive RM1.80 per share, or a total repayment of RM285.13mil.

All the remaining shares not cancelled will continue to be held by the non-entitled shareholders, including Tengku Abdullah and the Pahang State Agricultural Development Corp.

Tanah Makmur recently submitted to the Securities Commission Malaysia to seek its approval and consent for the corporate exercise.

It needs at least 50% in number and 75% in value of the non-interested shares that are cast either in person or by proxy at the EGM to be convened later for the deal to go through. On the other hand, if the votes cast against the deal is more than 10% the deal will not go through.

Tanah Makmur surprised the market when its announced the proposed privatisation via SCR less than two years after it was listed in July 2014.

The company cited the stock’s poor liquidity as a reason for taking it private.

Some suggested that the privatisation could have been triggered by the extension of the ban on bauxite mining.

The ban on bauxite mining that has put the company’s mining operations on hold and some analysts expect the company to deliver a poor results for the current quarter.

The company reportedly started bauxite mining venture in mid-2014 after its discovery of 1.2 million tonnes of bauxite deposits on its KotaSAS township landbank.

Bauxite exports are said to contribute between 20% and 30% of Tanah Makmur’s revenue yearly.

A three-month moratorium on bauxite mining in Pahang was imposed starting Jan 15 this year, which has been extended for another three months to mid-July.

Bauxite mining has become a controversial issue in the wake of various environmental problems.

Furthermore, the weak crude palm oil prices have also weighed on the group’s plantation arm.

Tanah Makmur operates 13 plantations in Pahang measuring an area of 17,969.06 ha.

In the first quarter ended March 31, Tanah Makmur’s net profit fell 47% to RM6.96mil from RM13.14mil a year ago.

Its revenue for the quarter fell 24.2% to RM61.97mil against RM81.81mil posted in the same corresponding period.