Minorities may reject ECM offer

Shareholders may hang on to their shares on valuation gap

ESPITE the independent adviser’s (IA) view that minority shareholders in ECM Libra Financial Group Bhd should accept the buyout offer by the company’s major owner, there is a strong chance that these investors may not do so.

That’s because of the valuation gap in the offer – ECM Libra’s major owner Lim Kian Onn ( pic) had triggered a general offer for the rest of company’s shares at a price of 37 sen per share.

But ECM Libra, once a financial powerhouse, has a net asset value of 48 sen.

It is this gap, coupled with indications that Lim and persons acting in concert, who now owns 50.26% of ECM Libra, could be embarking on acquisition and reorganisation plans to grow ECM Libra, that is likely to influence minority shareholders to hang on to their shares.

In February, Lim had triggered the MGO when he acquired a block of 25.89% in ECM Libra from Tan Sri Azman Hashim.

On Monday, the IA to the deal, BDO Capital Consultants Sdn Bhd, deemed the unconditional takeover offer by Lim as “not fair but reasonable” and advised shareholders to accept the offer.

The advice came about despite Lim saying that he had intended to maintain the listing status of ECM Libra.

According to the IA, the reason why they reckon that the deal is “unfair but reasonable” is based on the fact that ECM Libra’s shares have not performed well.

It says ECM Libra shares in general have not been traded above the offer price of 37 sen for the past five years up to the date of announcements, except for a couple of times in a short period of time.

“Also the offer price represents a premium of 2 sen or 5.71% per ECM Libra share over the last closing price as at last trading day before the takeover announcement.

“Finally, the ECM Libra Shares were relatively illiquid with an average monthly trading volume-to-free float for the past one year up to April of 3.8%,” it says.

Nevertheless, it is important to note that ECM Libra chairman Datuk Seri Kalimullah Hassan has the undertaking not to accept the offer in respect of his 7.63% stake in the company.

So how is ECM Libra valued at 48 sen per share?

The bulk of ECM Libra assets totalling RM137.34mil comes from its loans, advances and financing activities amounting to RM60.28mil reflecting 43.89% of its total asset value.

According to BDO, the RM60.28mil collectively represent term loans to domestic business enterprises and individuals at fixed interest rates.

“All loans, advances and financing are secured by collaterals mainly in shares.

“There were no impaired loans as at January 31 and the carrying amounts of loans, advances and financing approxi- mate the fair values due to the relatively short term maturity of the loans, advances and financing,” it said in its independent advice letter (IAL).

Next big items is cash and short term funds of RM24.88mil that make up 18.12% of the company total asset value.

Then there are also physical assets such as properties and land amounting to RM24.3mil or 17.69% of the total asset value. The chunk of this amount is contributed by Bangunan ECM Libra in Damansara Heights valued at RM20.32mil.

ECM Libra asset also counts on its securities available for sale comprise of quoted and unquoted shares as well as unit trust funds units valued at RM17.33mil reflecting 12.62% of its total asset value.

The smaller items of its assets are trade receivables at RM6.22mil, investment property at RM4.03mil and other assets at RM1.56mil.

Lim, a co-founder of ECM Libra, triggers a mandatory general offer (MGO) when Plato Capital Ltd’s unit, Truesource Sdn Bhd, entered into a conditional agreement to acquire a 25.89% stake in ECM Libra from Amcorp Group Bhd indirectly controlled by Tan Sri Azman Hashim, Hikkaya Jaya Sdn Bhd, Arab-Malaysian (CSL) Sdn Bhd and Equity Vision Sdn Bhd for RM27.45mil.

Upon the completion of the share sale agreement, Lim’s holding in ECM Libra increased to 50.26%.

Lim is a director and substantial shareholder of ECM Libra and Plato Capital.

It was reported that Azman was building his coffers as he was keen on buying Australia and New Zealand Banking Group Ltd’s (ANZ) stake in AMMB Holdings Bhd or the AmBank Group.

In the last six months, speculation that the Azman was building up his war chest to prepare to take a portion of the 23.8% block held by ANZ in the country’s sixth-largest banking group, has been mounting.

Azman’s relatively “cheap” exit from ECM Libra Financial Group announced in February this year further stoked speculation that he could be slowly building up the funds needed for this purpose.

Ever since ECM Libra had disposed of its investment banking and securities business to K&N Kenanga Holdings Bhd in 2012, there had been continuous speculation about what the substantial shareholders would do with the listed entity.

The company’s core business was sold for RM875mil, largely satisfied by RM659mil cash.

After the divestment, it is left with its fund and asset management businesses.

As stated in offer document, the Lim as the offerer intends to maintain the listing status of ECM Libra.

Accordingly, in the event that the offerer receives acceptances pursuant to the offer resulting in the public shareholding spread of ECM Libra being less than 25% of its total listed shares, the offerer will explore various options or proposals to explore all possible options to rectify the shortfall in the public shareholding spread.

As far as the business is concerned, it is not clear what are Lim’s “big” plans for ECM Libra.

Notwithstanding that, the IAL says the offerer intends to continue with the existing businesses of the ECM Libra.

“The offeror may consider and explore potential opportu- nities and corporate proposals involving the businesses of the ECM Libra in order to enhance shareholders’ value.

“This may involve arrangements, rationalisation or reorganisation of the group including the acquisition of new businesses and disposal of existing businesses,” it says.

For the financial year ended Jan 31, 2016, ECM Libra net profit fell to RM11.2mil from RM28.2mil in the previous year.

This was achieved on the back of RM36.7mil revenue which was lower than the RM48.6mil in financial year 2015.

As at Jan 31, it has cash of RM24.88mil with total liabilities of RM8.76mil.