Johari back in the corporate scene
After moving from business to politics, he’s back in the corporate world
After a three-year hiatus, Datuk Seri Johari Abdul Ghani is back in the corporate world, with the purchase of a 32% stake in KUB. The turnaround specialist is hard at work to sweat KUB’s assets and has set his sights on other acquisitions, including sugar refinery MSM Malaysia Holdings Bhd.
IT is the night of Malaysia’s tumultuous 14th general election (GE14) in 2018 when the country and the world is coming to the realisation of a historic victory for the Opposition.
Not surprisingly, members of the incumbent ruling party are shying away from the media limelight in a state of disarray and disappointment.
This isn’t the case with Datuk Seri Johari Abdul Ghani, who seeks to take a magnanimous-in-defeat stance.
At a press conference close to midnight, Johari wastes little time in accepting defeat. He puts it down to the “wave of Tun Dr Mahathir” that was so strong and is quick to emphasise that he accepts the win “with an open heart”.
On the face of it, as the previous Barisan Nasional (BN) government’s Second Finance Minister, Johari had a lot to lose – he was out of the Finance Ministry, out of the Cabinet and out of Parliament.
That change in circumstance, though, had a silver lining for Johari.
Fast forward a year after GE14 and Johari has resurfaced in the corporate world by buying into KUB Malaysia Bhd, a company well-known to be owned by BN-component party Umno.
In that deal though, he forked out RM121.08mil or 68 sen for each KUB share. Johari acquired 178 million KUB shares from parties linked to Umno to give him a 32% stake in KUB.
What was surprising is that the price Johari paid was 72% above the market price of KUB shares then, at 39.5 sen.
His purchase price was also above the net tangible asset (NTA) per KUB share of 57 sen. Hence, his entry drew some big questions. In fact, the grapevine spewed out an unsavoury rumour: that Johari was using his personal wealth to help the cash-strapped Umno.
Making matters worse is the fact that KUB shares are now trading at a paltry 32 sen a unit, leaving Johari with a massive paper loss.
In a meeting with StarBizWeek, Johari speaks candidly about his corporate moves and the background of the deal.
For starters, there were at least three other parties bidding for KUB. In particular, one bidder was eyeing KUB because of its landfill business. KUB has a joint venture (JV) with Berjaya Group in running the Bukit Tagar Sanitary Landfill. This landfill is run by concessionaire KUBBerjaya Enviro Sdn Bhd, which is a 60:40 JV between Berjaya Corp Bhd and KUB.
Not a bailout
Johari brushes off the idea of any bailouts by him. It was purely an opportunistic deal and one in which he sees value over the longer term.
“I had spent more than 25 years in the corporate world prior to taking up the appointment as the Finance Minister II in July 2016.
“Naturally, after I lost in the last election, I think it was a good time for me to return to the corporate world.
“My expertise has always been turning around loss-making companies, investing in undervalued assets and advising management teams in managing these assets,” he says.
He admits that he is sitting on a paper loss of about RM100mil from his investment in KUB, but reckons there is value to be extracted from KUB and that the company is “not properly explored”.
In true Johari style, though, he has only bought 32% of KUB while getting the vendor of that block to ride along with him as he embarks on a turnaround programme that he believes will take a few years. Umno still owns 20% of KUB.
Johari, who is an accountant by training, has diverse experience in the corporate world.
Recall, he shot to fame from his time at the helm of quick-service restaurant chains KFC Holdings (M) Bhd and QSR Brands Bhd back in the late 1990s. He had owned a 5% stake in KFC and 5.5% in QSR, which he sold in 2005 after a protracted boardroom tussle.
Soon after, he bought into CI Holdings and it was his experience there that showed his turnaround prowess.
In 2011, CI Holdings disposed of Permanis Sdn Bhd, a soft drink bottling plant, to Japanese beverage giant Asahi Group Holdings Ltd for a whopping RM820mil. Permanis is the official bottler for PepsiCo in Malaysia and produces other drinks like Mirinda, 7-Up, Gatorade, Lipton, Tropicana and Evervess.
It was said to be a record transaction for the fast-moving consumer goods (FMCG) business back then. More impressive was the fact that CI Holdings had only paid RM72mil for Permanis in 2005.
The bulk of the profit was returned to CI Holdings’ shareholders, which saw the distribution of a handsome RM5.10 per share special dividend in June 2012.
In 2005, Johari, who was the managing director of CI Holdings then with a 4% stake, bought 15.4% in the company for RM19mil and subsequently emerged as a substantial shareholder.
Currently, he owns about 32% in CI Holdings, which is worth about RM71.54mil in value.
After CI Holdings sold Permanis, the company ventured into edible oil packaging and distribution in 2011. The venture had cast doubts among investors, as the business is known to only produce thin profit margins. In fact, CI Holdings’ profits took a hit and it posted a net loss in financial year 2013 (FY13) and FY14. But it soon turned around, posting a RM12mil profit in FY15.
Since then, the company’s profits have been growing steadily. Profits grew to RM26mil in FY17 and RM31.1mil by FY18.
Johari says that over the years at CI Holdings, he has earned for himself some RM300mil in dividends from his 32% stake.
Johari’s foray into politics
Johari made his big move into politics by contesting in the Titiwangsa parliamentary seat in 2013, which he won. Two years later, he was appointed Deputy Minister of Finance and became Finance Minister II in 2016.
“I declared all my assets when I joined the Cabinet,” he says.
He stepped down from his position as the group managing director of CI Holdings in 2015. When asked about his decision to join politics, Johari points out that it was because he wants to give back to the community.
“I believe the success that I have now would not have been possible had it not been for the kind assistance of the people around me,” he says.
He describes his experience as Finance Minister II as a learning curve and helping him to understand the country’s needs.
“We are talking about matters such as government policies that affect the rakyat and their well-being. With this added perspective in my life, I was able to see things from both points of view and I believe that this has helped me tremendously in understanding the deeper needs of the nation,” he says.
During his stint as Finance Minister II, which lasted for about 21 months, Johari says among his main roles was to continue engaging with various stakeholders, ranging from rating agencies and foreign investors to bondholders and regulators.
“The efforts were aimed at keeping the economy going despite the issues being faced by the government then.
“With only 21 months in service, there was only so much that I could do,” he says.
He reckons that the goods and services tax (GST) introduced by the previous government in 2015 was a right move to reduce the country’s shadow or black economy.
It was reported that the shadow economy accounted for 30% of the country’s gross domestic product (GDP).
“It is a good tax system – fair and efficient – and it helped to reduce the black or shadow economy in the country.
“More than 170 countries around the world have adopted this tax system, and so far, none has reverted to the old sales and service tax or SST regime other than Malaysia,” he says.
“We lost the opportunity to really address the black economy and the government lost the additional income from the efficient GST system, which could have really helped us develop our economy further, especially at this time,” Johari adds.
It was an uphill task for Johari as Finance Minister II between 2016 and 2018, as the government then was slammed on matters related to 1Malaysia Development Bhd (1MDB) and SRC International Sdn Bhd, as well as the increase in the cost of living.
“When I joined the Cabinet, 1MDB was basically on the front page almost every other week and people were talking about it incessantly.
“It was also one of the first things I had to look at,” he says.
As Finance Minister II then, Johari had stated that SRC International was one of the main problems the country was facing.
SRC International was set up in 2011 to pursue strategic overseas investments in energy resources.
“After assessing the information that I had at hand then, I came to the conclusion that 1MDB suffered from the wrong business model, weak governance and poor management.
“It is good that some of the issues are now being unravelled and addressed in the courts with the hope that justice will prevail,” Johari says.
Big appetite for acquisitions
Despite the current weak market, Johari’s appetite for acquisitions is growing.
Johari is said to be sitting on a cashpile from his previous business ventures. He is also the person who has been the single largest depositor in Lembaga Tabung Haji with more than RM190mil.
In just four months after he bought into KUB, Johari has expressed interest in buying into sugar refinery giant MSM Malaysia Holdings Bhd from FGV Holdings Bhd.
“I was told they were looking to sell, so I expressed my interest,” he says.
FGV owns a 51% stake in MSM, a company that has a market capitalisation of RM1.1bil. Should Johari follow his style of buying a 32% stake in a company, the deal would cost him close to RM320mil.
MSM, the country’s largest sugar refiner by volume, is facing a decline in sales and losses dragged by a glut in the local sugar supply due to new licences to import sugar last year.
This situation was exacerbated with MSM’s new sugar refinery plant in Johor, which has doubled the group’s capacity to 2.2 million tonnes. This has led to the group having a low utilisation rate of 30%, causing a drag on its profits.
It is worth noting that MSM’s share price has dropped more than half to RM1.57 from RM3.60 apiece a year ago.
Johari remains positive about the prospects of doing business in Malaysia, despite the headwinds it is facing.
“If you look at the country’s GDP growth, it is still positive, albeit at a slower rate.
“As far as the capital market is concerned, admittedly, the stock market is quite dull at the moment,” he says
“Externally, the US-China trade war has negatively affected global economic growth. Domestically, 15 months after GE14, leadership succession is still a lingering issue and it is one of the factors that is contributing to the lack of investor confidence,” Johari says.
Johari, who seems to have a penchant for sugar-related businesses, is coming into the market at a time when sentiment is at a low ebb. His investment in KUB is down by RM100mil in value. And his plan to buy into MSM would be one of his biggest acquisitions to date.
It is left to be seen if the savvy businessman-turned-politican-turned-businessman will come out tops, again.