Opinion: Minority shareholders should reject offer for MAHB

By P Gunasegaram

Answering two questions over the privatisation of Malaysia Airports Holdings Berhad (MAHB) will help to assess whether the offer price of RM11 per share is fair and reasonable. The offer is being made by Gateway Development Alliance, a consortium led by Khazanah Nasional and the Employees Provident Fund (EPF).

The first question is whether the offer price reflects the true value of MAHB. The second is if one of the shareholders of Gateway, Global Investment Partners ( GIP) which is supposed to have expertise in airport management, can really add value.

Nothing else really matters, including Blackrock's investment in the consortium through GIP. Blackrock is a global investor with trillions of US dollars invested all over the world.

First the details. The consortium's other partner besides Khazanah, EPF and GIP is the Abu Dhabi Investment Authority (ADIA). If the offer is successful, Khazanah will increase its ownership in MAHB from 33.2% to 40% and EPF from 7.9% to 30%. ADIA and GIP will hold the remaining 30%.

Collectively, Malaysian investors, through Khazanah and EPF, would own 70% of MAHB. The government will retain special share rights in MAHB and the chairman and CEO will continue to be Malaysian citizens.

The offer is conditional upon 90% control following which the remaining shares will be compulsorily acquired. The current level of control is 85.8% after acceptances as at Jan 15. The original closing date was today (Jan17), already extended from Jan 8. It is likely if the date was maintained it would not be successful, but it has been extended again by a week to Jan 24.

Conflicting recommendations

The assessment of the offer is complicated by conflicting recommendations. Appointed advisers Hong Leong Investment Bank (HLIB) made the cryptic verdict of “unfair but reasonable”. Tellingly five independent directors disagreed vehemently and believe the offer of RM11 per share is insufficient.

A newly added complication is that Transport Minister Anthony Loke has decided to wade into troubled waters to provide buoyancy on the side of the offerors. As minister and regulator, he should have stayed out but he did not.

Loke’s involvement and the repeated extensions is clear indication that those in power want this deal to go through, although why that is so is not known.

EPF should remain a passive investor always and not waste precious resources on active investment management. That is not its role. As a sovereign fund, Khazanah can do this but it has to be able to support its stance.

“Unfair but reasonable”

HLIB deemed the offer as unfair as it represents a 13-20% discount to their estimated fair value of between RM12.60 and RM13.70 per MAHB share, but added it was reasonable in the absence of a competing offer - a standard ploy used to signal a poor offer without rejecting it.

Independent directors strongly disagree with HLIB’s recommendation finding them both unfair and unreasonable, and have advised shareholders to reject it. They are Mohamad Husin, Ramanathan Sathiamutty, Cheryl Khor Hui Peng, Koe Peng Kang, and Chris Chia Woon Liat. Good on them!

What is interesting is their view on future prospects. They point out MAHB’s current strong growth and future prospects, with its ongoing and planned initiatives for development.

MAHB has secured management extensions for 39 airports nationwide until 2069 - 45 years. Capital recovery mechanisms that enable significant investments in capacity expansion at key airports and accelerated off-terminal initiatives, such as the KLIA Aeropolis and Subang Airport Regeneration Plan, are already underway.

Strong prospects for MAHB

They pointed to MAHB’s strong post-Covid-19 recovery for passenger throughput, as seen in the rebound of passenger traffic at its airports. And one concern which everyone shares is that the delisting of MAHB would reduce its transparency, accountability, and ability to raise capital from public markets.

Given MAHB’s positive financial momentum, clear growth strategy, and the potential for future value accretion if the shares remain publicly traded, the directors found no compelling reasons for shareholders to accept an offer that does not adequately reflect MAHB’s full potential.

The offer is neither fair nor reasonable.

The next question is whether GIP brings great expertise to the table. Let’s look at some airports it manages. London Gatwick, is ranked 48th by ranking agency Skytrax, Sydney Airport 55th, and London City Airport 82nd.

KLIA, operated by MAHB, is ranked 67th and was once in the top 10, according to reports. Surely then we must have the expertise to take it back there. Is there a need to privatise at below valuation at this point when it is low? And is a foreign partner even needed?

Part of the problem is that the government differentiates against government linked companies - MAHB suffered when airlines refused to pay higher rates, and the government stood by and watched.

Instead of getting foreign partners in, the government should allow MAHB to raise rates (and you can be sure rates will rise if the offer is successful) and let it find capital for the necessary expenditure required to upgrade the airports. Get good management in and give them a free hand instead of tying their hands for political reasons.

Neither fair nor reasonable

We now have answers to both questions. No, the offer is not fair and neither is it reasonable if we take into account future projects and earnings of MAHB, as explained by the five independent directors who rejected the offer - they should know.

And it’s hard to see how value is being added. Better that the current shareholdings remain intact, everyone is given an opportunity to buy equity in MAHB and let the management create value unhindered. It’s been done before.

But if minority shareholders now capitulate and accept the offer, the deal will still go through. One hopes the remaining minority shareholders who have not accepted the offer will stick to their guns to reject this offer in favour of long-term gain.

The last traded price before the offer was RM10.40 a share. The offer is a mere 5% premium. That’s really nothing for a take over of a major airport operator whose prospects are bright and undiminished.

Opportunists are always looking for undervalued assets. Let them use the marketplace to buy them and it will result in better value for all instead of facilitating their greed by giving them the assets on a platter at their price.

(P Gunasegaram says that as a matter of policy privatising listed assets must be actively discouraged - it erodes market depth, efficiency, and transparency, and encourages circumventing fairplay by stretching rules to limits.)

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