This article first appeared in The Edge Malaysia Weekly on July 17, 2017 - July 23, 2017

PHILIPPINE property conglomerate Ayala Land Inc is planning to tighten its grip on MCT Bhd, which could eventually lead to a mandatory general offer (MGO) further down the road, according to sources.

Ayala Land — the single-largest shareholder of MCT with a 32.95% stake — intends to buy a controlling stake from the group’s co-founders Tan Sri Barry Goh Ming Choon and Datuk Seri Tong Seech Wi, say the sources.

If that materialises, Ayala Land would be obliged to make an MGO for MCT as its shareholding would pass the 33% threshold.

“It is a matter of time before Goh and Tong sell their shares to Ayala Land. Their discussions have been ongoing since last year, [and] there have been a series of boardroom reshuffles,” a source tells The Edge.

“The two founders are ready to let go of the company, so it now depends on the price Ayala Land is willing to pay,” another source familiar with the company says.

Ayala Land is the leading property developer in the Philippines with a market capitalisation of US$11.98 billion (RM51.46 billion). Its stake in MCT is held via Hong Kong-incorporated, wholly-owned subsidiary Regent Wise Investment Ltd.

Goh is the second-largest shareholder of MCT with a 27.24% stake. Previously the executive deputy chairman, he was redesignated non-executive director last November.

Tong, who is the third-largest shareholder with 14.67% equity interest, was redesignated executive director from CEO in March.

Hypothetically, if all the shares held by Goh and Tong were sold to Ayala Land, its shareholding would increase to 74.86%.

Note that the 25% free-float requirement would present a possibility of MCT being delisted as Ayala Land could make the necessary application to withdraw its listing status once its shareholding exceeds 75%.

In fact, a compulsory acquisition could also be triggered if Lembaga Tabung Haji (LTH), AIA Bhd and Kumpulan Wang Persaraan (Diperbadankan) were to sell their stakes in MCT to Ayala Land.

LTH, a government-linked pilgrim fund, is a substantial shareholder of MCT with a 10.09% stake, while life insurer AIA and pension fund KWAP have stakes of 3.44% and 2.51% respectively in the company.

If Ayala Land obtains the MCT shares held by the three institutional investors, its shareholding could rise to as high as 90.9%, hence, invoking the compulsory acquisition rule.

“Ayala Land definitely has the financial muscle to raise its stake in MCT, but it remains to be seen if the company will be privatised. In any case, it could place out or sell back some shares on the market if it intends to maintain MCT’s listing status,” says another source familiar with MCT.

To recap, MCT was listed on the Main Market of Bursa Malaysia in April 2015 following a reverse takeover of GW Plastics Holdings Bhd, whose core business was sold to industrial packaging maker Scientex Bhd.

It is learnt that Ayala Land had been interested in investing directly in Malaysia, but Goh and Tong had persuaded the Filipinos to take up a stake in MCT instead.

Ayala Land surfaced as a substantial shareholder in MCT with a 9.17% stake in April 2015, and raised its interest to 32.95% in October 2015.

Interestingly, MCT’s former executive director Datuk Lim Kok Boon had in December 2015 dismissed concerns about a possible mandatory takeover by Ayala Land.

He opined that Ayala Land, Goh and Tong do not see wrangling over shareholding as the way to run a business.

“They focus more on the management rather than shareholding and look at the totality (benefit of the group) instead of an individual shareholder’s,” Lim reportedly said.

He had also reasoned that MCT may not be able to maintain the minimum 25% public shareholding under the listing rules should Ayala Land further raise its stake.

However, market talk is that Ayala Land is starting to lose patience with its investment in MCT as the share price performance has not been great.

“Ayala Land is not happy but it has to be a friendly transaction. If the Filipinos do this in a hostile way, they might lose to Goh and Tong because they have a collective 41.91% stake,” says the source.

From a 52-week high of RM1.20 on July 15, 2016, MCT’s share price had fallen 23% to close at 92 sen last Friday, giving it a market capitalisation of RM1.228 billion. The counter is currently trading at a trailing 12-month price-earnings ratio of 20.8 times.

According to sources, Goh and Tong could be asking for RM1.30 to RM1.40 per share to exit, but it won’t be easy to get Ayala Land to agree to the deal unless all parties take “controlling premium” into consideration.

At RM1.30 cash per share, a possible offer could be at a 41% premium to MCT’s current price. The offer also implies a price-to-book value of 2.3 times, based on MCT’s net assets per share of 57 sen as at end-March 2017.

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